<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1996.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SYNERGY SEMICONDUCTOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
CALIFORNIA 3674 77-0123590
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
3450 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 730-1313
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
THOMAS D. MINO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SYNERGY SEMICONDUCTOR CORPORATION
3450 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 730-1313
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
EDWARD M. LEONARD, ESQ. ALAN K. AUSTIN, ESQ.
BROBECK, PHLEGER & HARRISON DAVID J. SEGRE, ESQ.
TWO EMBARCADERO PLACE MARK L. REINSTRA, ESQ.
2200 GENG ROAD WILSON SONSINI GOODRICH & ROSATI
PALO ALTO, CALIFORNIA 94303 650 PAGE MILL ROAD
(415) 424-0160 PALO ALTO, CALIFORNIA 94304
(415) 493-9300
----------------
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, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
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<S> <C> <C>
Common Stock, no par value............... $37,260,000 $12,850.00
</TABLE>
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(1) Includes 810,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act.
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-
1 REGISTRATION STATEMENT AND HEADING HEADING OR LOCATION IN PROSPECTUS
------------------------------------ ---------------------------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of Pro- Outside Front Cover Page of
spectus............................... Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page; Additional
Pages of Prospectus................... Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Summary; Risk Factors
4. Use of Proceeds....................... Summary; Use of Proceeds
5. Determination of Offering Price....... Outside Front Cover Page;
Underwriting
6. Dilution.............................. Dilution
7. Selling Security Holders.............. Principal and Selling Shareholders
8. Plan of Distribution.................. Outside Front Cover Page; Summary;
Underwriting
9. Description of Securities to be Regis- Summary; Capitalization; Description
tered................................. of Capital Stock
10. Interests of Named Experts and Coun-
sel................................... Experts; Legal Matters
11. Information with Respect to the Regis- Outside Cover Pages; Summary; Risk
trant................................. Factors; Dividend Policy;
Capitalization; Dilution; Selected
Consolidated Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results
of Operations; Business; Management;
Certain Transactions; Principal and
Selling Shareholders; Description of
Capital Stock; Shares Eligible for
Future Sale; Experts; Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Li-
abilities............................. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 6, 1996
[LOGO OF SYNERGY SEMICONDUCTOR APPEARS HERE]
5,400,000 SHARES
COMMON STOCK
Of the 5,400,000 shares of Common Stock offered hereby 3,600,000 are being
sold by Synergy Semiconductor Corporation ("Synergy" or the "Company") and
1,800,000 are being sold by the Selling Shareholders. See "Principal and
Selling Shareholders." The Company will not receive any proceeds from the sale
of shares by the Selling Shareholders. Prior to this offering, there has been
no public market for the Common Stock of the Company. It is currently
anticipated that the initial public offering price per share will be between
$ and $ . See "Underwriting" for information relating to the method of
determining the initial public offering price.
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
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Total(2).................... $ $ $ $
</TABLE>
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(1) Before deducting expenses, payable by the Company, estimated at $ .
(2) Certain Selling Shareholders have granted to the Underwriters a 30-day
option to purchase up to an additional 810,000 shares of Common Stock
solely to cover over-allotments, if any. See "Underwriting." If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Selling Shareholders will be $ , $ and
$ , respectively.
-----------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1996.
ROBERTSON, STEPHENS & COMPANY MERRILL LYNCH & CO.
The date of this Prospectus is , 1996.
<PAGE>
[INSIDE FRONT COVER GRAPHICS: SEE APPENDIX]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET, INCLUDING ON THE NASDAQ NATIONAL MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS, OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 4
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Selected Consolidated Financial Data...................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 32
Management................................................................ 48
Certain Transactions...................................................... 57
Principal and Selling Shareholders........................................ 58
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 62
Underwriting.............................................................. 64
Legal Matters............................................................. 66
Experts................................................................... 66
Additional Information.................................................... 66
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
The Company intends to furnish to its shareholders annual reports containing
audited consolidated financial statements examined by its independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing interim unaudited financial information.
"ASSET(TM)," "ClockWorks(TM)," "SuperSONET(TM)" and "SuperCOM(TM)" are
trademarks of the Company. This Prospectus also includes trademarks of
companies other than Synergy.
Synergy Semiconductor was incorporated under the Laws of the State of
California in July 1986. The Company's principle offices and facilities are
located in Santa Clara, California. The main company telephone number is (408)
730-1313.
3
<PAGE>
SUMMARY
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, those set forth in "Risk Factors" and elsewhere
in this Prospectus. The following summary is qualified in its entirety by the
more detailed information, including "Risk Factors" and Consolidated Financial
Statements and Notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
Synergy Semiconductor Corporation ("Synergy" or the "Company") designs,
develops, manufactures and markets high-performance digital and mixed-signal
integrated circuits ("ICs") using its proprietary Bipolar and BiCMOS processes.
The Company's products include high-speed digital logic for advanced system
applications, precision mixed-signal time-clock generators for high-performance
workstations and telecommunication systems and mixed-signal communications
circuits for local and wide area networks. Synergy's proprietary design and
process technologies facilitate the development and production of high-
performance ICs. The Company's products are designed by an internal design
team, and the Company possesses in-house wafer fabrication and advanced wafer
probing and product test capabilities.
Designers and manufacturers of electronic systems face increasing market
pressure to develop and commercially introduce faster, smaller and higher
performance systems that operate with lower power. To achieve these performance
improvements, system designers must integrate more functions on a single IC.
One particularly difficult challenge is the integration of both analog and
digital circuitry, known as mixed-signal, on a single IC while meeting the high
speed, reliability, small form factor and efficient use of power required by
advanced system designs. In addition, as design and product life cycles for
many electronic systems continue to decrease, electronic systems manufacturers
are under pressure to decrease the time to market of new products.
Synergy utilizes its proprietary design methodologies and ASSET process
technology to design and manufacture mixed-signal ICs operating at frequencies
above 100 MHz and at data processing rates above 100 Mbps. The Company's ASSET
process technology is scalable and utilizes a device architecture that the
Company believes results in smaller, higher density devices with higher speeds
and improved performance. In addition, Synergy has developed a series of base
arrays--arrays of components that only need to be metalized to complete the
fabrication process, greatly reducing the time from receipt of order to
shipment. The Company believes that these technologies combined with its in-
house wafer fabrication facility provide it with the ability to quickly design
and manufacture new products and product enhancements, thereby enabling the
Company to quickly respond to changing customer requirements.
Synergy supplies high-speed, digital and mixed-signal ICs to makers of a
variety of systems including public network equipment, LAN and WAN private
network equipment, high-performance workstations and automatic test equipment
("ATE"). Synergy offers three principal product families: high-speed logic,
ClockWorks and SuperCOM. The Company's high-speed digital logic products
operate at high frequencies, have low power consumption and provide high
voltage protection. The Company's ClockWorks products are used to solve
critical timing problems generated at operating frequencies above 100 MHz such
as clock generation and distribution that are difficult to meet with crystal
oscillators. The Company's SuperCOM products provide a high level of
integration with cost and performance advantages relative to discrete or
alternative IC solutions. These telecommunication products are compatible with
several LAN and WAN protocols, including 100 BaseTX, 100 BaseFX, Fast Ethernet,
FDDI, SONET, SDH and ATM.
In North America, the Company sells its products through independent sales
representatives and three distributors with 30 locations in the United States
and Canada. Internationally, Synergy primarily utilizes its joint venture in
Germany and a distributor in Japan. The Company's customers include leading
electronic system manufacturers such as Hitachi, NORTEL, Ross Technology,
Schlumberger, Sun Microsystems and Texas Instruments.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company........ 3,600,000 shares
Common Stock Offered by the Selling 1,800,000 shares
Shareholders..............................
Common Stock Outstanding after the 17,672,179 shares(1)
Offering..................................
Use of Proceeds............................ Facility relocation, retire certain
indebtedness, working capital and other
general corporate purposes.
Proposed Nasdaq National Market Symbol..... SYNS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ -----------------
APR.
2, MARCH 31,
1993 1994 1995 1995 1996
------- ------- ------- ------ ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenues:
Product sales................... $10,553 $15,395 $23,344 $4,511 $ 9,389
Contract engineering............ 503 1,750 1,041 49 198
License fees.................... 3,302 1,975 1,300 -- --
------- ------- ------- ------ -------
Total net revenues................ 14,358 19,120 25,685 4,560 9,587
Gross margin...................... 5,448 9,409 14,866 2,309 4,821
Income (loss) from operations..... (4,256) 173 3,163 (280) 1,526
Net income (loss)................. 164 4 2,653 (416) 1,434
Net income per share(2)........... $ 0.20 $ 0.10
Shares used in per share
calculations(2).................. 13,309 14,668
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 2,307
Working capital....................................... 4,955
Total assets.......................................... 14,272
Long-term obligations................................. 885
Accumulated deficit................................... (32,807)
Total shareholders' equity............................ 6,384
</TABLE>
- --------
(1) Based on the number of shares outstanding as of March 31, 1996. Excludes
790,273 shares of Common Stock issuable upon exercise of stock options
outstanding as of March 31, 1996 at a weighted average exercise price of
$1.88 per share and 431,611 shares of Common Stock issuable upon exercise
of warrants outstanding as of March 31, 1996. See "Management--1996 Stock
Option/Stock Issuance Plan" and "--Employee Stock Purchase Plan" and Note 5
of Notes to Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements.
(3) Adjusted to reflect the sale of 3,600,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $ per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
Unless otherwise indicated, all information contained in this Prospectus (i)
assumes that the Underwriters' over-allotment option is not exercised, and (ii)
reflects the conversion of all of the Company's outstanding Preferred Stock
into Common Stock. See "Underwriting."
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. In addition to the other information in this Prospectus,
the following risk factors should be considered carefully in evaluating the
Company and its business before purchasing shares of the Common Stock offered
hereby.
HISTORY OF OPERATING LOSSES; RECENT PROFITABILITY; ACCUMULATED DEFICIT
Synergy Semiconductor Corporation ("Synergy" or the "Company") was
incorporated in July 1986, and since its inception has experienced prolonged
periods of operating losses. The Company experienced net losses from inception
through the fiscal year ended December 27, 1992, resulting in total net losses
during that period of approximately $37.1 million. As of March 31, 1996, the
Company had an accumulated deficit of approximately $32.8 million. Although
the Company has been profitable on an operating basis since the second quarter
of 1995, there can be no assurance that the Company will maintain
profitability in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly and annual operating results have in the past
fluctuated and may fluctuate significantly in the future depending on several
factors including, but not limited to, the volume and timing of orders
received, the Company's ability to introduce new products on a timely basis,
the availability and cost of wafers from Toshiba Corporation ("Toshiba"),
System Microelectronic Innovation ("SMI") or other outside foundries that may
be used by the Company, market acceptance of the Company's and its customers'
products, the timing of new product announcements and introductions by the
Company and its competitors, changes in the mix of products sold by the
Company, the timing and extent of process and product development expenses,
fluctuations in manufacturing yields, reliability of new products, competitive
pricing pressures and cyclical semiconductor industry conditions. To date, a
majority of the Company's total net revenues have been derived from sales of
its family of high-speed logic products. Historically, average selling prices
in the semiconductor industry have decreased over the life of any particular
product. Although the Company has not generally experienced material decreases
in the average selling prices of its high-speed logic products in the past,
there can be no assurance that the average selling prices of the Company's
high-speed logic products will not be subject to downward pricing pressures in
the future. In addition, the Company recently introduced certain
communications products and currently anticipates introducing more of these
products in 1996 and 1997. These products will be sold primarily to customers
in the networking and telecommunications markets, which the Company believes
will be very competitive. The Company anticipates that beginning in 1996 an
increasing amount of revenue will be derived from sales of these products.
There can be no assurance that these products will be successfully introduced,
achieve market acceptance or produce any significant revenue for the Company.
To the extent that these products achieve market acceptance, there can be no
assurance that they can be profitably sold by the Company. In the event these
products are not successfully introduced, do not achieve market acceptance or
cannot be profitably sold by the Company, the Company's business, financial
condition and operating results would be materially adversely affected. See
"--Relocation of Manufacturing Facility" and "--Dependence on New Products."
The Company's expense levels are based, in part, on its expectations of
future revenues. Many of the Company's expenses are relatively fixed and
cannot be changed in short periods of time. Because the Company's business is
characterized by short-term orders and shipment schedules and customer orders
typically can be canceled or rescheduled without significant penalty to the
customer, revenue levels are difficult to predict. The Company typically plans
its production and inventory levels based on internal forecasts of customer
demand, which is unpredictable and can fluctuate substantially. Furthermore,
because the Company is limited in its ability to reduce costs quickly in
response to any revenue shortfalls and only a small portion of the Company's
expenses varies with its revenues during any particular quarter, the Company's
net income will be adversely affected if revenues are below expectations. In
addition, because the Company is continuing to increase its operating
6
<PAGE>
expenses for new product development in anticipation of increasing sales
levels, the Company's business and operating results would be adversely
affected if such sales levels were not achieved. In addition to the Company's
products, the systems manufactured by the Company's OEM customers include a
number of other components that are supplied by third party manufacturers. Any
shortage of such other components in the future, or any failure of such other
components to meet performance requirements, could delay sales of systems by
OEM customers and thereby adversely affect the Company's business, financial
condition and operating results.
As a result of the foregoing or other factors there can be no assurance that
the Company will not experience material fluctuations in future operating
results on a quarterly or annual basis that would materially and adversely
affect the Company's business, financial condition and operating results.
Accordingly, the Company believes that its results of operations in any
particular quarter should not be relied upon as an indicator of future
performance. In addition, in some future quarter the Company's operating
results may be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock would likely be
materially and adversely affected. See "--Absence of Public Market; Possible
Volatility of Stock Price" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RELOCATION OF MANUFACTURING FACILITY
The Company's existing wafer fabrication facility is operating at close to
full manufacturing capacity. While the Company believes it could increase the
number of wafers obtained from outside vendors, if necessary, the Company has
decided to expand its internal wafer fabrication capacity by relocating its
operations to a new facility. This relocation is scheduled to occur during the
third and fourth quarters of 1996. In connection with the relocation, the
Company will install a six inch wafer fabrication manufacturing facility at
its new headquarters. The installation and start-up of a new wafer fabrication
facility requires precise planning and execution to overcome problems
associated with such a project. Problems the Company may encounter include,
among other things, delays in the delivery of equipment and supplies, poor
start-up yields and other manufacturing process issues. Although the Company
intends to continue to operate its current fabrication facility during the
start-up of the new fabrication facility, there can be no assurance that there
will not be a disruption in production of the Company's products. There is no
assurance that the start-up of the new fabrication facility will not be
delayed or cost more than expected. In addition, the expenses associated with
the relocation and start-up of the fabrication facility could negatively
impact the Company's financial results in late 1996 and 1997. In the event the
new fabrication facility experiences problems during its start-up, the
Company's business, financial condition and operating results would be
materially and adversely affected. See "--Dependence on Wafer Supplies" and
"--Manufacturing Risks."
DEPENDENCE ON NEW PRODUCTS
The markets for the Company's products are characterized by frequent new
product introductions. The Company's success depends in part upon its ability
to enhance its existing products, to develop, introduce, market and support
new products incorporating new technologies and to meet changing customer
requirements and emerging industry standards. Furthermore, the Company must
introduce such products in a timely manner and have such products selected for
design into new product generations of leading systems manufacturers. The
Company's failure to develop and introduce new products and product
enhancements in a timely manner or the failure of such new products and
product enhancements to achieve market acceptance would materially and
adversely affect the Company's business, financial condition and operating
results.
In particular, the Company has recently introduced and has under development
several new communications products that are designed for networking and
telecommunications applications, and expects that an increasing portion of its
revenue will be derived from sales of communications products. The Company has
limited experience marketing and selling these new products. In addition, the
Company expects that sales of these communications products will entail a
longer sales cycle than with the Company's other products, requiring more
significant expenditures by the Company to achieve a "design win." There can
be no assurance that the Company will successfully market and sell such
communications products or generate sufficient revenues from sales of such
products to offset expenses incurred during the lengthy sales cycle of such
products. Furthermore,
7
<PAGE>
in order to provide customer support for these products, the Company will be
required to hire qualified technical support and application engineers. There
can be no assurance that the Company can attract and retain such personnel. If
the Company is unable to successfully market and sell its new communications
products or is unable to hire qualified personnel to support such products, the
Company's business, financial condition and operating results would be
materially adversely affected. See "Business--Markets."
The Company also currently anticipates introducing a number of new mixed-
signal clock and high-speed digital logic products during 1996. The development
of these and other new products is highly complex and from time to time the
Company has experienced delays in completing the development of new products.
For example, in 1994 the development of one of the Company's clock synthesizer
products was not completed in a timely manner due to design modifications that
were required to meet customer specifications. Successful product development
and introduction depends on a number of factors, including proper new product
definition, timely completion and introduction of new product designs,
availability of foundry capacity, achieving acceptable manufacturing yields and
market acceptance of the Company's and its customers' products. There can be no
assurance that the Company will not experience difficulties that delay or
prevent the successful development and timely introduction of these or other
new products and product enhancements or that such new products and product
enhancements will achieve market acceptance. In addition, there can be no
assurance that the electronic systems manufactured by the Company's customers
will be introduced in a timely manner or that such systems will achieve market
acceptance. Furthermore, certain of the Company's new products designed for
networking applications are designed to be used on networks that use
Asynchronous Transfer Mode ("ATM") as a network communications protocol. ATM is
under development and has not yet been widely adopted as the standard network
communications protocol. Accordingly, the successful commercial introduction of
certain of the Company's future products that are designed for networking
applications will depend largely upon the industry-wide adoption of ATM as the
next generation network communications protocol. There can be no assurance that
ATM will be widely adopted as the next generation network communications
protocol and the failure to be so adopted would materially and adversely affect
future sales of certain of the Company's products that are designed for
networking applications and, consequently, could materially adversely affect
the Company's business, financial condition and operating results. See "--
Product Defects; Need to Meet Customer Design Specifications," "--Dependence on
New Technologies; Technological Change" and "Business--Technology."
Synergy's new products are generally incorporated into a customer's products
or systems at the design stage. However, design wins, which can often require
significant expenditures by the Company, often precede the generation of
substantial revenue, if any, by a year or more. Moreover, the value of any
design win will largely depend upon the commercial success of the customer's
product and on the extent to which the design of the customer's electronic
system accommodates components manufactured by the Company's competitors. No
assurance can be given that the Company will achieve design wins or that any
design win, particularly with regard to application specific products, will
result in significant future revenues. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Research and Development."
DEPENDENCE ON WAFER SUPPLIERS
Although the Company owns and operates its own wafer fabrication facility,
approximately five to ten percent of the Company's wafer requirements during
the first three months of 1996 were supplied by the Company's outside
foundries, Toshiba and SMI, the Company's joint venture with the Land
Brandenburg, a state of the Federal Republic of Germany ("Land Brandenburg").
The Company currently expects that in 1996 it will significantly increase the
percentage of its wafer requirements that it currently obtains from its outside
foundries. Under a foundry agreement with Toshiba dated November 14, 1990 (the
"Toshiba Agreement"), Toshiba agreed to supply the Company with wafers through
March 31, 1997. Neither the Toshiba Agreement nor the Company's purchase order
relationship with SMI provides the Company with any guaranteed manufacturing
capacity. Accordingly, the Company does not have a guaranteed level of wafer
capacity at Toshiba's or SMI's foundry and Toshiba and/or SMI could choose to
prioritize capacity for other uses or reduce or eliminate deliveries to the
Company on short notice. Thus, there can be no assurance that Toshiba or SMI
will allocate sufficient wafer capacity to satisfy the Company's requirements
on an ongoing basis, including on such occasions that the
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Company may have unforecasted increase in wafer needs. Any sudden demand for an
increased amount of wafers by the Company or sudden reduction or elimination by
Toshiba and/or SMI of wafer capacity could result in a material delay in the
shipment of the Company's products. While the Company is negotiating an
extension to its foundry agreement with Toshiba there can be no assurance such
extension will be agreed upon before the expiration of the current agreement or
at all, or that such extension if reached will provide adequate capacity. If
the foundry agreement is not extended, the Company's ability to meet its wafer
supply requirements could be negatively impacted.
On occasion, the Company has experienced delays in product shipments due to
disruptions in wafer supply. There can be no assurance that disruptions in
wafer supply will not occur in the future. Any such disruption could materially
and adversely affect the Company's business, financial condition and operating
results and could have a material adverse impact on the Company's customer
relationships. In the event of any such disruption, if the Company were unable
to qualify alternative manufacturing sources for existing or new products in a
timely manner or if such sources were unable to produce wafers with acceptable
manufacturing yields, the Company's business, financial condition and operating
results would be materially and adversely affected. Furthermore, the Company's
internal wafer fabrication facility is operating at close to full manufacturing
capacity. If the Company is unable to secure necessary foundry capacity from
Toshiba in the future or if it loses Toshiba as an outside foundry, the Company
may be required to expand the manufacturing capacity of its internal
fabrication facility. There can be no assurance that the Company would be able
to expand such capacity or achieve acceptable manufacturing yields in a timely
manner. If the Company fails to do so, there would be a material adverse affect
on the Company's business, financial condition and operating results.
Furthermore, since inception, SMI has experienced continuous operating losses
and its existence as an operating entity has been dependent solely upon
additional funding from the Land Brandenburg. There can be no assurance that
the Land Brandenburg will continue to provide the funding necessary to sustain
SMI's operations. Given SMI's poor financial performance, and SMI's reliance
upon the Land Brandenburg for additional funding to continue to be an operating
entity, the Company believes that SMI can not be relied upon as a long term
source of wafer capacity. In the event that the Company does not enter into a
new foundry agreement with Toshiba and/or SMI ceases operations and the Company
is unable to expand its manufacturing capacity in a timely manner, the Company
would be required to obtain wafers from other outside foundries. If the Company
was unable to obtain an alternate supply of wafers on a timely basis or on
commercially reasonable terms, the Company's business, financial condition and
operating results would be materially and adversely affected.
There are certain other significant risks associated with the Company's
reliance on outside foundries, including the lack of control over delivery
schedules and limited control over the manufacturing process, which may
adversely affect manufacturing yields. In addition, the manufacture of
integrated circuits ("ICs") is a highly complex and technically demanding
process. Although the Company works closely with its outside foundries, such
foundries have from time to time experienced lower than anticipated
manufacturing yields, particularly in connection with the introduction of new
products and the installation and start-up of new process technologies. Such
reduced yields have at times materially and adversely affected the Company's
operating results. There can be no assurance that the Company's foundries will
not experience lower than expected manufacturing yields in the future, which
could materially and adversely affect the Company's business, financial
condition and operating results. In addition, the Company's reliance upon SMI,
which is located in the Federal Republic of Germany, subjects the Company to
risks of export and import restrictions, trade sanctions, tariff increases and
political instability. To date, the Company has not experienced a disruption of
its wafer supply from SMI due to such factors, but there can be no assurance
that these or other factors will not cause a material disruption in wafer
supply in the future. See "--Manufacturing Risks" and "Business--
Manufacturing."
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MANUFACTURING RISKS
The manufacture of ICs is a highly complex and precise process. Minute
levels of contaminants in the manufacturing environment, defects in the masks
used to print circuits on a wafer, difficulties in the fabrication process or
other factors can cause a substantial percentage of wafers to be rejected or a
significant number of die on each wafer to be nonfunctional. In addition,
yields can be affected by minute impurities in the environment or other
problems that occur in the complex manufacturing process. Many of these
problems are difficult to diagnose and time consuming or expensive to remedy.
At various times in the past, the Company has experienced lower than
anticipated yields at its internal wafer fabrication facility, which have
adversely affected production and, consequently, operating results. The
Company has experienced and continues to experience intermittent problems with
the manufacturing yields of its SRAM products. For example, in 1993 the
production of certain of the Company's SRAM products resulted in low
manufacturing yields, which had a material adverse impact on the Company's
business, financial condition and operating results during such year. The
Company also recently experienced lower than anticipated manufacturing yields
of a certain communications product. The Company also utilizes Toshiba and SMI
as foundries to supply certain of its wafer requirements. Although the Company
works closely with Toshiba and SMI, they have from time to time experienced
lower than anticipated manufacturing yields. In particular, each of the
Company's outside foundries experienced lower than anticipated manufacturing
yields when the Company first installed and started up its process
technologies in such foundries. Yield problems at one of the Company's outside
foundries associated with the installation and start-up of the Company's
process technologies adversely affected the Company's operating results in
1993. In 1993 and 1994, one of the Company's outside foundries also
experienced lower than anticipated manufacturing yields of a product designed
for high-speed automatic test equipment ("ATE") applications. These
manufacturing yields adversely affected the Company's business, financial
condition and operating results in 1993 and 1994. In addition the Company
intends to start-up a new six-inch wafer fabrication facility in connection
with the Company's relocation to a new facility and may experience lower than
anticipated manufacturing yields during the start-up of the new facility.
There can be no assurance that the Company's internal wafer fabrication
facility or the Company's new wafer fabrication facility or the Company's
outside foundries will not experience problems with the manufacturing yields
of current or future products or experience irregularities or adverse yield
fluctuations in manufacturing process in the future, any of which could
materially and adversely affect the Company's business, financial condition
and operating results. Furthermore, the majority of the costs of manufacturing
the Company's products are relatively fixed, and, consequently, the number of
shippable die per wafer for a given product is critical to the Company's
results of operations. To the extent the Company or either of its outside
foundries does not achieve acceptable manufacturing yields or experiences
product shipment delay, the Company's business, financial condition and
operating results would be materially and adversely affected. During periods
of decreased demand, high fixed wafer fabrication costs would have a material
adverse effect on the Company's financial condition and results of operations.
Most of the Company's wafers are subsequently sent to independent assembly
contract facilities in Korea and other Asian countries. At such facilities,
the wafers are separated into individual circuits and packaged. The Company
from time to time has experienced competition for the assembly capacity of
such independent contractors from other manufacturers seeking assembly of
circuits. Therefore, the Company's reliance on independent assemblers may
subject the Company to longer than anticipated manufacturing cycle times,
which could have a material adverse effect on the Company's business,
financial condition and operating results in a given quarter. Although the
Company currently believes that alternative foreign assembly sources could be
obtained without significant interruption, there can be no assurance that such
alternative sources could be quickly obtained. Foreign assembly is subject to
risks normally associated with foreign operation, including changes in local
governmental policies and the imposition of export controls or increased
import tariffs. See "--Relocation of Manufacturing Facility" and "Business--
Manufacturing."
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DEPENDENCE ON INDEPENDENT SALES REPRESENTATIVES, JAPANESE DISTRIBUTOR AND SMI
The Company depends on independent sales representatives for substantially
all of its sales in North America and depends on a single distributor for all
of its sales in Japan. The Company's distributor in Japan, H.Y. Associates
Co., Ltd. ("H.Y. Associates") and certain of the Company's independent sales
representatives also act as a distributor and sales representatives,
respectively, for competitors of the Company and could devote greater effort
and resources to marketing competitive products. Because the Company's
products are complex, effective distributors and sales representatives must
possess sufficient technical, marketing and sales resources and must devote
these resources to subsequent customer support. There can be no assurance that
the Company's Japanese distributor or independent sales representatives will
be able to continue to market and support the Company's existing products
effectively or that economic conditions or industry demand will not adversely
affect the Company's distributors in Japan or its independent sales
representatives. A failure of the Company's distributor in Japan or its
independent sale representatives to successfully market and support the
Company's products would have a material adverse effect on the Company's
business, financial condition and operating results. Furthermore, the markets
for the Company's new communications products require a different support
strategy than markets for the Company's other products. There can be no
assurance that the Company's Japanese distributor or current independent sales
representatives will be able to effectively market and support these new
products. The Company currently expects that beginning in 1996 it will be
increasingly dependent on revenues from sales of these new products.
Therefore, a failure by the Company's Japanese distributor or its independent
sales representatives to successfully market and support the Company's new
communications products would have a material adverse effect on the Company's
business, financial condition and operating results. If the Company's
distributor in Japan is unable to successfully market and support the
Company's new or existing products, there can be no assurance that the Company
will be able to replace its distributor in Japan with a new distributor. As
sales to Japan represent a significant portion of the Company's net revenues,
the Company's inability to timely replace or find an acceptable replacement
for its distributor in Japan would have a material adverse effect on the
Company's business, financial condition and operating results.
The Company sells its products in Europe through SMI. SMI does not have
extensive experience in marketing, selling and supporting the Company's
products. Accordingly, there can be no assurance that SMI will be able to
effectively market and support the Company's products. In addition, since its
inception, SMI has experienced continuous operating losses and its existence
as an operating entity has been dependent solely upon additional funding from
the Land Brandenburg. As a result, there can be no assurance that the Land
Brandenburg will continue to provide the funding necessary to sustain SMI's
operations. If SMI ceases operations or fails to successfully market and the
support the Company's products in Europe, the Company's ability to generate
future sales in Europe could be materially adversely affected. See "Business--
Sales, Marketing and Distribution."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the continued
service of its executive officers and other key management and technical
personnel, and on its ability to continue to attract, retain and motivate
qualified personnel, particularly experienced mixed-signal circuit designers
and systems applications engineers. The Company will also be required to hire
and retain personnel to support its new telecommunication products. The
Company has from time to time lost key design engineers, and other personnel
to start-up and established companies. The Company believes that there are a
limited number of qualified analog and mixed-signal designers. Therefore, the
competition for such employees is very intense. The loss of the services of
one or more of the Company's design engineers, or other key personnel or the
Company's inability to recruit replacements for such personnel or to otherwise
attract, retain and motivate qualified personnel could have a material adverse
effect on the Company. See "Business--Employees."
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PRODUCT DEFECTS; NEED TO MEET CUSTOMER DESIGN SPECIFICATIONS
The Company subjects its products to extensive and rigorous testing. As a
result of such testing, the Company from time to time has discovered design
and manufacturing defects that it has been able to correct before the
commencement of volume shipments of a product. Correcting such defects may
delay volume shipments and thereby materially adversely affect the Company's
results of operations. The Company has experienced and continues to experience
intermittent problems with the manufacturing yields of its SRAM products. For
example, in 1993 one of the Company's SRAM products contained a defect that
resulted in low manufacturing yields, which had a material adverse impact on
the Company's business, financial condition and operating results during such
year. While SRAM products no longer constitute a significant portion of the
Company's revenues, there can be no assurance that the Company will not
continue to experience problems with the manufacturing yields of its SRAM
products. Although the Company generally has been able to detect and correct
product defects prior to the commencement of volume production, there can be
no assurance that in the future the Company will be able to detect product
defects in a timely manner, especially in connection with the production of
new products. In the event one of the Company's products is found to be
defective after the Company has already commenced volume shipments, the
Company would be required to replace the defective product, or refund the
purchase price, each of which could impose substantial costs on the Company
and materially adversely affect the Company's business, financial condition
and operating results.
The Company manufactures certain of its products based on design
specifications that are provided to the Company by customers that intend to
incorporate the Company's product into their systems. From time to time, after
testing the initial versions of the Company's products, these customers
require the Company to re-test or to design additional functionality into its
products so that they can be effectively incorporated into the customer's
system. For example, in 1995 the Company re-tested significant quantities of
one of its clock products to conform to an additional test requirement
pursuant to a customer's request. There can be no assurance that the Company
will be able to consistently re-test or re-design its products in a timely
manner in order to meet customer requirements. A failure by the Company to do
so could have a material adverse effect on the Company's business, financial
condition and operating results. See "Management's Discussion of Financial
Condition and Results of Operations" and "Business--Manufacturing."
DEPENDENCE ON NEW TECHNOLOGIES; TECHNOLOGICAL CHANGE
The markets for the Company's products are characterized by rapid
technological change and evolving industry standards. To remain competitive,
the Company must develop or obtain access to next generation design
methodologies and process technologies in order to produce smaller ICs with
improved performance, higher densities and greater functional complexity, and
to improve manufacturing yields. The design methodologies and process
technologies underlying the Company's products are subject to rapid
technological change and the continued development of such methodologies and
technologies by the Company will require significant research and development
expenditures. There can be no assurance that the Company will be successful in
developing or obtaining next generation design methodologies and process
technologies. If the Company is unable to develop or obtain access to next
generation process technologies on a timely basis, the Company's business,
financial condition and operating results may be materially and adversely
affected. In addition, if the Company is unable to transfer and install such
new process technologies in Toshiba's or SMI's wafer facility, as may be
applicable, in a timely manner, the Company's business, financial condition
and operating results could be materially and adversely affected. See "--
Fluctuations in Operating Results," "--Dependence on New Products" and
"Business--Research and Development."
CUSTOMER CONCENTRATION
A relatively small number of customers have accounted for a significant
portion of the Company's total net revenues in each of the past several years
and the three months ended March 31, 1996. During 1995 and the three months
ended March 31, 1996, the Company's top 10 customers accounted for
approximately 82% and 81% of total net revenues, respectively. SMI and H.Y.
Associates accounted for 23% and 16%, respectively, of total net revenues
during 1993, H.Y. Associates, LTX-Trillium, a manufacturer of automatic test
equipment and
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NORTEL accounted for 18%, 12% and 11%, respectively, of total net revenues
during 1994. H.Y. Associates accounted for 37% of total net revenues during
1995 and 44% of total net revenues during the first three months of 1996. See
"Risk Factors--Dependence on Independent Sales Representatives, Japanese
Distributor and SMI." The Company anticipates that it will continue to be
dependent on a number of key customers for a significant portion of its net
revenues. However, the Company believes that these key customers may continue
to change from time to time based on the product mix sold in any given period.
The reduction, delay or cancellation of orders from one or more key customers
for any reason could materially and adversely affect the Company's operating
results. In addition, since the Company's products are often sole sourced to
its customers, the Company's operating results could be materially and
adversely affected if one or more of its key customers were to develop other
sources of supply. There can be no assurance that the Company's existing key
customers will continue to place orders with the Company, that orders by
existing key customers will continue at the levels of previous periods or that
the Company will be able to obtain orders from new key customers. The loss of
one or more of the Company's existing key customers could materially and
adversely affect the Company's business, financial condition and operating
results. See "Business--Customers and Applications" and "--Sales, Marketing and
Distribution" and Note 8 of Notes to Consolidated Financial Statements.
MARKET CONCENTRATION
To date, a significant portion of the Company's net revenues have been
generated by product sales to OEM suppliers of automatic test equipment
("ATE"). The Company currently anticipates that a significant portion of the
Company's future net revenues will continue to be generated by product sales to
OEM suppliers of ATE. Historically, the ATE market has been subject to wide
fluctuations; therefore, the demand for the Company's products among ATE OEMs
could fluctuate along with such market fluctuations. The Company also currently
anticipates that a significant portion of the Company's future net revenues
will be generated by product sales to Sun Microsystems, Inc. ("Sun") and other
OEM suppliers of SPARC workstations ("SPARC") and components. There can be no
assurance that SPARC will continue to enjoy widespread market acceptance or
that sales of SPARC will remain at current levels. Furthermore, there can be no
assurance that OEM suppliers of SPARC will not develop a modified or enhanced
version of SPARC that may render the Company's products incompatible with such
new version. In addition, there can be no assurance that Sun or other OEM
suppliers of SPARC will not develop other sources of supply. If sales of SPARC
decline significantly from current levels, Sun or other OEM suppliers develops
other sources of supply for the Company's products or there is a downturn in
the ATE market, sales of the Company's products that are used by ATE and SPARC
OEMs would be materially adversely affected, which could materially adversely
affect the Company's business, financial condition and operating results.
COMPETITION
The semiconductor industry is highly competitive and is characterized by
price erosion, rapid technological change, short product life cycles,
heightened international competition in many markets and unforeseen
manufacturing yield problems. Most of the Company's current and prospective
competitors offer broader product lines and have significantly greater
financial, technical, marketing and other resources than the Company. The
Company's competition consists of suppliers from the United States as well as
other countries, including internal competition from semiconductor divisions of
vertically integrated companies such as Lucent Technologies, Inc. ("Lucent"),
International Business Machines Corp. ("IBM"), Motorola, Inc. ("Motorola"), NEC
Corporation ("NEC") and Siemens Components, Inc. ("Siemens"). The Company's
principal competitors in the high-performance logic market are Motorola and
National Semiconductor Corp. ("National Semiconductor"). The Company's
principal competitors in the mixed-signal clock product market are Integrated
Circuit Systems, Motorola and TriQuint Semiconductor ("TriQuint"). The
Company's principal competitors in the communications product market are
Applied Micro Circuits Corp. ("AMCC"), Lucent, National Semiconductor, PMC-
Sierra Inc. U.S. ("PMC-Sierra"), TranSwitch Corp. ("TranSwitch"), TriQuint and
Vitesse Semiconductor Corporation ("Vitesse"). The Company has granted Toshiba
and SMI licenses to manufacture and market products based on certain of the
Company's technologies. Pursuant to these license agreements Toshiba and SMI
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have limited rights to manufacture and market products that are directly
competitive with the Company's products. The Company anticipates increased
competition in each of its markets from both existing vendors and new market
entrants. Increased competition in any of the Company's markets could result in
price reductions, reduced margins and loss of market share, all of which would
materially and adversely affect the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to compete successfully against current or future competitors. In addition,
consistent with what the Company believes is standard industry practice, the
Company offers its distributors located in the United States certain price
protection privileges. Therefore, any price reductions on the Company's
products could require the Company to honor such price protection privileges
and could have a material adverse effect on the Company's business, financial
condition and operating results. See "Business--Sales, Marketing and
Distributions" and""--Competition."
INTERNATIONAL SALES AND IMPORTS OF MATERIALS
Product sales outside of North America, substantially all of which consist of
sales to customers in Japan, were approximately 24%, 33%, 49% and 49%,
respectively, of the Company's total product sales for 1993, 1994, 1995 and the
three months ended March 31, 1996. The Company anticipates that in the future
international sales will continue to account for a significant percentage of
its net revenues. A significant portion of the Company's sales will therefore
be subject to risks associated with international sales, including export
controls, unexpected changes in legal and regulatory requirements, policy
changes affecting the markets for semiconductors, computers and communication
products, general economic conditions, changes in tariffs, exchange rates and
other barriers, political and economic instability, difficulties in accounts
receivable collection and obtaining export licenses, difficulties in managing
resellers or representatives, difficulties in staffing and managing foreign
operations, difficulties in protecting the Company's intellectual property
overseas, seasonality of sales and potentially adverse tax consequences.
Although the Company's international sales to date have been denominated in
United States dollars, fluctuations in the United States dollar could increase
the price in local currencies of the Company's products in foreign markets and
make the Company's products relatively more expensive than competitors'
products that are denominated in local currencies. To the extent that the
Company expands its international operations or changes its pricing practices
to denominate prices in foreign currencies, the Company will be exposed to
increased risks of currency fluctuations. In addition, the fabrication
facilities for the silicon wafers produced by Toshiba and SMI are located in
Japan and Germany, respectively, and the Company may in the future qualify
additional fabrication facilities and other suppliers located outside of the
United States. As a result, the Company's purchases of wafers and other
supplies from foreign companies are similarly subject to many of the same
risks, including trade restrictions and imposition of tariffs. Furthermore, the
Company's international sales may be adversely affected by lower sales levels
that typically occur during the summer months in Europe and other parts of the
world. In addition, although the Company's purchases of wafers from foreign
suppliers to date have been denominated in United States dollars, foreign
currency fluctuations may in the future affect the prices the Company is
required to pay for wafers. There can be no assurance that these factors will
not have a material adverse effect on the Company's future international sales
and, consequently, on the Company's business, financial condition and operating
results. See "--Dependence on Independent Sales Representatives, Japanese
Distributor and SMI" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SMI JOINT VENTURE
Under the terms of the Company's SMI joint venture with the Land Brandenburg,
beginning in February 1996 the Land Brandenburg has the option (the "Put
Option") until February 28, 1997 to sell to Synergy up to an additional 39%
interest in SMI. There can be no assurance that the Land Brandenburg will not
exercise the Put Option. The Company currently anticipates that it would cease
SMI's operations and liquidate SMI's assets upon an exercise of the Put Option.
In the event that SMI ceases operations and the Company is unable to timely
expand its internal manufacturing capacity or obtain additional manufacturing
capacity from Toshiba or an alternative outside foundry to replace the wafer
capacity then being supplied to the Company by SMI, the Company's business,
financial condition and operating results could be materially adversely
affected. The
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Company sells its products in Europe through SMI, therefore, if SMI ceases
operations, the Company's ability to generate future sales in Europe could be
materially adversely affected. In addition, the Company's cessation of SMI's
operations would likely divert management's attention from other aspects of the
Company's business, which could have a material adverse effect on the Company's
business. Furthermore, if the Put Option is exercised, Synergy would hold a
majority interest in SMI and would be required to consolidate its results of
operations with those of SMI for financial reporting purposes beginning from
the time the Put Option is exercised. To date, SMI has experienced continuing
operating losses and remains in operation due to periodic contributions of cash
made to SMI guaranteed by the Land Brandenburg. For example in 1995 SMI had
unaudited total losses of approximately $20 million. Accordingly, to the extent
that SMI continues to experience operating losses in the future, the
consolidation of the Company's results of operations with those of SMI as a
result of the Land Brandenburg's exercise of the Put Option would have a
material adverse impact on the Company's overall financial results. See Note 7
of Notes to Consolidated Financial Statements.
UNCERTAIN ABILITY TO MEET CAPITAL NEEDS AND LIQUIDITY REQUIREMENTS
The Company believes that its existing capital resources, together with the
net proceeds of this offering, will be sufficient to fund its operating
expenses and capital requirements for the next 12 months. There can be no
assurance, however, that factors such as changes in the Company's research and
development plans, product testing, relationships with OEMs, competitive and
technological advances, design or manufacturing delays, expenses associated
with the relocation to a new facility, the start-up of a new internal wafer
fabrication facility, the level of working capital required to sustain the
Company's planned operations, litigation and fluctuations in operating results,
including the extent and duration of operating losses affecting the Company's
operations, will not result in the expenditure of such resources and the net
proceeds of this offering before such time. Thereafter, the Company expects
that it will require additional capital. There can be no assurance that
additional capital will be available as required on terms favorable to the
Company, or at all. To the extent that additional capital is raised through the
sale of additional equity or convertible debt securities, the issuance of such
securities could result in additional dilution to the Company's shareholders. A
lack of capital resources may require the Company to delay, scale back or
eliminate certain of its research and product development programs or to
license to third parties potentially valuable product rights or technologies
that the Company currently plans to commercialize itself. If the Company is
unable to obtain additional financing in the future if and when necessary,
there can be no assurance that the Company will be able to borrow funds in the
amounts or on terms as favorable as those currently provided under the
Company's existing bank line of credit, or at all. A failure by the Company to
obtain necessary additional financing or future bank financing on favorable
terms, or at all, would have a material adverse effect on the Company's
business, financial condition and operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
INVENTORY MANAGEMENT AND OBSOLESCENCE
Because the Company must order products and build inventory substantially in
advance of product shipments, there is a risk that the Company will forecast
quantity and product mix incorrectly and, therefore, produce excess or
insufficient inventories. In 1993, the Company took an obsolete inventory
reserve with respect to certain SRAM products, which adversely affected the
Company's results of operations for 1993. Because the markets for the Company's
products are subject to rapid technological and price changes, inventory may be
subject to rapid obsolescence. If the Company forecasts incorrectly and
produces insufficient inventory of particular products, the Company may face
order cancellations from or the loss of customers that may seek to satisfy
their needs from other suppliers. The Company's customers may change delivery
schedules or cancel orders without significant penalty. This inventory risk is
heightened because the Company's customers usually place orders with short lead
times. In addition, certain of the Company's distributors have product return
privileges. To the extent the Company produces excess or insufficient
inventories of particular products or receives significant product returns, the
Company's business, financial condition and operating results could be
materially and adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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PATENTS AND LICENSES
The Company's success depends in part on its ability to obtain patents and
licenses and to preserve other intellectual property rights covering its
products and development and testing tools. To that end, the Company has been
issued seven United States patents, has one United States patent that has been
allowed but not issued and has an application for one United States patent
pending. The issued United States patents have expiration dates ranging from
2007 through 2012. The Company has also been issued four foreign patents and
has five foreign patent applications pending. The Company has also routinely
protected its numerous original mask sets under mask work laws. There can be
no assurance that the Company's pending patent applications will be allowed or
that the issued or pending patents will not be challenged or circumvented by
competitors.
The Company intends to continue to seek patents on its products, as
appropriate. Notwithstanding the Company's active pursuit of patent and mask
work protection, the Company believes that its future success will depend
primarily upon the technical expertise, creative skills and management
abilities of its officers and key employees rather than on patent and
copyright ownership. The Company also relies substantially on trade secrets
and proprietary technology to protect technology and manufacturing know-how,
and works actively to foster continuing technological innovation to maintain
and protect its competitive position. There can be no assurance that the
Company's competitors will not independently develop or patent substantially
equivalent or superior technologies.
The Company attempts to protect its trade secrets and proprietary rights
through formal written and signed agreements with its employees, customers,
suppliers, consultants and others who may have to be called upon to have
access to this information. Although Synergy intends to vigorously protect its
intellectual property rights, there can be no assurance that these and other
security agreements will be successful. The process of seeking patent
protection can be long and expensive and there is no assurance that the
Company's patents, or any new patents which may be issued, provide sufficient
scope or strength to provide meaningful protection or any commercial advantage
to the Company. The Company may be subject to or may initiate interference
proceedings in the patent office, which can demand significant financial and
managerial resources. See "--Litigation" and "Business--Intellectual Property
and Licenses."
LITIGATION
The semiconductor industry is characterized by frequent litigation regarding
patent and intellectual property rights. As often occurs in the semiconductor
industry, the Company has in the past and may at some future time be notified
that it is allegedly infringing certain patents and other intellectual
property rights of others. There are no pending lawsuits against the Company
asserting infringement by the Company of any intellectual property rights, and
the Company does not believe that it is infringing any such rights. If any
claim arises, the Company will evaluate its merits, and may seek a license
from the claimant. There can be no assurance that licenses, if needed by the
Company, would be obtained on acceptable terms, that litigation will not occur
or that damages for past infringement by the Company, if any, will not be
material. Litigation may be necessary to enforce intellectual property or
other rights of the Company or to defend the Company against infringement
claims. Litigation, whether or not successful, could result in substantial
cost to and diversion of resources of the Company. The failure to obtain
necessary licenses or the advent of litigation could have a material adverse
effect on the Company's business and operating results. See "Business--
Intellectual Property and Licenses."
CYCLICALITY OF SEMICONDUCTOR INDUSTRY
The semiconductor industry has historically been characterized by wide
fluctuations in product supply and demand. The Company's business could be
materially and adversely affected by such industry-wide fluctuations. From
time to time, the industry has also experienced significant downturns, often
in connection with, or in anticipation of, declines in general economic
conditions. These downturns have been characterized by diminished product
demand, production overcapacity and subsequent accelerated erosion of average
selling prices, and, in some cases, have lasted for extended periods of time.
Such downturns could have a material adverse effect on the Company's business,
financial condition and operating results.
16
<PAGE>
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
The Company, particularly because it owns and operates its own wafer
fabrication facility, and the Company's wafer suppliers and assembly
subcontractors are subject to a variety of United States and foreign
government regulations related to the discharge or disposal of toxic, volatile
or otherwise hazardous chemicals used in their manufacturing process. The
failure by the Company or its suppliers or subcontractors to comply with
present or future environmental regulations could result in fines, suspension
of production or cessation of operations. Such regulations could also require
the Company or its suppliers or subcontractors to acquire equipment or to
incur other substantial expenses to comply with environmental regulations. If
substantial additional expenses were incurred by the Company or its suppliers
or subcontractors, product costs could significantly increase, thus materially
and adversely affecting the Company's results of operations. Additionally, the
Company is subject to a variety of government regulations relating to its
operations, such as environmental, labor and export control regulations. While
the Company believes it has obtained all permits necessary to conduct its
business, the failure to comply with present and future regulations could
result in fines being imposed on the Company or suspension or cessation of
operations. Any failure by the Company or its suppliers or subcontractors to
control the use of, or adequately restrict the discharge of, hazardous
substances could subject the Company to future liabilities, and could have a
material adverse effect on the Company's business and operating results. See
"Business--Government Regulation."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no prior public market for the Company's Common Stock, and
there can be no assurance that a viable public market for the Common Stock
will develop or be sustained after this offering. The Company believes that
factors such as announcements of developments related to the Company's
business, fluctuations in the Company's operating results, failure to meet
securities analysts' expectations, general conditions in the semiconductor
industry and the worldwide economy, announcements of technological
innovations, new product enhancements by the Company or its competitors,
acquisitions, changes in governmental regulations, developments in patents or
other intellectual property rights and changes in the Company's relationships
with customers, its Japanese distributor and suppliers could cause the price
of the Company's Common Stock to fluctuate substantially. In addition, in
recent years the stock market in general, and the market for small
capitalization, high technology stocks in particular, has experienced extreme
price fluctuations which have often been unrelated to the operating
performance of affected companies. Such fluctuations could adversely affect
the market price of the Company's Common Stock.
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of this offering, the present executive officers, directors
and their affiliates will, in the aggregate, own beneficially approximately
9.72% of the Company's outstanding shares of Common Stock assuming no exercise
of the Underwriters' over-allotment option, and 9.29% of the Company's
outstanding shares of Common Stock assuming full exercise of the Underwriters'
over-allotment option. In addition, certain venture capital firms will, in the
aggregate, own beneficially approximately 42.15% of the Company's outstanding
shares of Common Stock assuming no exercise of the Underwriters' over-
allotment option, and 40.30% of the Company's outstanding shares of Common
Stock assuming full exercise of the Underwriters' over-allotment option. As a
result, these shareholders, acting together, would be able to effectively
control all matters requiring approval by the shareholders of the Company,
including the election of a majority of the directors and approval of
significant corporate transactions. See "Principal and Selling Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock available for
sale in the public market is limited by restrictions under the Securities Act
of 1933, as amended (the "Securities Act"), and lock-up agreements under which
the holders of such shares have agreed not to sell
17
<PAGE>
or otherwise dispose of any of their shares for a period of 180 days after the
effective date of this offering without the prior written consent of Robertson,
Stephens & Company LLC. However, Robertson, Stephens & Company LLC may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements. As a result of lock-up
agreements, based on shares outstanding and options granted as of March 31,
1996, the following shares of Common Stock will be eligible for future sale. On
the date of this Prospectus, no shares other than the 5,400,000 shares offered
hereby will be eligible for sale. 6,500,949 shares will be eligible for
immediate sale subject to Rule 144 and Rule 701 of the Securities Act 180 days
after the effective date of this offering upon expiration of lock-up
agreements, of which 5,149,308 shares will be subject to the volume and other
restrictions of Rule 144. In addition, the Company intends to register on a
registration statement on Form S-8, on or immediately following the effective
date of this offering, a total of 2,287,334 shares of Common Stock subject to
outstanding options or reserved for issuance under the 1996 Stock Option/Stock
Issuance Plan (the "1996 Plan") and 300,000 shares of Common Stock reserved for
issuance under the Employee Stock Purchase Plan (the "Purchase Plan"). An
additional 5,771,230 shares will become available for sale pursuant to Rule 144
upon expiration of their two-year holding periods. After this offering, the
holders of 10,141,445 shares of Common Stock will be entitled to certain demand
and piggyback registration rights with respect to such shares. If such holders,
by exercising their demand registration rights, cause a large number of shares
to be registered and sold in the public market, such sales could have an
adverse effect on the market price for the Company's Common Stock. If the
Company were required to include in a Company-initiated registration shares
held by such holders pursuant to the exercise of their piggyback registration
rights, such sales may have an adverse effect on the Company's ability to raise
needed capital. See "Shares Eligible for Future Sale."
IMMEDIATE DILUTION
The assumed initial public offering price of $ per share of the Common
Stock offered hereby is $ higher than the March 31, 1996 $0.45 pro forma net
tangible book value per share after this offering. Accordingly, purchasers of
the Common Stock offered hereby will experience immediate and substantial
dilution in the net tangible book value per share from the initial public
offering price. To the extent outstanding options to purchase the Company's
Common Stock are exercised, or there is an additional sale of equity by the
Company, there may be further substantial dilution to the purchasers of the
shares of Common Stock offered hereby. See "Dilution."
EFFECT OF UNDESIGNATED PREFERRED STOCK
Upon the consummation of this offering, the Company's Board of Directors will
have the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences and privileges of those shares without
any further vote or action by the Company's shareholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any shares of Preferred Stock that may be issued
in the future. While the Company has no present intention to issue shares of
Preferred Stock, such issuance, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. In addition, such Preferred
Stock may have other rights, including economic rights senior to the Common
Stock, and, as a result, the issuance thereof could have a material adverse
effect on the market value of the Common Stock. See "Description of Capital
Stock."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,600,000 shares of
Common Stock offered by the Company hereby are estimated to be $ , assuming
an initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company anticipates that a portion of the net proceeds will be used for the
following purposes: (i) to fund the relocation of the Company's operations to
a new facility in Santa Clara, California and (ii) to retire certain bank
indebtedness. All of such indebtedness bears interest at the bank's prime rate
plus 1.5% and is due and payable in December 1996. The balance of the net
proceeds will be used for working capital and general corporate purposes. A
portion of the net proceeds may also be used for the acquisition of
businesses, products and technologies that are complementary to those of the
Company. The Company has no present plans, agreements or commitments and is
not currently engaged in any negotiations with respect to any such
transaction. Pending such uses, the net proceeds of this offering will be
invested in investment grade, interest-bearing securities.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. The Company
currently anticipates that it will retain any available funds for use in the
operation of its business and does not expect to pay cash dividends on its
capital stock in the foreseeable future. In addition, the terms of the
Company's bank line of credit from its bank prohibits the Company from paying
cash dividends on its Common Stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
March 31, 1996; and (ii) as adjusted to reflect the conversion of all
outstanding shares of Preferred Stock into Common Stock upon the consummation
of this offering and as adjusted to reflect the sale by the Company of
3,600,000 shares of Common Stock hereby (assuming an initial public offering
price of $ per share and after deducting the underwriting discounts and
commissions and estimated offering expenses) and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt........................................... $ 885 $
Shareholders' equity:
Convertible Preferred Stock, no par value, 14,000,000
shares authorized; 11,520,574 shares issued and
outstanding, actual; 5,000,000 shares authorized, no
shares issued and outstanding, as adjusted.............. 7,297
Common Stock, no par value, 18,000,000 shares authorized;
2,551,605 shares issued and outstanding, actual;
50,000,000 shares authorized, 17,672,179 shares issued
and outstanding, as adjusted(1)......................... 31,894
Accumulated deficit...................................... (32,807)
-------- --------
Total shareholders' equity............................. 6,384
-------- --------
Total capitalization................................. $ 7,269 $
======== ========
</TABLE>
- --------
(1) Excludes 790,273 shares of Common Stock issuable upon exercise of stock
options outstanding as of March 31, 1996 at a weighted average exercise
price of $1.88 per share and 431,611 shares of Common Stock issuable upon
exercise of warrants outstanding as of March 31, 1996. Subsequent to March
31, 1996, the Company's Board of Directors adopted, subject to shareholder
approval, (i) the 1996 Plan to serve as the successor equity program to
the 1987 Stock Option Plan (the "1987 Plan"), with an additional 500,000
shares of Common Stock reserved for issuance thereunder and (ii) the
Purchase Plan, pursuant to which 300,000 shares of Common Stock were
reserved for issuance. See "Management--1996 Stock Option/Stock Issuance
Plan," and "--Employee Stock Purchase Plan," and Note 5 of Notes to
Consolidated Financial Statements.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at March 31, 1996 was
$6,384,215, or approximately $0.45 per share of Common Stock after giving
effect to the conversion of all outstanding shares of Preferred Stock into
Common Stock upon the consummation of this offering. Pro forma net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the pro forma total number of
outstanding shares of Common Stock. After giving effect to the sale of the
3,600,000 shares of Common Stock offered by the Company hereby (at an assumed
initial public offering price of $ per share, less estimated underwriting
discounts and commissions and estimated offering expenses), the pro forma net
tangible book value of the Company at March 31, 1996 would have been $ or $
per share. This represents an immediate increase in net tangible book value of
$ per share to existing shareholders and an immediate dilution in net
tangible book value of $ per share to purchasers of Common Stock in this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................ $
Pro forma net tangible book value at March 31, 1996............ $0.45
Increase attributable to new investors.........................
-----
Pro forma net tangible book value at March 31, 1996 after the
offering........................................................
-----
Dilution to new investors........................................ $
=====
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1996, the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average price per share paid to the
Company by the existing shareholders and by the new shareholders purchasing the
Common Stock offered hereby (assuming an initial public offering price of $
per share before deduction of estimated underwriting discounts and commissions
and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)... 14,072,179 79.6% $39,504,665 % $2.81
New shareholders(1)........ 3,600,000 20.4% % $
---------- ----- ----------- ----- -----
Totals................... 17,672,179 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Shareholders in this offering will reduce the number
of shares of Common Stock held by existing shareholders to 12,272,179
shares or approximately 69.44% (11,462,179 shares, or approximately 64.86%
if the Underwriters' over-allotment option is exercised in full) and will
increase the number of shares held by new investors to 5,400,000 or
approximately 30.56% (6,210,000 shares, or approximately 35.14%, if the
Underwriters' over-allotment option is exercised in full) of the total
number of shares of Common Stock outstanding after this offering. See
"Principal and Selling Shareholders."
The foregoing computations assume no exercise of options to purchase Common
Stock after March 31, 1996. As of March 31, 1996, there were options
outstanding to purchase a total of 790,273 shares of Common Stock at a weighted
average exercise price of $1.88 per share and 997,061 shares of Common Stock
reserved for grant of future options under the 1987 Plan and 431,611 shares of
Common Stock issuable upon exercise of outstanding warrants. Subsequent to
March 31, 1996, the Company's Board of Directors adopted, subject to
shareholder approval, (i) the 1996 Plan to serve as the successor equity
program to the 1987 Plan, with an additional 500,000 shares of Common Stock
reserved for issuance thereunder and (ii) the Purchase Plan, pursuant to which
300,000 shares of Common Stock were reserved for issuance. See "Management--
1996 Stock Option/Stock Issuance Plan," "--Employee Stock Purchase Plan," and
Note 5 of Notes to Consolidated Financial Statements.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Consolidated Financial Statements and notes
thereto included elsewhere in this Prospectus. The consolidated statement of
operations data presented below for the years ended December 31, 1993, 1994
and 1995, and the consolidated balance sheet data as of December 31, 1993,
1994 and 1995, are derived from the consolidated financial statements of the
Company, which financial statements have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The consolidated statement of
operations data for the years ended December 31, 1993, 1994 and 1995 and the
consolidated balance sheet data as of December 31, 1994 and 1995, and the
reports thereon, are included elsewhere in this Prospectus. The consolidated
statement of operations data presented below for the years ended December 29,
1991, and December 27, 1992, and the consolidated balance sheet data as of
December 29, 1991, December 27, 1992, and December 31, 1993 are derived from
audited consolidated financial statements not included in this Prospectus. The
selected data presented below for the three-month periods ended April 2, 1995
and March 31, 1996, are derived from the unaudited consolidated financial
statements of the Company included elsewhere in this Prospectus. The unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, that the Company considers necessary for a fair
presentation of the consolidated financial position and operating results for
these periods. The consolidated operating results for the three months ended
March 31, 1996, are not necessarily indicative of the results to be expected
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
------------------------------------------------ -----------------
DEC. 29, DEC. 27, DEC. 31, DEC. 31, DEC. 31, APR. 2, MAR. 31,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues:
Product sales.......... $ 6,844 $10,992 $10,553 $15,395 $23,344 $4,511 $9,389
Contract engineering... -- -- 503 1,750 1,041 49 198
License fees........... 1,900 2,700 3,302 1,975 1,300 -- --
------- ------- ------- ------- ------- ------ ------
Total net revenues..... 8,744 13,692 14,358 19,120 25,685 4,560 9,587
Cost of product sales... 4,750 7,745 8,910 9,711 10,819 2,251 4,766
------- ------- ------- ------- ------- ------ ------
Gross margin............ 3,994 5,947 5,448 9,409 14,866 2,309 4,821
Operating expenses:
Research and
development........... 6,406 7,219 7,015 6,457 7,793 1,764 1,806
Selling, general and
administrative........ 2,089 2,270 2,689 2,779 3,910 825 1,489
------- ------- ------- ------- ------- ------ ------
Total operating
expenses.............. 8,495 9,489 9,704 9,236 11,703 2,589 3,295
------- ------- ------- ------- ------- ------ ------
Income (loss) from
operations............. (4,501) (3,542) (4,256) 173 3,163 (280) 1,526
Other expenses, net..... (350) (904) (747) (657) (511) (136) (92)
------- ------- ------- ------- ------- ------ ------
Net income (loss) before
extraordinary item..... (4,851) (4,446) (5,003) (483) 2,652 (416) 1,434
Extraordinary item-gain
on debt restructuring.. -- -- 5,167 487 -- -- --
------- ------- ------- ------- ------- ------ ------
Net income (loss)....... $(4,851) $(4,446) $ 164 $ 4 $ 2,652 $ (416) $1,434
======= ======= ======= ======= ======= ====== ======
Pro forma net income per
share(1)............... $ 0.20 $ 0.10
======= ======
Shares used in computing
pro forma net income
per share(1)........... 13,309 14,668
======= ======
</TABLE>
<TABLE>
<CAPTION>
DEC. 29, DEC. 27, DEC. 31, DEC. 31, DEC. 31, MAR. 31,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $ 4,466 $ 1,860 $ 144 $ 289 $ 1,940 $ 2,307
Working capital
(deficit).............. 3,044 (1,747) (5,438) (911) 3,739 4,955
Total assets............ 11,676 9,297 5,292 8,874 13,966 14,272
Long-term obligations... 8,872 6,861 1,724 1,498 1,201 885
Redeemable convertible
Preferred Stock........ 31,655 31,655 31,655 5,197 -- --
Accumulated deficit..... (32,616) (37,062) (36,898) (36,894) (34,241) (32,807)
Total shareholders'
equity (deficit)....... (32,532) (36,921) (36,749) (5,087) 4,950 6,384
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward looking statements as a result of
certain factors, including, but not limited to, those set forth in "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
Synergy Semiconductor Corporation was incorporated in 1986 and commenced
operations in February 1987. Initially, the Company focused on the development
of high-speed SRAM products based on the Company's ASSET Bipolar technology.
The Company commenced commercial shipment of its SRAM products in 1988 and
sales of such products constituted the majority of the Company's product
revenue through the second quarter of 1993. The Company leveraged its SRAM
development efforts to develop high-speed digital logic products, mixed-signal
clock products and application specific integrated circuits ("ASICs") designed
for ATE and telecommunications applications, which products commenced
commercial shipments in 1993. During the second half of 1993 and 1994, the
Company de-emphasized sales of SRAM products in favor of high-speed logic and
clock products. The Company anticipates that revenues from SRAM product sales
will continue to decrease in future periods as it continues to focus on high-
speed logic and clock products. During the first half of 1995, the Company
commenced commercial shipments of its SuperCOM product family designed for
telecommunications and networking applications.
The Company's total net revenues consist of revenue derived from product
sales, contract engineering revenue and license fees. The Company's product
sales are derived primarily from sales of the Company's high-speed logic,
ClockWorks and SuperCOM products. Historically, the Company's contract
engineering revenue has been derived substantially from the development of
ASICs for ATE applications. Given the Company's strategic focus on the
development and sale of standard products, contract engineering revenue has
declined over the past year and the Company anticipates that this revenue will
continue to decrease as a percentage of the Company's total net revenues in
future periods.
The Company markets and distributes its products through independent sales
representatives and distributors in North America, through SMI in Europe and
through H.Y. Associates, its distributor in Japan. The Company's products are
manufactured primarily at its in-house fabrication facility and, to a lesser
extent, at its two outside foundries. The Company anticipates that an
increasing number of its products will be manufactured at its outside
foundries in future periods.
The Company's quarterly and annual operating results have in the past
fluctuated and may fluctuate significantly in the future depending on such
factors as the volume and timing of orders received, the Company's ability to
introduce new products on a timely basis, the availability and cost of wafers
from Toshiba, SMI or other outside foundries that may be used by the Company,
market acceptance of the Company's and its customers' products, the timing of
new product announcements and introductions by the Company and its
competitors, changes in the mix of products sold by the Company, the timing
and extent of process and product development expenses, fluctuations in
manufacturing yields, reliability of new products, competitive pricing
pressures and cyclical semiconductor industry conditions. The Company's
expense levels are based, in part, on its expectations of future revenues.
Many of the Company's expenses are relatively fixed and cannot be changed in
short periods of time. Because the Company's business is characterized by
short-term orders and shipment schedules and customer orders typically can be
canceled or rescheduled without significant penalty to the customer, revenue
levels are difficult to predict. The Company typically plans its production
and inventory levels based on internal forecasts of customer demand, which is
unpredictable and can fluctuate substantially. Furthermore, because the
Company is limited in its ability to reduce costs quickly in response to any
revenue shortfalls and only a small portion of the Company's expenses varies
with its revenues during any particular quarter, the Company's net income will
be adversely affected if revenues are below expectations. The Company
23
<PAGE>
intends to commence the operation of a new facility during the fourth quarter
of 1996 and the first quarter of 1997. In connection with the relocation, the
Company will install a six inch wafer fabrication manufacturing facility at
its new headquarters. Problems the Company may encounter in the start-up of
the new wafer fabrication facility include, among other things, delays in the
delivery of equipment and supplies, poor start-up yields and other
manufacturing process issues. In addition, the expenses associated with the
relocation and start-up of the new fabrication facility could negatively
impact the Company's financial results in late 1996 and 1997. Although the
Company intends to operate its current fabrication facility during the start-
up of the new fabrication facility, there can be no assurance that there will
not be a disruption in production of the Company's products or that the start-
up of the new fabrication facility will not be delayed or cost more than
expected. As a result of the foregoing or other factors there can be no
assurance that the Company will not experience material fluctuations in future
operating results on a quarterly or annual basis that would materially and
adversely affect the Company's business, financial condition and operating
results. See "Risk Factors--Fluctuations in Operating Results" and "--
Relocation of Manufacturing Facility."
The markets for the Company's products are characterized by frequent new
product introductions. The Company's success depends in part upon its ability
to enhance its existing products, to develop, timely introduce, market and
support new products incorporating new technologies and to meet changing
customer requirements and emerging industry standards. In particular, the
Company currently anticipates introducing during the second half of 1996 a
number of new mixed-signal clock products and several new communications
products that are designed for networking and telecommunications applications.
There can be no assurance that the Company will not experience difficulties
that delay or prevent the successful development and timely introduction of
these or other new products and product enhancements or that such new products
and product enhancements will achieve market acceptance. See "Risk Factors--
Dependence on New Products."
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total net revenues,
certain consolidated statement of operations data for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
------------------- ------------------
APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
----- ----- ----- -------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenues:
Product sales........................ 73.5% 80.5% 90.9% 98.9% 97.9%
Contract engineering................. 3.5 9.2 4.0 1.1 2.1
License fees......................... 23.0 10.3 5.1 -- --
----- ----- ----- ----- -----
Total net revenues..................... 100.0 100.0 100.0 100.0 100.0
Cost of product sales.................. 62.1 50.8 42.1 49.4 49.7
----- ----- ----- ----- -----
Gross margin........................... 37.9 49.2 57.9 50.6 50.3
Operating expenses:
Research and development............. 48.9 33.8 30.3 38.7 18.8
Selling, general and administrative.. 18.7 14.5 15.2 18.1 15.5
----- ----- ----- ----- -----
Total operating expenses............... 67.6 48.3 45.5 56.8 34.3
----- ----- ----- ----- -----
Income (loss) from operations.......... (29.7) 0.9 12.4 (6.2) 16.0
Other expense, net................... (5.2) (3.4) (2.0) (3.0) (1.0)
----- ----- ----- ----- -----
Net income (loss) before extraordinary
item.................................. (34.9) (2.5) 10.4 (9.2) 15.0
Extraordinary item--gain on debt
restructuring......................... 36.0 2.5 -- -- --
----- ----- ----- ----- -----
Net income (loss)...................... 1.1% -- 10.4% (9.2)% 15.0%
===== ===== ===== ===== =====
</TABLE>
24
<PAGE>
FISCAL YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Net Revenues
The Company's total net revenues consist of revenues derived from product
sales, contract engineering revenue, and license fee revenue. The Company
recognizes revenue from product sales upon shipment to the customer and defers
the recognition of revenue derived from sales to domestic distributors until
such distributors resell the products to their customers. Revenues generated
by sales to international distributors are recognized upon shipment, but the
Company provides specific reserves for possible returns and allowances. The
Company defers the recognition of contract engineering revenue until the
applicable contractual milestones have been achieved; however, expenditures
incurred by the Company in the performance of such contracts are expensed as
the expenditures are incurred. The Company recognizes license fee revenue upon
the completion of the applicable contractual milestones.
Product Sales. Revenue derived from product sales increased by 45.9% from
approximately $10.6 million in 1993 to approximately $15.4 million in 1994 and
increased by 51.6% to approximately $23.3 million in 1995. The increase in
1994 was due primarily to increased sales of the Company's high-speed logic
products and the commencement of significant commercial shipments of the
Company's ClockWorks products, offset by a decrease in sales of the Company's
SRAM products. The increase in 1995 was primarily due to increased sales of
the Company's high-speed logic products, and to a lesser extent, increased
sales of the Company's ClockWork products.
Product sales outside of North America constituted 24%, 33% and 49% of total
product sales in 1993, 1994, and 1995, respectively. The increases in 1994 and
1995 were primarily due to the Company's increase in sales to customers in
Japan through the Company's Japanese distributor, H.Y. Associates. The growth
in product sales to H.Y. Associates accounted for 23% and 77% of the Company's
product sales growth in 1994 and 1995, respectively. See "Risk Factors--
Dependence on Independent Sales Representatives, Japanese Distributor and
SMI."
Contract Engineering. Contract engineering revenues increased from
approximately $500,000 in 1993 to approximately $1.8 million in 1994 and
decreased to approximately $1.0 million in 1995. The increase in 1994 was
primarily due to the realization of revenues upon the achievement of
milestones under agreements with the Company's ATE and telecommunications
customers relating to the development of ASIC products. The decrease in 1995
was due primarily to the Company's completion in 1994 of customer funded
development of certain ASIC products. Given the Company's strategic focus on
the development and sale of standard products, the Company anticipates that,
while it will continue to generate contract engineering fee revenue from time
to time, such revenues are expected to decrease in future periods.
License Fees. License fee revenue decreased from approximately $3.3 million
in 1993 to approximately $2.0 million in 1994 and decreased to approximately
$1.3 million in 1995. License fee revenue in 1993 primarily consisted of
approximately $3.0 million in license fees paid to the Company by SMI pursuant
to a license agreement. License fee revenue in 1994 consisted of license fees
paid to the Company by Toshiba and SMI. The decrease in 1994 was due primarily
to the prior completion of the Company's agreements with Toshiba and SMI.
License fee revenue in 1995 consisted of license fees paid to the Company by
Linear Technology Corporation pursuant to a license agreement. Given the
Company's strategic focus on the development and sale of standard products,
license fee revenue is expected to decrease in future periods. See "Business--
Intellectual Property and Strategic Relationships and Licenses."
25
<PAGE>
Product Gross Margin
Cost of product sales includes salaries and wages, raw materials, outside
services and other costs associated with the wafer fabrication, testing and
assembly of the Company's products. There are no material costs associated
with license fee revenue. The following table sets forth the product gross
margin obtained by the Company on its product sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Product sales................................... $10,553 $15,395 $23,344
Cost of product sales........................... 8,910 9,711 10,819
Product gross margin............................ 1,643 5,684 12,525
Product gross margin percentage................. 15.6% 36.9% 53.7%
</TABLE>
Product gross margin percentage increased from 15.6% in 1993 to 36.9% in
1994 and to 53.7% in 1995. The increase in 1994 was primarily due to a shift
in the Company's product mix to higher margin high-speed logic products, sales
by the Company of approximately $1.0 million of previously reserved SRAM
products and improvements in yields on high-speed logic products. The increase
in 1995 was due to increased sales volume of the higher margin high-speed
logic and ClockWorks products resulting in better facility utilization in the
wafer fabrication and testing process. The expenses associated with the start-
up of the Company's new fabrication facility in late 1996 and transition out
of the Company's existing facility in 1997, could negatively impact financial
results in late 1996 and 1997. See "Risk Factors--Relocation of Manufacturing
Facility."
Research and Development
Research and development expenses consist of salaries of personnel engaged
in and expenses associated with the development of new products and processes.
Included in research and development expenses are costs totaling $343,000,
$880,000, $652,000 and $124,000 for the years ended December 31, 1993, 1994,
1995 and the three months ended March 31, 1996, respectively, associated with
contract engineering. Research and development expenses decreased from
approximately $7.0 million in 1993 to approximately $6.5 million in 1994 and
increased to $7.8 million in 1995. The decrease in 1994 was due primarily to
the Company's completion of development and commercial introduction of the
Company's ClockWorks and high-speed logic products. The increase in 1995 was
primarily due to the expansion of the Company's development program for its
SuperCOM product family. Research and development expense decreased as a
percentage of total net revenues from 48.9% in 1993 to 33.8% in 1994 and to
30.3% in 1995. The Company anticipates that research and development expenses
will increase in absolute dollar amounts in future periods, although in 1996
this increase will be partially offset by the reassignment of certain research
and development personnel to marketing.
Selling, General and Administrative
Selling, general and administrative expenses consist of commissions paid to
sales representatives, salaries and bonuses of marketing, sales and
administrative personnel and advertising and administrative expenses. Selling,
general and administrative expenses increased from approximately $2.7 million
in 1993 to approximately $2.8 million in 1994 and to approximately $3.9
million in 1995. Selling, general and administrative expenses decreased as a
percentage of total net revenues from 18.7% in 1993 to 14.5% in 1994 and
increased to 15.2% in 1995. The decrease in 1994 was due to an increase in
product sales without a corresponding increase in selling, general and
administrative expenses. The increase in 1995 was due primarily to increased
personnel, sales commissions and promotional activity related to the
introduction of new products. The Company expects that selling, general and
administrative expenses will increase in dollar amount in future periods
primarily due to an increase in sales commissions paid to sales
representatives, increased personnel and the costs associated with being a
public company.
Other Expense, Net
Other expense, net includes (i) interest expense paid by the Company on a
term loan, lease obligations used to finance certain capital equipment and
borrowings under the Company's working capital line of credit and
26
<PAGE>
(ii) interest earned by the Company on its cash balances. Other expense, net
decreased by 12% from approximately $750,000 in 1993 to approximately $660,000
in 1994 and decreased by 22.7% to approximately $510,000 in 1995. The
decreases in 1994 and 1995 were due primarily to decreases in interest expense
associated with the Company's bank line of credit and term loans.
Extraordinary Gain on Debt Restructuring
In 1994, the Company entered into an agreement with a third-party relating
to the retirement of the principal and interest outstanding under a note
payable. This transaction resulted in an extraordinary gain to the Company of
approximately $487,000. In 1993, the Company entered into an agreement with
Digital Equipment Corporation ("Digital") to retire certain of the Company's
capital lease obligations with Digital through which the Company had
previously financed a portion of its machinery and equipment. Under the terms
of the agreement, the Company obtained title to certain machinery and
equipment that had been secured by lease financing provided by Digital, which
resulted in an extraordinary gain to the Company of approximately $5.2 million
in 1993. See Note 3 of Notes to Consolidated Financial Statements.
Income Taxes
To date, the Company has not recorded a provision for income taxes due to
losses having been incurred and the carryforward of prior losses for income
tax purposes. As of December 31, 1995, the Company had net operating loss
carryforwards of approximately $23.5 million and $10.5 million for federal and
California state income tax purposes, respectively. Also, the Company had
research credit carryforwards of approximately $2.4 million and $0.9 million
for federal and California state income tax purposes, respectively. If not
utilized, these federal and California state carryforwards expire beginning in
1996 through 2010.
Under certain provisions of the Internal Revenue Code of 1986, as amended,
the availability of the Company's operating loss and credit carryforwards may
be subjected to limitation if it should be determined that there has been a
change of ownership of more than 50% of the value of the Company's stock
within any three year period. The Company does not anticipate that a material
limitation on its ability to use such carryforwards will result from this
Offering. See Note 4 of Notes to Consolidated Financial Statements.
THREE MONTHS ENDED APRIL 2, 1995 AND MARCH 31, 1996
Revenue
Product Sales. Revenue derived from product sales increased from
approximately $4.5 million during the three months ended April 2, 1995 to
approximately $9.4 million during the three months ended March 31, 1996 due to
increased sales of the Company's high-speed logic products and, to a lesser
extent, increased sales of the Company's ClockWorks products. Product sales to
customers in Japan through the Company's Japanese distributor, H.Y.
Associates, constituted 44.6% and 36.9% of total product sales for the three
months ended March 31, 1996 and April 2, 1995, respectively. The growth in
product sales to H.Y. Associates accounted for 51.7% of the Company's product
sales growth in the quarter ended March 31, 1996 as compared to the quarter
ended April 2, 1995. Sales to each of NORTEL and H.Y. Associates represented
greater than 10% of the Company's total net revenues for the three months
ended April 2, 1995.
Product Gross Margin
The following table sets forth the product gross margin obtained by the
Company on its product sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
APR. 2, MAR. 31,
1995 1996
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Product sales....................................... $ 4,511 $ 9,389
Cost of product sales............................... 2,251 4,766
Product gross margin................................ 2,260 4,623
Product gross margin percentage..................... 50.1% 49.2%
</TABLE>
27
<PAGE>
Product gross margin percentage remained relatively constant for the three
months ended April 2, 1995 and March 31, 1996 at approximately 50.1% and
49.2%, respectively.
Research and Development
Research and development expenses for the three months ended April 2, 1995
and March 31, 1996 were relatively consistent at $1.8 million for each period.
Research and development expenses decreased as a percentage of total net
revenues from 38.7% for the three months ended April 2, 1995 to 18.8% for the
three months ended March 31, 1996 due to the increase in sales during such
periods.
Selling, General and Administrative
Selling, general and administrative expense increased from approximately
$825,000 for the three months ended April 2, 1995 to approximately $1.5
million for the three months ended March 31, 1996 due primarily to the
increased personnel, sales commissions and promotional activity related to the
introduction of new products.
28
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial
information for the five quarters ended March 31, 1996 as well as such data
expressed as a percentage of the Company's total net revenues for the periods
indicated. The data has been prepared on a basis consistent with the Company's
audited consolidated financial statements included elsewhere in this
Prospectus and includes all necessary adjustments, consisting only of normal
recurring accruals that management considers necessary for a fair
presentation. The Company believes that the results of operations for the
interim periods are not necessarily indicative of the results to be expected
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
APRIL 2, JULY 2, OCT. 1, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996
-------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues:
Product sales.................. $4,511 $5,011 $6,324 $7,498 $9,389
Contract engineering........... 49 428 264 300 198
License and fees............... -- 1,300 -- -- --
------ ------ ------ ------ ------
Total net revenues........... 4,560 6,739 6,588 7,798 9,587
Cost of product sales............ 2,251 2,390 2,815 3,363 4,766
------ ------ ------ ------ ------
Gross margin..................... 2,309 4,349 3,773 4,435 4,821
Operating expenses:
Research and development....... 1,764 1,906 1,929 2,194 1,806
Selling, general and
administrative................ 825 890 979 1,216 1,489
------ ------ ------ ------ ------
Total operating expenses......... 2,589 2,796 2,908 3,410 3,295
------ ------ ------ ------ ------
Income (loss) from operations.... (280) 1,553 865 1,025 1,526
Other expense, net............... (136) (125) (128) (121) (92)
------ ------ ------ ------ ------
Net income (loss)................ $ (416) $1,428 $ 737 $ 904 $1,434
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
APRIL 2, JULY 2, OCT. 1, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues:
Product sales..................... 98.9% 74.3% 96.0% 96.2% 97.9%
Contract engineering.............. 1.1 6.4 4.0 3.8 2.1
License fees...................... -- 19.3 -- -- --
----- ----- ----- ----- -----
Total net revenues.............. 100.0 100.0 100.0 100.0 100.0
Cost of product sales............... 49.4 35.5 42.7 43.1 49.7
----- ----- ----- ----- -----
Gross margin........................ 50.6 64.5 57.3 56.9 50.3
Operating expenses:
Research and development.......... 38.7 28.3 29.3 28.1 18.8
Selling, general and
administrative................... 18.1 13.2 14.9 15.6 15.5
----- ----- ----- ----- -----
Total operating expenses............ 56.8 41.5 44.2 43.7 34.3
----- ----- ----- ----- -----
Income (loss) from operations....... (6.2) 23.0 13.1 13.2 16.0
Other expenses, net................. (3.0) (1.8) (1.9) (1.6) (1.0)
----- ----- ----- ----- -----
Net income (loss)................... (9.2)% 21.2% 11.2% 11.6% 15.0%
===== ===== ===== ===== =====
</TABLE>
Total net revenues generally increased during the five quarters ended March
31, 1996 with the exception of a slight decrease in the third quarter of 1995.
This decrease is due to receipt of license fees of $1.3 million in the
second quarter of 1995 due to the completion of certain milestones pursuant to
the Linear Technology
29
<PAGE>
Corporation license agreement. Research and development expenses decreased
from approximately $2.2 million for the fourth quarter of 1995 to
approximately $1.8 million for the first quarter of 1996 primarily due to the
reassignment of certain research and development personnel to marketing and to
the completion in 1995 of certain research and development projects in the
SuperCOM product family. Selling, general and administrative expenses
increased from approximately $1.0 million for the third quarter of 1995 to
approximately $1.2 million and approximately $1.5 million for the fourth
quarter of 1995 and the first quarter of 1996, respectively. This increase is
primarily due to increased headcount of selling and administrative personnel
and increased sales commissions.
Product Gross Margin
The following table sets forth the product gross margin obtained by the
Company on its product sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
APRIL 2, JULY 2, OCT. 1, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996
-------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product sales........................ $4,511 $5,011 $6,324 $7,498 $9,389
Cost of sales........................ 2,251 2,390 2,815 3,363 4,766
Product gross margin................. 2,260 2,621 3,509 4,135 4,623
Product gross margin percentage...... 50.1% 52.3% 55.5% 55.1% 49.2%
</TABLE>
Product gross margins generally increased during 1995 while a decrease
occurred in the first quarter of 1996. The increases during 1995 were
primarily due to the Company's shift in product mix to higher margin high-
speed logic and ClockWorks products and increased manufacturing efficiencies
and utilization. The benefit of the Company's higher margin product mix
continued in the first quarter of 1996 but was offset by increased assembly
and higher packaging material costs of certain products and an increase in
inventory obsolescence reserves.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and met its capital requirements
since inception through approximately $39.2 million in equity financings, cash
flow from operations and bank financing. At March 31, 1996, working capital
was approximately $5.0 million and the Company had approximately $2.3 million
of cash and cash equivalents. The Company's additional source of liquidity as
of March 31, 1996 consisted of a revolving bank line of credit and term loan
that permit combined borrowings of up to $5.5 million. As of March 31, 1996,
the Company had $2.3 million of borrowings outstanding under the line of
credit and approximately $2.1 million in borrowings were available under the
line of credit. The Company also had approximately $1.1 million in borrowings
outstanding under the term loan. Indebtedness under the line of credit and the
term loan bear interest at the bank's prime rate plus 1.5% and are secured by
substantially all of the Company's assets. The line of credit expires and the
principal and interest outstanding under the term loan are due and payable in
December 1996.
The Company used net cash in operations of $3.3 million and $1.6 million in
1993 and 1994, respectively. Net cash provided by operations in 1995 and the
first three months of 1996 was $1.3 million and $715,000, respectively. Net
cash provided during the first three months of 1996 consisted primarily of net
income offset by a decrease in accounts payable. Net cash provided in 1995
consisted primarily of net income, depreciation, and an increase in accrued
expenses partially offset by an increase in inventories. Net cash used in 1994
consisted primarily of increases in accounts receivable and inventories,
partially offset by increases in accounts payable. Net cash used in 1993
consisted primarily of a loss from operations.
Net cash used in investing activities was $430,000, $675,000, $720,000 and
$150,000 in 1993, 1994, 1995 and the first three months of 1996, respectively.
Net cash used in investing activities in 1993, 1994, 1995 and the first three
months of 1996 relates primarily to general purchases of computers, equipment,
furniture and fixtures.
30
<PAGE>
Net cash provided by financing activities in 1993, 1994 and 1995 was
$2.1 million, $2.5 million, and $1.1 million, respectively. Net cash used for
the first three months of 1996 was $200,000 and consisted primarily of the net
payments on the accounts receivable line of credit and promissory note. Net
cash provided by financing activities in 1995 consisted primarily of the net
borrowings from the accounts receivable line of credit and the issuance of
preferred stock. Net cash provided in 1994 consisted primarily of net
borrowings from the accounts receivable line of credit and the issuance of
bridge loans and promissory notes. Net cash provided in 1993 consisted
primarily of net borrowings from the issuance of bridge loans and a promissory
note.
The Company believes the net proceeds from this offering, together with
existing cash and cash equivalents and credit facilities will be sufficient to
meets its cash requirements for at least the next twelve months. While
operating activities may provide cash in certain periods, to the extent the
Company may experience growth in the future, the Company anticipates that its
operating and investing activities may use cash and, consequently, such growth
may require the Company to obtain additional sources of financing. The Company
may also from time to time consider the acquisition of complementary
businesses, products or technologies, which may require additional financing.
31
<PAGE>
BUSINESS
The following business description contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth in
"Risk Factors" and elsewhere in this Prospectus.
Synergy Semiconductor Corporation ("Synergy" or the "Company") designs,
develops, manufactures and markets high-performance digital and mixed-signal
integrated circuits ("ICs") using its proprietary Bipolar and BiCMOS
processes. The Company's products include high-speed digital logic for
advanced system applications, precision mixed-signal time-clock generators for
high-performance workstations and telecommunication systems, and mixed-signal
communications circuits for local and wide area networks. Synergy's
proprietary design and process technologies facilitate the development and
production of high-performance integrated circuits. The Company's products are
designed by an internal design team, and the Company possesses in-house wafer
fabrication and state of the art wafer probing and product test capabilities.
BACKGROUND
Types of Integrated Circuits
There are three basic types of ICs: (i) analog, (ii) digital and (iii) mixed
analog and digital ICs known as "mixed-signal" ICs. Digital ICs generally
process or store digital information in the form of bits, or coded electrical
signals that take on only two values ("1" or "0," or "on" or "off"). Digital
ICs contain logic or memory elements that are made up of functions such as
logic gates and memory cells, which are replicated in the IC to form devices
such as microprocessors and DRAMS. Analog ICs process continuously varying
signals from naturally occurring physical phenomena such as sound, images,
temperature, pressure, voltage, current and frequency. Analog integrated
circuits are also used to transmit and receive information via radio waves or
through cables and to drive displays such as CRTs and LCDs. Mixed signal ICs
are complex ICs that integrate analog and digital functions in the same IC.
Market Requirements
Manufacturers of electronic systems face increasing market pressure to
develop and commercially introduce smaller, faster and higher performance
systems. These electronic systems must also be reliable, cost-effective and
efficient in their use of power. As a result, system manufacturers are
demanding higher speed system components with smaller form factors, greater
reliability and lower power consumption at lower costs. In addition, as design
and product life cycles for many electronic systems continue to decrease,
electronic systems manufacturers are under pressure to decrease the time to
market of new products.
The input and output functions of most electronic systems are analog in
nature while the heart of such systems contains digital functions. For
example, the acquisition and output of sound by a cellular telephone is an
analog function, but the processing and storage of such sound are digital
functions. Accordingly, complex electronic systems such as cellular telephones
require both analog and digital circuitry. To achieve performance improvements
such as lower power, smaller size and higher data rates, systems designers are
integrating more and more functions onto a single IC. Less power is required
for a circuit to communicate with another circuit on the same chip than with a
circuit on a chip elsewhere in the electronic system. Also, circuits can
communicate faster with adjacent circuitry than with adjacent ICs; therefore,
increased integration also improves performance. For these and other reasons,
there is an increasing trend towards integrating more and more functionality
onto a single IC. Traditionally, either digital or more complex analog
functions have been integrated on a single IC. To effectively meet today's
market demands, however, electronic systems manufacturers seek solutions that
integrate both analog and digital functions on one or a few mixed signal ICs
to increase system reliability and performance while decreasing size and cost.
Furthermore, these manufacturers require integrated solutions that can be
designed and delivered in accordance with such manufacturers' cost and time to
market requirements.
Integrated Circuit Processes
Silicon integrated circuits typically are fabricated with one of three
common process technologies: Bipolar, Complementary Metal Oxide Semiconductor
("CMOS"), or a combination of Bipolar and CMOS ("BiCMOS"). Gallium Arsenide
("GaAs") can be used as an alternative substrate to silicon.
32
<PAGE>
ICs manufactured using Bipolar processes can be used effectively in analog
applications and applications that drive heavy load currents and process
signals at high speeds. Bipolar transistors also function well in very high-
speed digital applications. However, most currently available Bipolar
technologies in production today are not capable of meeting the challenges of
higher levels of integration because the transistors are large and consume too
much power.
ICs manufactured using CMOS processes operate at very low power and, when
scaled to small dimensions, can be used in high-speed digital processing
applications. However, CMOS technology cannot be used effectively in high-
speed mixed-signal and precision analog applications because, with scaled
CMOS, it is difficult to build the matched transistors necessary to handle low
level analog signals.
BiCMOS would seem to offer the best solution for mixed signal ICs because
the CMOS could be used for the digital functions and the Bipolar could be used
for the analog functions. However, while Bipolar and CMOS may effectively
address analog and digital functions, respectively, they compromise each other
when they are integrated in a single BiCMOS IC. For example, the high-
performance Bipolar analog circuitry in BiCMOS devices is subject to
performance degradation due to crosstalk and noise generated by the CMOS
logic. Thus, the high performance of the analog functions is hampered.
Finally, BiCMOS process technology requires more masking steps than either
CMOS or Bipolar technologies and, therefore, is more expensive.
GaAs integrated circuits are very high speed circuits, but are expensive
relative to silicon ICs because GaAs is a more expensive substrate material
than silicon. In addition, GaAs ICs are not well suited for precision analog
applications because the construction of matched transistors, crucial to
producing precision analog circuits, is very difficult to accomplish with
GaAs.
Integrating analog and digital functions presents considerable technical and
other obstacles, particularly at speeds greater than 100 MHz. Specifically:
. Analog circuits are difficult to design because they must handle very
small signals with a high degree of accuracy. Consequently, the
components that comprise an analog circuit require precise placement
within the IC layout to assure satisfactory performance. Also, in
integrating analog and digital functions on a single IC, designers must
be careful that the "on and off" switching of digital circuits does not
interfere with the very small signals being handled by the precision
analog circuits.
. The complexity and variability of analog design has made it difficult to
develop automated design tools similar to those available for digital
circuit design. As a result, most analog ICs are designed by hand.
. Mixed-signal IC designers face significant challenges in designing
affordable high-speed mixed-signal ICs due to the increasing complexity
of electronic systems.
. Due to the high degree of skill required in analog design, there are a
limited number of qualified analog designers.
THE SYNERGY APPROACH
Synergy designs and produces high performance digital and mixed-signal ICs
for use in high-speed computer and communications applications. The key
elements of the Company's approach are the Company's internally developed
proprietary process technologies and automated design methodologies. The
Company believes that these capabilities, in concert, address customers'
performance, size, reliability, cost, power and time to market requirements in
applications that run at speeds greater than 100 MHz and data transmission
rates greater than 100 Mbps.
The Company utilizes its proprietary Bipolar All Spacer Separated Element
Transistor ("ASSET ") manufacturing process technology, which has been
installed in its in-house wafer fabrication facility, and a proprietary design
methodology to produce bipolar logic products and mixed-signal clock and
timing circuits, and communications products. The Company's ASSET process
technology is scaleable and utilizes a device
33
<PAGE>
architecture that the Company believes results in smaller, higher density
devices with higher speeds and improved performance. The Company's basic high
performance ASSET transistor is small, 50 square microns in size, and has an
upper cut-off frequency of 17 GHz. The Company has also developed an equally
small and fast BiCMOS version of this ASSET technology. The Company is
developing a next generation version of these technologies that is designed to
be simpler, less costly to manufacture, higher performance, and capable of
providing further reductions in device size as the process architecture is
refined.
Synergy has developed an efficient proprietary design process that allows
the Company to quickly respond to the demands of the marketplace for both the
design of new products and production of existing products. Instead of
designing each new IC from the ground up, and having to create and then build
a completely new device for each new product, Synergy has developed a series
of base arrays--arrays of components that only need to be interconnected to
form a complete function. The Company processes base array wafers up to but
not including interconnecting the components--the step known as metalization.
As new orders are received, the wafers only need to be metalized with the
proper masks and finished through the manufacturing process, greatly reducing
the time from receipt of order to shipment. Similarly, to develop a new
function, the designer needs only to create a new interconnection plan for a
base array. This is then used to generate new metalization masks for the base
array, and only these new masks need to be used to produce a new product--
again, greatly reducing the time to market for new products.
The Company believes that the combination of its ASSET technology and
proprietary cell-array design methodology enables the Company to design,
manufacture and market digital and mixed-signal ICs that provide performance
and functionality advantages while reducing circuit size and cost. The Company
further believes that these technologies combined with its in-house wafer
fabrication facility provides it with the ability to quickly design and
manufacture new products and product enhancements, thereby enabling the
Company to quickly respond to changing customer requirements.
STRATEGY
Synergy's objective is to be the leading supplier of high-speed, high-
performance mixed-signal solutions for the computing, networking and
telecommunications industries. The key elements of Synergy's business strategy
include:
Maintain Technological Leadership
The Company has utilized its proprietary ASSET process technology and design
methodologies to become a leader in the design and manufacture of mixed-signal
integrated circuits operating at frequencies above 100 MHz and at data
processing rates above 100 Mbps. Due to its mixed-signal design expertise and
the high level of electrical isolation achieved with its proprietary ASSET
process technology, the Company is able to define and implement optimal
combinations of design elements for desired analog and digital functions at
extremely high data rates. To maintain its technology leadership, the Company
plans to further enhance its proprietary ASSET technology to provide high-
speed solutions as system speeds increase beyond 2.5 GHz.
Target High-Growth, High-Speed, Mixed-Signal, Standard Product Applications
The Company is currently targeting computing, networking and
telecommunications applications requiring mixed-signal capabilities at
frequencies above 100 MHz and at data rates above 100 Mbps--speeds at which
the Company's technology can offer a competitive advantage. The Company
believes that its products offer customers a better price/performance ratio
and faster time-to-market than ICs that have a limited amount of analog
circuitry or ICs that require additional external discrete analog or digital
circuits. The Company's highly integrated networking and communications
products serve the Fast Ethernet, Asynchronous Transfer Mode ("ATM") and
Synchronous Optical Network ("SONET") markets. The Company intends to continue
to target such high-speed applications because the Company believes that the
markets for these applications have the most potential for growth.
34
<PAGE>
Maintain a Strategic Level of Logic Products Revenue
The Company provides high-speed digital logic products for
telecommunications, data communications, computing and automatic test
equipment ("ATE") systems applications. Although the Company anticipates that
a majority of its new product introductions will consist of products in its
ClockWorks and SuperCOM product families, the Company intends to continue
marketing, selling and supporting its logic products, including the ECLinPS,
ECLinPS LITE and Super300K product lines, because sales of these products
result in higher than average gross margins for the Company and revenues from
such sales can be used to support the research and development of the
Company's other products. In addition, the Company believes that it can
leverage its expertise in the development and sale of high-speed logic
products to establish relationships with new customers that may also
potentially purchase the Company's other products.
Leverage In-house Process Development and Wafer Fabrication
Synergy designs its products utilizing its proprietary processes and its
design methodologies. The Company installs its proprietary process
technologies in its internal wafer fabrication facility and manufactures its
products in this facility. The Company's ability to combine its internal
design and manufacturing capabilities enables the Company to quickly implement
process improvements and reduce manufacturing cycle time, which the Company
believes facilitates rapid new product introduction. The Company has also
implemented its internally developed proprietary process technologies in
certain external wafer fabrication facilities for the production of higher
volume products and to ensure that internal manufacturing capacity remains
available for continued product development. The Company also believes that
its internal wafer fabrication facility provides a competitive advantage
because it permits close collaboration between design and process engineers in
the development of the Company's products.
Leverage Key Strategic Relationships
The Company currently has a number of key strategic relationships that has
given the Company access to external wafer foundries, joint process and
product development opportunities, sources of capital funding, marketing
expertise and a presence in foreign markets. The Company intends to maintain
its current strategic relationships and enter into new partnering arrangements
that will enhance the Company's competitiveness.
MARKETS
Synergy's goal is to leverage its proprietary ASSET technology to produce
products for applications in markets that require high-speed, mixed-signal ICs
at a competitive cost. The Company has targeted the following markets for its
ASSET based products:
High-Speed Logic Market
Synergy targets high performance system applications in the workstation,
networking, telecommunications and ATE industries, which require high-speed
logic devices operating at speeds in excess of 100 MHz. These high-performance
systems have created a need for greater levels of integration in the ICs used
in such systems. Typically, highly integrated ICs such as microprocessors and
500,000-gate logic devices require some additional logic functions that enable
a systems designer to interconnect, or interface, the various parts of the
system. As the performance requirements of the system increase, so must the
speed for these logic devices. The Company has used its ASSET technology to
produce several families of high-speed logic devices designed specifically for
use in such high-speed systems.
High-Speed Clock Market
Using its proprietary ASSET technology, Synergy has developed high-speed,
mixed-signal ICs for use in high-speed clock generation that can perform in
the range from 100 MHz to 1 GHz at a much lower cost than comparable high
frequency crystal oscillators. Recently, there has been a rapid increase in
the clock speeds at
35
<PAGE>
which computers run. For example, in 1990 personal computers ran at speeds up
to 33 MHz, while today personal computers can run at speeds up to 160 MHz and
workstations at speeds up to 300 MHz. As computer system clock speeds increase
beyond 100 MHz, it becomes increasingly difficult and expensive to generate
the precise timing signals that are required to keep the different subsystems
in the computer in proper synchronization. Furthermore, once the precise
timing signals have been generated, they must be distributed throughout the
system without loss of signal integrity or synchronization. Traditionally,
this clock generation and control task has been accomplished through the use
of high frequency crystal oscillators. However, at greater than 100 MHz the
crystal oscillators that are needed to maintain the necessary signal integrity
are expensive, resulting in a significant increase in overall system cost. The
Company's high-speed, mixed-signal ICs, coupled with a less expensive low
frequency crystal, generate the required accurate high-frequency system clock.
Networking and Telecommunications Market
Leveraging its expertise in high-speed logic and clock products, the Company
has recently introduced a number of protocol compatible, high-speed mixed-
signal ICs for use in the networking and telecommunications markets. In many
user environments, computers and workstations are interconnected by a local
area network ("LAN"). As the speed and data processing rate of the computers
on the LAN increase, the data rate of the LAN must likewise increase. This
need for higher data rates has led to the rapid adoption of Fast Ethernet,
which handles data at rates of 100 Mbps. Currently, Fast Ethernet LANs are
interconnected using Fiber Distributed Data Interface ("FDDI") operating at
greater than 100 Mbps, respectively. Network equipment providers have
identified ATM as the next generation communications protocol and it is
currently anticipated that in the future Fast Ethernet LANS will be
interconnected using ATM protocols operating at greater than 1.2 Gbps. ATM
enables the integration of high-speed, high volume data communications with
voice, video and imaging applications over a single line. One of ATM's primary
advantages is that it can be carried transparently by SONET and Synchronous
Digital Hierarchy ("SDH") systems, thereby enabling the widespread
interoperability of network systems. Although the development of ATM systems
is currently focused on interconnecting LANs and connecting LANs to wide-area
networks ("WANs"), industry observers believe, as costs are reduced, ATM
systems will migrate to the desktop. In addition, as worldwide
telecommunications service providers expand their digital WANs to carry more
telephone, facsimile, video and data communications, they are adopting SONET
and SDH as their network protocols. As the speed and data rates of networks
and computers on such networks continue to increase, system manufacturers will
need ICs that operate at data rates at increasingly higher speeds above 100
Mbps. A new protocol called Gigabit Ethernet, or 1000 Base T, is currently
being developed by the Gigabit Ethernet Alliance, a group of companies
including Bay Networks, Cisco Systems, Sun Microsystems, IBM and several
others. Like ATM, Gigabit Ethernet will require ICs that operate at 1 GHz and
above. The Company is focusing a major portion of its new product development
efforts in the networking and telecommunications market and believes this
market will be an increasingly important part of the Company's business.
However there can be no assurance that these product development efforts will
result in the successful introduction of new products in this market. If the
Company is unable to successfully introduce new networking and
telecommunications products, the Company's business, financial condition and
operating results could be materially adversely affected. See "Risk Factors--
Dependence on New Products."
36
<PAGE>
CUSTOMERS AND APPLICATIONS
Synergy's customers are manufacturers of high-speed systems, in the
telecommunications, networking, workstation and automatic test equipment
industries. Synergy ships products to more than 35 customers directly and to
more than 65 customers through the Company's distributors. The following table
lists representative customers organized by application.
<TABLE>
<CAPTION>
SYNERGY PRODUCT FAMILY PURCHASED
----------------------------------------
HIGH-SPEED
APPLICATION CUSTOMER LOGIC CLOCKWORKS SUPERCOM
- ----------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Telecommunications Alcatel Network Systems X X
American Telephone and
Telegraph Corp. X
DSC Communications X X
Corporation
Hitachi, Ltd. X
Lucent Technologies, Inc. X X
Mitsubishi Corporation X
NEC Corporation X X
NORTEL Corp. X X X
NTT, Inc. X
Networking 3Com Corporation X
Cabletron Systems, Inc. X X
Compaq Computer Corp. X
Finisar Corporation X
PMC-Sierra Inc. U.S. X
Workstation ROSS Technology, Inc. X X
Silicon Graphics, Inc. X
Sun Microsystems, Inc. X X
Digital Equipment Corp. X X
Automatic Test Equipment Ando Corp. X
Asia Electronics Inc. X
Avantest Corporation X
Guzik Technical Services, X
Inc.
LTX Corp. X
Schlumberger Limited X
Teradyne, Inc. X
Texas Instruments X
Incorporated
</TABLE>
Recent examples of Synergy "design wins" for customer systems include the
following:
. Sun recently began installing Synergy's ClockWorks products in certain of
its workstations to replace more expensive crystal oscillators.
. PMC-Sierra recently began installing Synergy's ATM transceiver products
for use in certain of their OC-12 modules. The Company believes this was
due in part to the performance of the high-speed, low-jitter Phase Locked
Loop ("PLL") circuitry of the transceiver products.
. NORTEL has selected Synergy to supply digital WAN transceivers for use in
certain NORTEL systems. The Company's single IC replaces a printed
circuit board previously used in these systems.
. Lucent recently qualified Synergy to supply high-speed logic and
ClockWorks circuits for a number of Lucent network systems. The Company
believes its electro-static discharge ("ESD") circuitry was an important
factor in its qualification as a supplier to Lucent.
37
<PAGE>
Historically a significant portion of the Company revenues in any particular
period have been attributable to sales to a limited number of customers. Sales
to H.Y. Associates (the Company's distributor in Japan) represented more than
10% of the Company's total net revenues in 1994, 1995 and the three months
ended March 31, 1996 and sales to each of NORTEL and LTX represented more than
10% of the Company's total net revenues in 1994. See "Risk Factors--Customer
Concentration."
PRODUCTS
Synergy supplies high-speed digital and mixed-signal ICs to makers of a
variety of systems, including public network equipment, LAN and WAN private
network equipment, high-performance workstations and ATE. The Company's
products have typical selling prices ranging from $5 to $200, depending on
volume and function.
High-Speed Logic Products
Synergy's high-speed digital logic products are used in high-performance
systems applications in the telecommunications, networking, workstation and
ATE industries that require logic devices that operate at speeds in excess of
100MHz. The Company's high-speed logic product families include the 10KH,
100K, 300K, ECLinPS, ECLinPS LITE, and Super300K lines. Synergy's logic family
includes over 200 different product types at typical selling prices ranging
from $5 to $20, depending on volume and function.
The ECLinPS and ECLinPS LITE families of products are alternate sources to
those provided by Motorola. The Company also offers ECLinPS and ECLinPS LITE
products with proprietary functions not offered by Motorola. When ICs are
being assembled into an electronic system, they are often accidentally damaged
by static electricity discharge known as "ESD." Synergy offers the customer a
significant advantage in protection against accidental ESD by building into
its products ESD circuitry that typically protects products against this
damage to levels exceeding 2000 volts. The Company believes that it provides
higher ESD voltage protection than is currently built into high-speed logic
products offered by other suppliers.
The Super300K family is a proprietary family of products based upon National
Semiconductor's 100K line. By combining Synergy's design expertise and high-
speed ASSET technology, the Company is able to offer pin-compatible 300K
series devices with significantly higher speed and reduced power consumption,
both resulting in benefits to the high-performance system designer. The
Company believes that its pin-compatible Super300K series devices operate at
speeds of up to twice as fast while consuming the same power as devices from
major competitors. In addition, 2,000 volt ESD protection is built into these
Synergy products.
The Company's key high-speed logic product families used in
telecommunications, computing and ATE applications are set forth below:
<TABLE>
<CAPTION>
PRODUCT NUMBER OF RANGE OF
FAMILY PRODUCTS DEVICE SPEED
------- --------- ------------
<S> <C> <C>
ECLinPS 90 150ps-4.7ns
ECLinPS LITE 57 100ps-3.5ns
Super300K 38 200ps-6.4ns
Translators 37 100ps-6.5ns
</TABLE>
ClockWorks Products
Synergy's ClockWorks products are used in high-speed workstations and
telecommunications products that run at speeds greater than 100 MHz. The
Company believes its ClockWorks products aid the high-speed systems designer
by simplifying the task of implementing a reliable, low-noise clock system at
clock speeds of greater than 100 MHz and are used in high-speed workstations
and telecommunications applications. The Company's ClockWorks product family
consists of five types of devices: Frequency Synthesizers, Clock Generators,
Clock Distribution and Drivers, Programmable Delays Lines and PLLs. These
devices can be combined to serve most clock system requirements. Frequency
synthesizers and clock distribution and drivers form the backbone of clock
"trees" or networks in any clock system. Frequency synthesizers are designed
to generate the high frequency clock signals that are required for high-speed
systems. The frequency of these clock signals must be extremely
38
<PAGE>
accurate and reproducible. This requirement is termed "low jitter." Clock
distribution and drivers are designed for distributing and driving high-
frequency clock signals within the system. This must be accomplished while
maintaining the accuracy of each signal with respect to the other signals.
This requirement is termed "low skew." For solving more critical timing
problems and race conditions, programmable delay lines and PLLs can be added
to the clock system design. Programmable delay lines permit the system
designer to either remove naturally occurring skew from the clock tree, or to
induce a controlled skew when required by special clock system considerations.
PLLs are used in conjunction with clock distribution and driver devices to
produce precise copies of phase-coherent clock signals (i.e., zero phase shift
relative to inputs and outputs) and frequency-multiplied clock signals.
The ClockWorks family combines the Company's ASSET process technology and
advanced PLL technology to provide adequate drive for heavy load requirements
and superior stability performance and reduced jitter. The Company believes
that these products offer substantially improved drive and jitter performance
as compared to competing products implemented in either CMOS or GaAs. The
Company believes that any digital or mixed-signal system with operating
frequencies above 100 MHz faces system clock generation and distribution
design challenges that are difficult to meet with conventional crystal
oscillators. As a result, the Company targets designers of workstations and
high-end personal computers with its ClockWorks family of products.
Synergy's ClockWorks family of products consists of the following products
and products under development:
<TABLE>
<CAPTION>
PRODUCTION
PRODUCT RELEASE
EXAMPLES DATE DESCRIPTION APPLICATION
- -------- ---------- ----------- -----------
<S> <C> <C> <C>
SY10/100EL34/L 2H 95 Clock Generators Communications, Computing,
ATE
SY10/100EL38/L 1H 96
SY100S834/L 2H 96* Clock Generators Communications, Computing,
ATE
SY100S838/L 1H 96
SY10/100EL15 2H 95 1:4 Clock Distrib. Buffer Communications, Computing,
ATE
SY100S815 2H 95 1:4 Clock Distrib. Buffer Communications, Computing,
ATE
SY10/100H841 2H 94 1:4 PECL:TTL Clock Drivers Communications, Computing,
ATE
SY10/100H842 2H 94
SY10/100H646 2H 96* 1:8 Translating Clock Communications, Computing,
Drivers ATE
SY10/100E195 2H 90 Programmable Delay Elements Communications, Computing,
ATE
SY10/100E196 2H 90
SY10/100E111 1H 90 1:9 Diff. Clock Drivers Communications, Computing,
ATE
SY10/100E111L 1H 96
SY100S811 2H 94 1:9 Translating Clock Communications, Computing,
Drivers ATE
SY10/100H641 2H 94
SY89429 1H 96 Frequency Synthesizer, Telecom/Networking Systems,
25-400 MHz Workstations/Superservers
SY89420/L 2H 96* Dual Wideband PLL Telecom/Networking Systems,
Workstations/Superservers
SY89421/L 2H 96* Enhanced Wideband PLL Telecom/Networking Systems,
Workstations/Superservers
</TABLE>
- --------
* Anticipated production release date; there can be no assurance that the
Company will successfully release these products in these time periods.
39
<PAGE>
<TABLE>
<CAPTION>
PRODUCTION
PRODUCT RELEASE
EXAMPLES DATE DESCRIPTION APPLICATION
- -------- ---------- ----------- -----------
<S> <C> <C> <C>
SY89423/L 2H 96* Enhanced Dual Wideband PLL Telecom/Networking Systems,
Workstations/Superservers
SY89424 2H 96* Frequency Synthesizer, 60 Telecom/Networking Systems,
MHz to 1 GHz Workstations/Superservers
SY89429L 2H 96* Low Voltage (3.3V) Frequency Telecom/Networking Systems,
Synthesizer, 31.25-510 MHz Workstations/Superservers
SY89061 2H 96* Frequency Synthesizer Telecom/Networking Systems,
500-700 MHz Workstations/Superservers
SY89800 2H 96* Clock Generators for HP Workstations/Superservers
SY89801 PA8000 Microprocessor using PA8000 uP
</TABLE>
- --------
* Anticipated production release date; there can be no assurance that the
Company will successfully release these products in these time periods.
SuperCOM Products
LAN Products
Synergy's LAN products are used in adapter cards, hubs, routers and switches
that connect users to LANs. The Company's LAN products include devices that
provide physical interfaces to DS3 and E3 standards, 100BaseTX and 100BaseFX
Fast Ethernet standards and FDDI standards. Synergy's LAN products provide a
high level of integration and cost and performance advantages relative to
discrete or alternative IC solutions. The typical selling prices of these
products range from $10 to $100, depending on function and volume. The
Company's LAN product line includes the following product and products under
development:
<TABLE>
<CAPTION>
PRODUCTION
RELEASE
PRODUCT DATE DESCRIPTION APPLICATION
- ------- ---------- ----------- -----------
<S> <C> <C> <C>
SY67671 1H 96 FDDI/Fast Ethernet Adaptive 100BaseTX and FDDI Adapter
Equalizer Card/Hub/Router
SY67223A 2H 96* FDDI/Fast Ethernet Adaptive 100BaseTX and FDDI Adapter
Equalizer Card/Hub/Router
SY67702 1H 97* FDDI/Fast Ethernet 100BaseTX and FDDI Adapter
Transceiver with Clock Card/Hub/Router
Recovery
SY67742 1H 97* Quad FDDI/Fast Ethernet 100BaseTX and FDDI
Transceiver with Clock Hub/Router
Recovery
SY67672 1H 96* ATM Transceiver/Adaptive ATM Adapter Card/Hub/Router
Equalizer
SY67703 2H 96* ATM Transceiver/Adaptive ATM Adaptor Card/Hub/Router
Equalizer with Clock
Recovery
SY87701 2H 96* Programmable Wide-Band Clock OC-3/STS-3 Adapter Card/DACS
Recovery Device FDDI/Fast Ethernet Adapter
Card
</TABLE>
- --------
* Anticipated production release date; there can be no assurance that the
Company will successfully release these products in these time periods.
40
<PAGE>
WAN Products
The Company offers WAN products compatible with SONET, SDH and ATM protocols
that provide a direct interface for fiber optic or coaxial cable transmission
in North America, Europe, Asia and Japan. Certain of the Company's WAN
products feature integrated clock recovery, a capability that the Company
believes is unique in the industry. The Company believes that its WAN products
provide a higher level of integration, as well as cost and performance
advantages as compared to discrete and competing IC solutions. The typical
selling prices of these products range from $20 and $200 depending on function
and volume. The Company's WAN product line includes the following products and
products under development for SONET, SDH and ATM applications:
<TABLE>
<CAPTION>
PRODUCTION
RELEASE
PRODUCT DATE DESCRIPTION
------- ---------- -----------
<C> <C> <S>
SY89425 2H 95 Dual 622 Mbps Clock Generator
SY89426 2H 95 622/155 Mbps Clock Generator
SY69612 1H 96 622 Mbps Transceiver
SY69712 1H 96 622 Mbps Transceiver with Clock Recovery
SY69743 1H 96 Quad 155 Mbps Transceiver with Clock Recovery
SY69951 1H 96 155 Mbps Transceiver with Clock Recovery
SY69952 1H 96 155 Mbps Transceiver with Clock Recovery
SY69748 1H 97* 2.5 Gbps Transmitter
SY69749 1H 97* Advanced 2.5 Gbps Receiver
SY69843 1H 97* Quad 155 Mbps Transceiver with Clock Recovery and Adaptive
Equalization
</TABLE>
- --------
* Anticipated production release date; there can be no assurance that the
Company will successfully release these products in these time periods.
SRAM Products
The Company also offers for sale 1K and 4K SRAMs in speed ranges from 3 ns
to 7 ns. The typical selling prices of the Company's SRAM products range from
$9 to $60 depending on volume and function.
TECHNOLOGY
Process
Synergy's proprietary Bipolar and BiCMOS ASSET technologies incorporate
advanced process modules and isolation techniques to provide speed and power
consumption advantages. Synergy's proprietary architectural innovations
provide customers with the following benefits:
. The Company's ASSET technology facilitates excellent electrical isolation
between adjacent circuit elements due to a narrow, deep trench isolation
technique. This feature enables the Company to provide multiple analog
functions as well as digital functions on the same IC without the various
circuits interfering with each other, as is common with alternative
techniques.
. The Company's ASSET technology utilizes deposited film spacers to
separate the low resistance transistor elements such as the base, emitter
and collector. This small separation, combined with the narrow trench
isolation and shallow junctions result in a low noise transistor that is
small--50 square microns, and is fast--17 GHz upper cut-off frequency.
This performance is achieved at only 200 micro amps of current. These
transistor characteristics allow the Company to develop and produce more
highly integrated and higher performance ICs as compared to ICs based on
alternative technologies.
41
<PAGE>
. The basic ASSET transistor can easily be modified to form an MOS
transistor. By adding gate oxide and adjusting doping profiles, CMOS
devices are created. This addition to the Bipolar technology results in a
high-performance BiCMOS technology. This technology combines Bipolar
analog capability with low-power CMOS logic to facilitate the design of
logic intensive mixed-signal products to meet customer product
requirements.
. The Company's proprietary architectural innovations allow the ASSET
technology to be produced by the Company without the need for expensive
submicron lithography. This gives the Company a significant cost of
manufacturing advantage.
Design
Synergy has developed a sophisticated design system that facilitates timely
and predictable implementation of digital and mixed-signal ICs. The mixed-
signal design and development process is a multi-disciplinary effort,
requiring substantial systems-level expertise, including knowledge of
particular formats, standards and architectural constraints associated with a
variety of targeted end-user applications. Synergy has developed a proprietary
library of dedicated cells, including analog cells, analog-compatible digital
standard cells, and transceiver blocks or "cores." This library consists of
more than 500 macrocells with various speed and power configurations. This
cell library permits the design of complex ICs incorporating analog and
digital functions. Each time a new analog or digital function is required, it
is designed in a fashion that permits the function to be added to the library.
Synergy uses standard computer aided design ("CAD") tools to perform the
schematic capture, simulation, design rule checks and layout verification of
its ICs. These tools interact with the Company's proprietary development tools
to perform cell design in an efficient, cost-effective and timely fashion.
SALES, MARKETING AND DISTRIBUTION
The Company utilizes 16 independent sales representative firms at 30
locations in the United States and Canada. The Company also sells its products
through three national distributor firms, Insight, Nu Horizons and Bell Micro
Products. The sales representatives are supported by Synergy's sales managers
and applications engineers located in three regional locations across the
United States.
The Company sells its products in Europe through SMI, its joint venture with
the Land Brandenburg. SMI utilizes independent sales companies to cover the
European market. The Company sells its products in Asia through stocking
representatives that serve as distributors for the Company as well as
representatives to major customers. The Company currently utilizes 12 such
sales companies in the Asian marketplace. Product sales outside of North
America, substantially all of which consist of sales to customers in Japan,
were approximately 24%, 33%, 49% and 49%, of the Company's total product sales
for 1993, 1994, 1995 and the three months ended March 31, 1996, respectively.
The Company anticipates that in the future international sales will continue
to account for a significant percentage of its net revenues. A significant
portion of the Company's sales will therefore be subject to risks associated
with international sales, including export controls, unexpected changes in
legal and regulatory requirements, policy changes affecting the markets for
semiconductors, computers and communication products, general economic
conditions, changes in tariffs, exchange rates and other barriers, political
and economic instability, difficulties in accounts receivable collection and
obtaining export licenses, difficulties in managing resellers or
representatives, difficulties in staffing and managing foreign operations,
difficulties in protecting the Company's intellectual property overseas,
seasonality of sales and potentially adverse tax consequences. Although the
Company's international sales to date have been denominated in United States
dollars, fluctuations in the United States dollar could increase the price in
local currencies of the Company's products in foreign markets and make the
Company's products relatively more expensive than competitors' products that
are denominated in local currencies. To the extent that the Company expands
its international operations or changes its pricing practices to denominate
prices in foreign currencies, the Company will be exposed to increased risks
of currency fluctuations. In addition, the fabrication facilities for the
silicon wafers produced by Toshiba and SMI are located in Japan and Germany,
respectively, and the Company may in the future qualify additional fabrication
facilities and other suppliers located outside of the United States. As a
42
<PAGE>
result, the Company's purchases of wafers and other supplies from foreign
companies are similarly subject to many of the same risks, including trade
restrictions and imposition of tariffs. Furthermore, the Company's
international sales may be adversely affected by lower sales levels that
typically occur during the summer months in Europe and other parts of the
world. In addition, although the Company's purchases of wafers from foreign
suppliers to date have been denominated in United States dollars, foreign
currency fluctuations may in the future affect the prices the Company is
required to pay for wafers. There can be no assurance that these factors will
not have a material adverse effect on the Company's future international sales
and, consequently, on the Company's business, financial condition and
operating results. See "Risk Factors--Dependence on Sales Representatives,
Japanese Distributor and SMI" and "--International Sales and Imports of
Materials."
Consistent with what the Company believes is standard industry practice, the
Company offers these distributors product return privileges and, in the event
the Company lowers the prices of its products, price protection on unsold
inventory. To date, neither product returns nor price protection under this
policy have had a material effect on the Company's operating results. The
Company attempts to stock products in quantities to meet customer demand.
Shortages can adversely affect customer relations, and surpluses can result in
obsolete inventories. The Company warrants that its products are free from
defects in workmanship and materials for one year and that they meet the
published specifications. Warranty expenses to date have been nominal. See
"Risk Factors--Competition" and "--Inventory Management and Obsolence."
MANUFACTURING
The majority of Synergy's wafers are manufactured at its facility in Santa
Clara, California. This 48,000 square foot facility, which contains a 7,000
square foot clean room facility, provides for test, and all production
processes except the epitaxial material process and 4,660 square feet of
additional manufacturing space. The Santa Clara facility is classified as a
Class 100 facility. The Company currently uses four-inch diameter wafers in
the production of its ICs. The Company is planning to open a new facility
during the third and fourth quarters of 1996. The building will house all
current manufacturing functions as well as engineering and administration. The
new 70,000 sq. foot site is located in Santa Clara, California. Concurrent
with the relocation, Synergy will also change the fabrication facility from
producing four inch (100mm) to six inch (150mm) diameter wafers. The Company
intends to continue to operate its current manufacturing facility during the
start-up of the new facility. The move to the larger building along with the
change in wafer size are expected to increase the Company's in house
manufacturing capability. The start-up of a new manufacturing facility
requires precise planning and execution. Numerous problems can arise in the
start-up of the new production line including, among other things, delays in
the delivery of needed equipment and supplies, poor start-up yields and other
manufacturing process issues. There can be no assurance that start-up of the
Company's new fabrication facility will not be delayed or cost more than
expected which would adversely affect the financial condition and results of
operations. See "Risk Factors--Relocation of Manufacturing Facility,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Use of Proceeds."
The manufacture of ICs is a highly complex and precise process. Minute
levels of contaminants in the manufacturing environment, defects in the masks
used to print circuits on a wafer, difficulties in the fabrication process or
other factors can cause a substantial percentage of wafers to be rejected or a
significant number of die on each wafer to be nonfunctional. In addition,
yields can be affected by minute impurities in the environment or other
problems that occur in the complex manufacturing process. Many of these
problems are difficult to diagnose and are time-consuming or expensive to
remedy. At various times in the past, the Company, using its internal
fabrication capacity, has experienced lower than anticipated yields that have
adversely affected production and, consequently, operating results. The
Company has experienced and continues to experience intermittent problems with
the manufacturing yields of its SRAM products. For example, in 1993 the
production of one of the Company's SRAM products resulted in low manufacturing
yields, which had a material adverse impact on the Company's business,
financial condition and operating results during such year. The Company also
recently experienced lower than anticipated manufacturing yields of a certain
WAN product. The Company also utilizes Toshiba and SMI as foundries to supply
certain of its wafer requirements. Although the Company
43
<PAGE>
works closely with Toshiba and SMI, these foundries have from time to time
experienced lower than anticipated manufacturing yields. In particular, each
of the Company's outside foundries experienced lower than anticipated
manufacturing yields when the Company first installed and started up its
process technologies in these foundries. Yield problems at one of the
Company's outside foundries associated with the installation and start-up of
the Company's process technologies adversely affected the Company's operating
results in 1993. In 1993 and 1994, one of the Company's outside foundries also
experienced lower than anticipated manufacturing yields of a product designed
for high-speed ATE applications. These manufacturing yields adversely affected
the Company's business, financial condition and operating results in 1993 and
1994. There can be no assurance that the Company's internal wafer fabrication
operation or the Company's outside foundries will not experience problems with
the manufacturing yields of current or future products or experience
irregularities or adverse yield fluctuations in manufacturing process in the
future, any of which could materially and adversely affect the Company's
business, financial condition and operating results. Furthermore, the majority
of the costs of manufacturing the Company's products are relatively fixed,
and, consequently, the number of shippable die per wafer for a given product
is critical to the Company's operating results. To the extent the Company or
either of its outside foundries does not achieve acceptable manufacturing
yields or experiences product shipment delay, the Company's business,
financial condition and operating results would be materially and adversely
affected. During periods of decreased demand, high fixed wafer fabrication
costs would have a material adverse effect on the Company's financial
condition and operating results.
Synergy's high-speed logic, ClockWorks products and SuperCOM family of
communication products are designed and manufactured using proprietary
standard base arrays of cells that can be rapidly personalized into any of the
Company's 200+ products simply by using the proper metalization mask set.
Currently, the Company has nine base arrays, which vary from a small array of
several hundred circuits that is used to manufacture the ECLinPS LITE logic
products, to large arrays of several hundred thousand circuit elements that
are used to manufacture certain of the Company's SuperCOM products. A supply
of wafers of each base array, complete except for the metalization steps, is
maintained in the Company's wafer fabrication facility. As orders are received
for products that are not in the finished product inventory at the time the
orders are received, wafers are processed with the proper mask set to meet
customer requirements. This strategy significantly reduces the time between
receipt of order and shipment of product.
The die on the wafers are electrically tested by the Company for performance
and most of the wafers are subsequently sent to independent contract assembly
facilities in Korea and other Asian countries. At such facilities, the wafers
are separated into individual circuits and packaged. The Company from time to
time has experienced competition for the assembly capacity of such independent
contractors from other manufacturers seeking assembly of circuits. Therefore,
the Company's reliance on independent assemblers may subject the Company to
longer than anticipated manufacturing cycle times, which could have a material
adverse affect on the Company's business, financial condition and operating
results in a given quarter. Although the Company currently believes that
alternative foreign assembly sources could be obtained without significant
interruption, there can be no assurance that such alternative sources could be
quickly obtained. Foreign assembly is subject to risks normally associated
with foreign operation, including changes in local governmental policies and
the imposition of export controls or increased import tariffs. Following
assembly, the Company's products are returned to its facility in Santa Clara,
California for testing and final inspection prior to shipment to customers.
See "Risk Factors--Manufacturing Risks."
INTELLECTUAL PROPERTY AND STRATEGIC RELATIONSHIPS AND LICENSES
Intellectual Property
Synergy has seven issued United States patents, one United States patent
that has been allowed but not issued and has an application for one United
States patent pending. The issued United States patents have expiration dates
ranging from 2007 through 2012. The Company has also been issued four foreign
patents and has five foreign patent applications pending. The issued patents
relate to certain aspects of the Company's ASSET process technology and
certain aspects of the Company's design technology. There can be no assurance
44
<PAGE>
that the Company's pending patent applications will be allowed or that the
issued or pending patents will not be challenged or circumvented by
competitors.
The Company intends to continue to seek patents on its products, as
appropriate. Notwithstanding the Company's active pursuit of patent
protection, the Company believes that its future success will depend primarily
on the technical expertise, creative skills and management abilities of its
officers and key employees rather than on patent and copyright ownership. The
Company also relies substantially on trade secrets and proprietary technology
to protect technology and manufacturing know-how, and works actively to foster
continuing technological innovation to maintain and protect its competitive
position. There can be no assurance that the Company's competitors will not
independently develop or patent substantially equivalent or superior
technologies.
Synergy attempts to protect its trade secrets and proprietary rights through
formal written and signed agreements with its employees, customers, suppliers,
consultants and others who may have be called upon to have access to this
information. Although Synergy intends to vigorously protect its intellectual
property rights, there can be no assurance that these and other security
agreements will be successful. The process of seeking patent protection can be
long and expensive and there is no assurance that patents, or any new patents
which may be issued, provide sufficient scope or strength to provide
meaningful protection or any commercial advantage to the Company. The Company
may be subject to or may initiate interference proceedings in the patent
office, which can demand significant financial and managerial resources.
As is typical within the semiconductor industry, the Company has from time
to time received and may in the future receive, communications from third
parties asserting patents, mask works rights, or copyrights on certain of the
Company's products and technologies. Although the Company has not been party
to any material intellectual property litigation, in the event that a third
party were to make a valid claim and a license were not available on
commercially available terms, the Company's operating results could be
adversely and materially affected. Litigation, which could result in
substantial cost and diversion of resources of the Company, may also be
necessary to enforce patents or other intellectual property rights of the
Company or to defend the Company against infringement of the rights of others.
The failure to obtain the necessary licenses or the occurrence of litigation
relating to patent infringement or other intellectual property matters could
have a material or adverse affect on the Company's business and operating
results.
Strategic Relationships and Licenses
Toshiba Corporation. In November 1990, Synergy entered into a strategic
alliance (the "Toshiba Agreements") with Toshiba. Under the terms of the
Toshiba Agreements, Synergy granted to Toshiba for a license fee a non-
sublicensable, perpetual, non-exclusive license to Synergy's ASSET Bipolar and
BiCMOS technologies implemented prior to December 31, 1995 and Synergy
received a license to Toshiba's improvements to these technologies. Further,
Synergy and Toshiba agreed to jointly develop certain Bipolar and BiCMOS ASIC
products. Each party is obligated to contribute to the cost of development of
these ASIC products and is required to pay a royalty on net sales of jointly
developed products. In addition, Toshiba agreed to provide Synergy with
foundry services for jointly developed products and for Synergy designed
products employing the ASSET Bipolar and BiCMOS processes until March 31,
1997. The Company is negotiating an extension to this foundry agreement.
However, there can be no assurance such extension will be agreed upon before
the expiration of the current agreement or at all, or that such extension if
reached will provide adequate capacity or be upon satisfactory terms. See
"Risk Factors--Dependence on Wafer Suppliers."
System Microelectronic Innovation. In March 1993, Synergy entered into a
joint venture with Treuhandansalt, the privatization agency of the federal
government of Germany, to establish a semiconductor manufacturing operation in
the Republic of Germany, System Microelectronic Innovation ("SMI").
Subsequently, Treuhandansalt transferred its ownership in SMI to a German
state, the Land Brandenburg, and currently the joint venture is 49% owned by
Synergy and 51% owned by the Land Brandenburg. Under the terms of the joint
venture agreement Synergy has the option to acquire, and the Land Brandenburg
has the option to put to Synergy, up to an additional 39% ownership interest
in SMI. In connection with the joint venture
45
<PAGE>
agreement, SMI acquired for a license fee a non-sublicensable, perpetual, non-
exclusive license for use of the Company's ASSET Bipolar process technology.
SMI is also required to pay a royalty to Synergy on products produced with the
technology if such products are sold in certain geographic territories. See
"Risk Factors--SMI Joint Venture."
Linear Technology Corporation. In April 1995, Synergy granted to Linear
Technology Corporation ("LTC") for a license fee a perpetual, non-exclusive
license without the right to sublicense, for use of the Company's ASSET Bipolar
process implemented prior to March 31, 1996. As part of this agreement, LTC has
the right to develop certain noncompetitive products for its own use under this
license. LTC also has an option expiring on October 16, 1996 to acquire for a
license fee a license to use the Company's proprietary BiCMOS technology.
Digital Equipment Corporation. In December 1987, concurrent with the
execution of a stock purchase agreement, Synergy entered into a Business and
Technology Transfer Agreement with Digital Equipment Corporation ("Digital")
granting Digital an option expiring on December 14, 1997 to obtain Synergy
technical information and assistance and a non-transferable non-exclusive
license relating to Synergy's Bipolar ECL and BiCMOS processes and certain
modifications, enhancements and updates to these technologies.
RESEARCH & DEVELOPMENT
Synergy believes that to take advantage of market opportunities and to
compete successfully it is essential to design, develop and market new products
offering technological innovations. The Company has a total of 28 research and
development engineers who are engaged in process, product and design
methodology development. The Company is in the process of expanding its
research and development staff. In 1994, 1995 and the first three months of
1996, the Company spent approximately $6.5 million, $7.8 million and $1.8
million, respectively, on research and development and expects that it will
continue to spend substantial funds on research and development. The Company's
research and development efforts are focused on the continued enhancement of
its core Bipolar and BiCMOS ASSET process technologies and on the development
of products that exploit these technologies and that are targeted at specific
market categories. Synergy engineers are currently engaged in the development
of silicon technology for communication products that will be required to
operate at data rates above 2.5 GHz. The Company believes that its ability to
upgrade its core technologies provides it with a competitive advantage over
companies that do not have such internally developed core technologies. To
successfully develop products for specific market categories, the Company must
continue to obtain and develop knowledge regarding its customers' systems and
future market needs. This market knowledge is acquired through interactions
between the Company and current and potential customers in the Company's
targeted market categories. To this end, the Company has assembled a team of
experienced research and development engineers in a variety of disciplines,
including ECL, TTL and mixed-signal design, design automation, test and
marketing. The Company also strategically collaborates with corporate partners
to develop new technologies. For example, the Company developed an ASSET
compatible BiCMOS process in conjunction with Toshiba. There can be no
assurance that the Company will be able to identify new product opportunities
successfully and develop and bring to market these new products or that the
Company will be able to respond effectively to new technological changes or new
product announcements by others. There also can be no assurance that the
Company's new products will achieve market acceptance. See "Risk Factors--
Dependence on New Products" and "--Dependence on New Technologies;
Technological Change."
BACKLOG
At March 31, 1996, the Company's backlog was approximately $15.2 million as
compared to approximately $4.1 million at April 2, 1995. The Company's backlog
includes orders scheduled for shipment within 12 months. Orders counted in the
backlog are subject to cancellation or rescheduling by the customer, generally
with a cancellation charge in the case of custom products. Because of possible
changes in product delivery schedules and cancellation of product orders and
because the Company's sales will often reflect orders shipped in the same
quarter that they are received, the Company's backlog at any particular date is
not necessarily indicative of actual sales for any succeeding period.
46
<PAGE>
COMPETITION
The semiconductor industry is highly competitive and is characterized by
price erosion, rapid technological change, short product life cycles,
heightened international competition in many markets and unforeseen
manufacturing yield problems. Most of the Company's current and prospective
competitors offer broader lines and have significantly greater financial,
technical, marketing and other resources than the Company. The Company's
competition consists of suppliers from the United States as well as other
countries, including competition from semiconductor divisions of vertically
integrated companies such as Lucent, IBM, Motorola, NEC and Siemens. The
Company's principal competitors in the high-performance logic market are
Motorola and National Semiconductor. The Company's principal competitors in
the mixed-signal clock product market are Integrated Circuit Systems, Motorola
and TriQuint. The Company's principal competitors in the communications
product market are AMCC, Lucent, National Semiconductor, PMC-Sierra,
TranSwitch, TriQuint and Vitesse. The Company has granted Toshiba and SMI
licenses to manufacture and market products based on certain of the Company's
technologies. Pursuant to these license agreements Toshiba and SMI have
limited rights to manufacture and market products that are directly
competitive with the Company's products. The Company anticipates increased
competition in each of its markets from both existing competitors and new
market entrants. Increased competition in any of the Company's markets could
result in price reductions, reduced margins and loss of market share, all of
which would materially and adversely affect the Company's business, financial
condition and operating results. There can be no assurance that the Company
will be able to compete successfully against current or future competitors.
Synergy believes that the principal bases of competition include product
definition, product design, product functionality and performance, testing
capabilities, quality and reliability, time-to-market, and price. Although the
Company believes that it competes favorably with respect to these factors,
there can be no assurance that the Company will be able to compete
successfully in the future. As the Company expands its product lines, it
expects competition to increase. See "Risk Factors--Competition."
GOVERNMENT REGULATION
Federal, state and local regulations impose various environmental controls
on the storage, handling, discharge and disposal of chemicals and gases used
in the Company's manufacturing process. The Company believes that its
activities conform to present environmental regulations. Increasing public
attention has, however, been focused on the environmental impact of
semiconductor operations. Although the Company has not experienced any
materially adverse effects on its operations from environmental regulations,
there can be no assurance that changes in such regulations will not impose the
need for additional capital equipment or other requirements or restrict the
Company's ability to expand its operations. Any failure by the Company to
adequately restrict the discharge of hazardous substances could subject the
Company to future liabilities or could cause its manufacturing operations to
be suspended.
EMPLOYEES
As of March 31, 1996, the Company had 185 full-time employees, 131 of whom
were engaged in manufacturing and operations, 28 in research and development,
14 in marketing and sales and 12 in finance and administration. The Company's
employees are not represented by any collective bargaining agreements, and the
Company has never experienced a work stoppage. The Company believes that its
employee relations are good. The success of the Company's future operations
depends in large part on the Company's ability to attract and retain highly
skilled technical, marketing and management personnel. There can be no
assurance that the Company will be successful in attracting and retaining key
personnel.
FACILITIES
The Company's main executive, administrative, manufacturing and technical
offices are located in a 48,000 square-foot facility in Santa Clara,
California under a lease that expires in February of 1997. The Company
fabricates most of its wafers at this facility. The Company intends to
relocate all of its operations to a 70,000 square-foot facility in Santa
Clara, California during the third and fourth quarters of 1996. The lease on
the new location has a ten year term and commences the sooner of occupancy or
November 1, 1996.
47
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key employees of the Company, and
their ages as of March 31, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------- --- ------------------------------------------------
<C> <S> <C>
Directors and Executive Officers:
Thomas D. Mino................... 49 Director, President and Chief Executive Officer
T. Olin Nichols.................. 45 Chief Financial Officer and Vice President,
Finance and Administration
Thomas C. Lauer.................. 57 Vice President, Sales
Thomas S. Wong................... 40 Vice President, Standard Products
Sven E. Simonsen (2)............. 59 Chairman of the Board
Larry Boucher.................... 54 Director
William J. Harding (1)........... 48 Director
D. Scott Mercer (1).............. 45 Director
William D. Unger (1)(2).......... 46 Director
Key Employees:
George W. Brown.................. 59 Vice President, Business Development
Larry J. Pollock................. 59 Vice President, Technology and Development
Lucas W. Smith, Jr............... 49 Vice President, Operations
E. Marshall Wilder............... 54 Vice President, Quality and Administration
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Mr. Mino has served as Director, President and Chief Executive Officer of
the Company since December 1991. Prior to joining the Company, from July 1989
to December 1991, Mr. Mino served as Vice President, Colorado Springs
Operations of Atmel Corp., a semiconductor manufacturer. Mr. Mino is also a
director of two other privately held companies. Mr. Mino holds a B.S.E.E. from
the University of Pittsburgh.
Mr. Nichols has served as Chief Financial Officer and Vice President,
Finance and Administration of the Company since March 1993. Prior to joining
the Company, from June 1991 to March 1993, Mr. Nichols served as Principal for
David Powell Inc., a contract financial services provider. From August 1988 to
June 1991, Mr. Nichols served as Chief Financial Officer of Health Daycare
Corporation, a health care provider. Mr. Nichols holds a B.S.M.E. and an
M.B.A. with an emphasis in Finance from the University of Washington.
Mr. Lauer has served as Vice President, Sales of the Company since January
1995. Prior to joining the Company, from May 1994 through December 1994, Mr.
Lauer served as Vice President, Sales for Cermetek Microelectronics, Inc., a
manufacturer sales representative. From January 1994 to May 1994, Mr. Lauer
was self employed. In July 1985, Mr. Lauer founded Pinnacle Sales, a
manufacturer sales representative, where he served as its President from its
inception through January 1994. Mr. Lauer holds a B.S. in Chemistry from
Arizona State University.
Mr. Wong is a founder of the Company and has served as its Vice President,
Standard Products since May 1992. From July 1986 to May 1992, Mr. Wong served
as the Company's Vice President, Product Development. Mr. Wong holds a
B.S.E.E. from the University of California at Berkeley and an M.S.E.E. from
San Jose State University.
48
<PAGE>
Mr. Simonsen has served as Chairman of the Board of the Company since
February 1987. From October 1989 to the present, Mr. Simonsen has been self
employed as an independent venture capitalist. Mr. Simonsen was a General
Partner of Sequoia Capital Venture Fund from 1984 through 1989. In 1969, Mr.
Simonsen co-founded Advanced Micro Devices ("AMD"), a semiconductor company,
where he served as Senior Vice President and Technical Director through 1983.
Mr. Simonsen is also a director of one other privately held company. Mr.
Simonsen holds an M.S.E.E. from the Technical University of Copenhagen,
Denmark.
Mr. Boucher has served as a Director of the Company since March 1996. Mr.
Boucher founded Auspex Systems, Inc. in 1987, a publicly held manufacturer of
high-performance file servers and has served as chairman of the Board of that
company since 1994. Mr. Boucher is a director of Adaptec, a publicly held
manufacturer of disk controllers. Mr. Boucher holds a B.S. in Business and an
M.B.A. from San Jose State University and an M.S.E.E. from the University of
California, Berkeley.
Mr. Harding has served as a Director of the Company since March 1988. From
October 1994 to the present, Mr. Harding has been a General Partner of Morgan
Stanley Venture Partners, a venture capital partnership. Mr. Harding served as
General Partner for J.H. Whitney and Company, a venture capital partnership,
from February 1985 to January 1994. From 1987 to January 1996, Mr. Harding was
a director of Quickturn Design Systems, Inc., a publicly held designer and
manufacturer of integrated circuit system emulation products and of Matrix
Pharmaceutical, Inc., a publicly held biopharmaceutical company. He is
currently a director of Sync Research, Inc., a publicly held network hardware
and software manufacturer, Visioneer, Inc., a publicly held manufacturer of
paper input systems, and a number of privately held companies. Mr. Harding
holds a B.S. in Engineering Mathematics and an M.S. in Systems Engineering
from the University of Arizona and a Ph.D. in Operations Research and Computer
Science from Arizona State University.
Mr. Mercer has served as a Director of the Company since March 1996. In June
1996, Mr. Mercer began serving as a Senior Vice President of Dell Computer
Corporation. From October 1991 to May 1996, Mr. Mercer served as the Executive
Vice President, Chief Financial and Administrative Officer of Western Digital
Corporation. From January 1987 to December 1990 Mr. Mercer served as Chief
Financial Officer of LSI Logic Corporation. Mr. Mercer is a director of
Alantec, a publicly held network communications company. Mr. Mercer is a
Certified Public Accountant and holds a B.S. in Accounting from California
State Polytechnic University, Pomona.
Mr. Unger has served as a Director of the Company since May 1994. Mr. Unger
joined Mayfield Fund, a venture capital firm, in 1987 and has been a general
partner or managing member of several venture capital firms affiliated with
Mayfield Fund since that time. Mr. Unger is also a director of several
privately held companies. Mr. Unger holds an A.B. in Special Education from
the University of Illinois.
Mr. Brown is a founder of the Company and has served as Vice President,
Business Development of the Company since September 1995. From March 1993
through August 1995, Mr. Brown was the Director and General Manager of SMI.
From July 1986 through February 1993, Mr. Brown has held various positions
with the Company, including Vice President, Business Development from May 1991
through February 1993, Vice President, Product Operations from August 1987 to
May 1991 and President and Chief Executive Officer from July 1986 to August
1987. Mr. Brown holds a B.S.E.E. from the University of California, Santa
Barbara.
Mr. Pollock is a founder of the Company and has served as its Vice
President, Technology and Development since February 1987. Mr. Pollock holds a
B.S. in Engineering Physics from the University of Saskatchewan in Canada.
Mr. Smith has served as Vice President, Operations of the Company since May
1995. Prior to joining the Company, Mr. Smith worked with Analog Devices,
Inc., a semiconductor manufacturer, as its Vice President, Wilmington
Manufacturing from December 1992 to June 1994 and as an inactive employee from
June 1994 to June 1995. From March 1984 to December 1992, Mr. Smith held
various positions with National Semiconductor, a semiconductor manufacturer,
including Vice President of Operations Memory/Programmable Products from
January 1990 to December 1992, Vice President, Memory from April 1989 to
December 1989, and Plant Manager from February 1986 to March 1989. Mr. Smith
holds a B.S.E.E. and an M.S.E.E. from the University of Nebraska.
49
<PAGE>
Mr. Wilder is a founder of the Company and has served as its Vice President,
Quality and Administration since April 1993. From March 1987 to April 1993 Mr.
Wilder held various positions with the Company, including Vice President,
Operations from January 1990 to April 1993 and Vice President, Manufacturing
Operations from March 1987 to January 1990. Mr. Wilder holds a B.S.E.E. from
the University of New Mexico and an M.S.E.E. from Santa Clara University.
The Company currently has authorized five directors. Each director is
elected for a period of one year at the Company's annual meeting of
shareholders and serves until the next annual meeting or until his successor
is duly elected and qualified. There is currently one vacancy on the Company's
Board of Directors, which the Company anticipates filling prior to the
consummation of this offering. The executive officers serve at the discretion
of the Board of Directors. There are no family relationships among any of the
directors or executive officers of the Company.
Except for grants of stock options, directors of the Company do not receive
compensation for services provided as a director. The Company also does not
pay compensation for committee participation or special assignments of the
Board of Directors. Mr. Simonsen has received an option to purchase 20,000
shares of Common Stock under the 1987 Plan and Messrs. Boucher, Harding and
Mercer have each received options grants under such plan to purchase 15,000
shares of Common Stock. The options are immediately exercisable for all of the
option shares. However, the shares purchasable thereunder are subject to
repurchase by the Company, at the exercise price paid per share, upon the
optionee's cessation of service to the Company prior to vesting in the shares.
The optionee director vests in the shares in a series of installments over a
period of four years of service. Full and immediate vesting of the shares will
occur if the Company is acquired by merger or asset sale, unless the options
are assumed by the acquiring company, and the Company's repurchase rights with
respect to unvested shares are assigned to such entity. The options
outstanding under the 1987 Stock Option Plan will be incorporated into the new
1996 Stock Option/Stock Issuance Plan, but will continue to be governed by
their existing terms. Non-employee directors will receive automatic grants at
periodic intervals under the 1996 Plan. See "Management--1996 Stock
Option/Stock Issuance Plan."
The Audit Committee reviews, acts on and reports to the Board of Directors
with respect to various auditing and accounting matters, including the
selection of the Company's auditors, the scope of the annual audits, fees to
be paid to the auditors, the performance of the Company's auditors and the
accounting practices of the Company.
The Compensation Committee establishes salaries, incentives and other forms
of compensation for the officers and other employees of the Company and
administers the incentive compensation and benefit plans of the Company.
50
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned
by the Company's Chief Executive Officer and four other executive officers who
were serving as such at the end of 1995 (collectively, the "Named Officers"),
each of whose aggregate salary and bonus for the year ended December 31, 1995
exceeded $100,000 for services rendered in all capacities to the Company and
its subsidiaries for that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
----------------------------- ------------
SECURITIES
NAME AND PRESENT OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(1)
------------------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Thomas D. Mino...................... $210,000 $35,750 $24,000(2) 595,700
President and Chief Executive Offi-
cer
T. Olin Nichols..................... 134,812 26,563 -- 135,700
Chief Financial Officer
Fred W. Horne(3).................... 150,000 3,750 -- 198,300
Vice President, Semi-Custom Prod-
ucts
Thomas C. Lauer..................... 123,334 13,556 -- 90,000
Vice President, Sales
Thomas S. Wong...................... 117,829 7,507 -- 191,700
Vice President, Standard Products
</TABLE>
- --------
(1) The options were granted under the 1987 Plan. See "--Option Grants in Last
Fiscal Year."
(2) Represents a monthly housing allowance of $2,000 paid to Mr. Mino in 1995
pursuant to his employment agreement with the Company.
(3) Mr. Horne resigned from the Company in February 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to each of the Named Officers in the 1995 Fiscal Year. Except for the
limited stock appreciation rights described in footnote (5) below, no stock
appreciation rights were granted to these individuals during such period.
<TABLE>
<CAPTION>
INDIVIDUAL GRANT
------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES STOCK
UNDERLYING PERCENT OF TOTAL EXERCISE PRICE APPRECIATION
OPTIONS OPTIONS GRANTED TO OR FOR OPTION TERM(2)
GRANTED EMPLOYEES IN 1995 BASE PRICE EXPIRATION ---------------------
NAME (#) FISCAL YEAR ($/SH)(1) DATE 5% 10%
---- ---------- ------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas D. Mino.......... 495,700(3)(5) 18.6% $0.04 02/27/05 $ 12,470 $ 31,601
100,000(4)(5) 3.7% 2.00 09/18/05 125,779 318,748
T. Olin Nichols......... 115,700(3)(5) 4.3% 0.04 02/27/05 2,911 7,376
20,000(4)(5) 0.8% 2.00 10/23/05 25,156 63,750
Fred W. Horne........... 198,300(3)(5) 7.4% 0.04 02/27/05 4,988 12,642
Thomas C. Lauer......... 90,000(4)(5) 3.4% 0.04 04/24/05 2,264 5,737
Thomas S. Wong.......... 191,700(3)(5) 7.2% 0.04 02/27/05 4,822 12,221
</TABLE>
- --------
(1) The exercise price for each option may be paid in cash, in shares of the
Company's Common Stock valued at fair market value on the exercise date or
through a cashless exercise procedure involving a same-day sale of the
purchased shares. The Company may also finance the option exercise by
loaning the optionee
51
<PAGE>
sufficient funds to pay the exercise price for the purchased shares,
together with any Federal and state income tax liability incurred by the
optionee in connection with such exercise. The plan administrator of the
1987 Plan has the discretionary authority to reprice the options through
the cancellation of those options and the grant of replacement options with
an exercise price based on the fair market value of the option shares on
the regrant date.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Commission. There can be no assurance
provided to any executive officer or any other holder of the Company's
securities that the actual stock price appreciation over the 10-year
option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates
over the option term, no value will be realized from the option grants
made to the executive officers.
(3) The options were granted on February 28, 1995 and were immediately
exercisable for all of the option shares as of the date of grant. The
options were exercisable for fully vested shares in the following amounts:
Mr. Mino--201,223; Mr. Nichols--29,743; Mr. Horne--118,067; Mr. Wong--
122,853. The remaining shares purchasable pursuant to the options are
subject to repurchase by the Company, at the original exercise price paid
per share, upon the optionee's cessation of service with the Company prior
to vesting in those shares. The option shares will vest in a series of
equal monthly installments over the 36 months of service completed after
October 1, 1994.
(4) The options were granted to Messrs. Mino, Nichols and Lauer on September
19, 1995, October 24, 1995 and April 25, 1995, respectively, and were
immediately exercisable for all of the option shares as of the date of
grant. However, the shares purchasable thereunder are subject to
repurchase by the Company, at the original exercise price paid per share,
upon the optionee's cessation of service with the Company prior to vesting
in those shares. The option shares will vest in a series of equal monthly
installments over the 48 months of service completed after the grant date.
(5) The option shares will vest in full upon an acquisition of the Company by
merger or asset sale, unless the option is assumed by the acquiring entity
and the Company's repurchase rights with respect to unvested option shares
are assigned to such entity. Each option has a maximum term of 10 years
measured from the option grant date, subject to earlier termination in the
event of the optionee's cessation of service with the Company. Each option
also includes a limited stock appreciation right which provides the
optionee with the right, exercisable upon the successful completion of a
hostile tender offer for more than 50% of the Company's outstanding voting
securities, to surrender the option to the Company, to the extent the
option is at that time exercisable for vested shares, in return for a cash
distribution per surrendered option share equal to the excess of (i) the
fair market value on the surrender date over (ii) the option exercise
price payable per share.
In addition to the options listed in the foregoing table, on January 18,
1996, Mr. Wong received an option grant to purchase 32,500 shares of Common
Stock and on February 21, 1996, Messrs. Nichols and Lauer received option
grants to purchase 9,700 and 25,000 shares of Common Stock, respectively. Each
option has an exercise price of $2.00 per share, the fair market value per
share of Common Stock on the respective grant date. The options are
immediately exercisable for all of the option shares as of the date of grant.
However, the shares purchasable thereunder are subject to repurchase by the
Company, at the original exercise price paid per share, upon the optionee's
cessation of service with the Company prior to vesting in the shares. The
option shares will vest in a series of equal monthly installments over the 48
months of service completed after the date of grant. The remaining terms and
conditions of the options are as described in footnote (5) to the foregoing
table.
52
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning option exercises in
the 1995 Fiscal Year with respect to each of the Named Officers. No stock
appreciation rights were exercised during such period and, except for the
limited stock appreciation rights described in footnote (5) of the section
above entitled "Option Grants in Last Fiscal Year," no stock appreciation
rights were outstanding at the end of such period.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(4)
SHARES ACQUIRED VALUE ---------------------------- -------------------------
NAME ON EXERCISE(1) REALIZED(2) EXERCISABLE(3) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas D. Mino.......... 495,700 $ 0 120,000 -- $ 0 --
T. Olin Nichols......... 115,700 0 24,000 -- 0 --
Fred W. Horne........... -- 0 202,300 -- 388,668 --
Thomas C. Lauer......... 90,000 0 4,000 -- 0 --
Thomas S. Wong.......... 191,700 0 1,600 -- 0 --
</TABLE>
- --------
(1) The options were immediately exercisable for all of the option shares as
of the date of grant but the shares purchased thereunder are subject to
repurchase by the Company at the original exercise price paid per share
upon the optionee's cessation of service to the Company prior to vesting
in the shares. As of December 31, 1995, the Named Officers had vested in
the following shares: Mr. Mino--315,741; Mr. Nichols--63,170; Mr. Lauer--
0; Mr. Wong--149,626. For a description of the options and the applicable
vesting schedules see "Management--Option Grants in the Last Fiscal Year."
(2) Equal to the fair market value of the purchased shares on the option
exercise date ($0.04 per share, as determined by the Board of Directors)
less the exercise price paid for those shares.
(3) The options are immediately exercisable for all the option shares but any
shares purchased thereunder are subject to repurchase by the Company at
the original exercise price paid per share upon the optionee's cessation
of service to the Company prior to vesting in such shares. As of December
31, 1995, the Named Officers had vested in the following shares: Mr.
Mino--24,583; Mr. Nichols--3,583; Mr. Horne--153,268; Mr. Lauer--500; Mr.
Wong--1,600.
(4) Based on the fair market value of the Common Stock as of December 31, 1995
($2.00 per share, as determined by the Board of Directors) less the
exercise price payable for such shares. The Named Officers hold options to
purchase the following numbers of shares of Common Stock at option
exercise prices equal to or in excess of the fair market value of the
Common Stock on December 31, 1995: Mr. Mino--120,000; Mr. Nichols--24,000;
Mr. Horne--4,000; Mr. Lauer--4,000; Mr. Wong--1,600.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was formed in
August 1989, and the current members of the Compensation Committee are Messrs.
Simonsen and Unger. Neither of these individuals was at any time during 1995,
or at any other time, an officer or employee of the Company. No executive
officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's 1996 Stock Option/Stock Issuance Plan (the "1996 Plan") is
intended to serve as the successor equity incentive program to the Company's
1987 Stock Option Plan (the "1987 Plan"). The 1996 Plan was adopted by the
Board of Directors on May 21, 1996 and the Company expects to obtain approval
of the plan by the shareholders prior to the consummation of this Offering.
The 1996 Plan became effective upon its adoption by the Board. However, the
Automatic Option Grant Program thereunder will become effective on the day the
Underwriting Agreement is executed in connection with this Offering.
Approximately 2,287,334
53
<PAGE>
shares of Common Stock have been authorized for issuance under the 1996 Plan.
This share reserve is comprised of (i) the total number of shares which remain
available for issuance under the 1987 Plan as of the effective date of this
Offering, including the shares subject to outstanding options thereunder
(assuming no exercise of outstanding options after March 31, 1996) and (ii) an
additional 500,000 shares approved by the Board of Directors on May 21, 1996,
subject to approval by the shareholders. Outstanding options under the 1987
Plan will be incorporated into the 1995 Plan upon the effective date of this
Offering, and no further option grants will be made under the 1987 Plan. The
incorporated options will continue to be governed by their existing terms,
unless the Plan Administrator elects to extend one or more features of the
1996 Plan to those options. However, except as otherwise noted below, the
outstanding options under the 1987 Plan contain substantially the same terms
and conditions summarized below for the Discretionary Option Grant Program in
effect under the 1996 Plan.
The 1996 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals may, at
the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock at an exercise price not less than 85% of their fair
market value on the grant date, (ii) the Stock Issuance Program under which
such individuals may, in the Plan Administrator's discretion, be issued shares
of Common Stock directly, through the purchase of such shares at a price not
less than 85% of their fair market value at the time of issuance or in
consideration of the past performance of services and (iii) the Automatic
Option Grant Program under which option grants will automatically be made at
periodic intervals to eligible non-employee Board members to purchase shares
of Common Stock at an exercise price equal to 100% of their fair market value
on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances, the time or times
when such option grants or stock issuances are to be made, the number of
shares subject to each such grant or issuance, the status of any granted
option as either an incentive stock option or a non-statutory stock option
under the Federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted
option is to remain outstanding. In no event, however, may any one participant
in the 1996 Plan receive option grants, separately exercisable stock
appreciation rights and direct stock issuances for more than five hundred
thousand (500,000) shares per calendar year.
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not
to be assumed or replaced by the successor corporation, will automatically
accelerate in full, and all unvested shares under the Stock Issuance Program
will immediately vest, except to the extent the Company's repurchase rights
with respect to those shares are to be assigned to the successor corporation.
Any options that are assumed in an acquisition will automatically accelerate,
and any repurchase rights which are assigned will terminate, in the event the
individual's service is terminated, whether involuntarily or through a
resignation for good reason following such change in control, within 18 months
following the acquisition. The Plan Administrator will have the discretion to
provide for the automatic acceleration of options and the lapse of any
repurchase rights upon (i) a hostile change in control of the Company effected
by a successful tender offer for more than 50% of the outstanding voting stock
or by proxy contest for the election of Board members or (ii) the subsequent
termination of the individual's service, whether involuntarily or through a
resignation for good reason. Options currently outstanding under the 1987 Plan
will accelerate upon an acquisition of the Company by merger or asset sale,
unless those options are assumed by the acquiring entity and the repurchase
rights of the Company with respect to any unvested shares are assigned to such
acquiring entity, but such options are not subject to acceleration upon the
termination of the optionee's service following an acquisition in which those
options are assumed or in connection with a hostile change in control of the
Company.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from
the Company equal to the excess of (i) the fair market value of the vested
shares of Common Stock subject to
54
<PAGE>
the surrendered option over (ii) the aggregate exercise price payable for such
shares. Such appreciation distribution may be made in cash or in shares of
Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the 1987 Plan) in return for the grant of new
options for the same or different number of option shares with an exercise
price per share based upon the fair market value of the Common Stock on the
new grant date.
Under the Automatic Option Grant Program, each individual who is serving as
a non-employee Board member on the day the Underwriting Agreement is executed
in connection with this Offering will receive a 15,000-share option grant on
that day. Each individual who first becomes a non-employee Board member after
this Offering will receive a 15,000-share option grant on the date such
individual joins the Board provided such individual has not been in the prior
employ of the Company. In addition, at each Annual Shareholders Meeting held
after this Offering, each individual who is to continue to serve as a non-
employee Board after the meeting will receive an additional option grant to
purchase 5,000 shares of Common Stock provided such individual has served on
the Board for at least 6 months.
Each automatic option will have a term of 10 years, subject to earlier
termination following the optionee's cessation of Board service. Each
automatic option will be immediately exercisable for all of the option shares;
however, any shares purchased upon exercise of the option will be subject to
repurchase should the optionee's service as a non-employee Board member cease
prior to vesting in the shares. The initial 15,000-share grant will vest in
four equal and successive annual installments over the optionee's period of
Board service. Each additional 5,000-share grant will vest upon the optionee's
completion of one year of Board service measured from the grant date. However,
each outstanding option will immediately vest upon (i) certain changes in the
ownership or control of the Company or (ii) the death or disability of the
optionee while serving as a Board member.
The Board may amend or modify the 1996 Plan at any time. The 1996 Plan will
terminate on May 20, 2006, unless sooner terminated by the Board.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board of Directors on May 21, 1996 and the Company expects to obtain
approval of the plan by the shareholders prior to the consummation of this
Offering. The Purchase Plan is designed to allow eligible employees of the
Company and participating subsidiaries to purchase shares of Common Stock, at
semi-annual intervals, through their periodic payroll deductions under the
Purchase Plan, and a reserve of 300,000 shares of Common Stock has been
established for this purpose.
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering
period will begin on the day the Underwriting Agreement is executed and priced
in connection with this Offering and will end on the last business day in July
1998. Shares will in general be purchased at six-month intervals during each
offering period.
Payroll deductions may not exceed 20% of base salary for each six-month
interval during the offering period, and the accumulated payroll deductions
will be applied to the purchase of shares on the participant's behalf on each
semi-annual purchase date (January 31 and July 31 each year) at a purchase
price per share equal to 85% of the lower of (i) the fair market value of the
Common Stock on the participant's entry date into the offering period or (ii)
the fair market value on the semi-annual purchase date. In no event, however,
may any participant purchase more than 1,000 shares on any one semi-annual
purchase date. The Purchase Plan will terminate on the last business day in
July 2006.
55
<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Other than an employment agreement with Mr. Mino, the Company does not
presently have any employment contracts in effect with any of the other Named
Executive Officers. Pursuant to the employment agreement entered into between
the Company and Mr. Mino in December 1991, as amended through November 1995, a
base salary of $210,000 was established for Mr. Mino for 1996, subject to
annual adjustment by the Board of Directors. In addition, the agreement
provides for a bonus to be determined by the Board of Directors. The agreement
also provides for financial assistance in the purchase by Mr. Mino of a
principal residence in the Bay Area, a monthly housing allowance of $2,200,
payable until the earlier of March 31, 1996 or the purchase of such principal
residence and payment by the Company of the normal costs incurred by Mr. Mino
in connection with his relocation. The employment agreement is terminable by
either party at any time. However, if Mr. Mino's employment is terminated
other than for cause, he will be entitled to the continuation of his base
salary and health benefits for a period of up to six months.
The Compensation Committee as Plan Administrator of the 1995 Plan will have
the authority to provide for the accelerated vesting of the shares of Common
Stock subject to outstanding options held by the Chief Executive Officer or
any other executive officer or the shares of Common Stock subject to direct
issuances held by such individual, in connection with a change in control or
the termination of the officer's employment following such change in control.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company may indemnify its directors,
officers and other agents in excess of the indemnification otherwise permitted
by the provisions of Section 317 of the California Corporations Code. The
Company believes that indemnification under its Bylaws covers at least
negligence and gross negligence by indemnified parties, and permits the
Company to advance litigation expenses to directors in the case of shareholder
derivative actions or other actions, upon receipt of an undertaking by the
indemnified party to repay those advances if it is ultimately determined that
the indemnified party is not entitled to indemnification by the Company as
authorized by the California Corporations Code. The Company maintains
liability insurance for its officers and directors.
In addition, the Company's Restated Articles of Incorporation provide that
liability of directors to the Company for monetary damages shall be eliminated
to the fullest extent permitted under California law. This provision in the
Restated Articles of Incorporation does not eliminate the Directors' fiduciary
duty, and in appropriate circumstances equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under California
law. In addition, each director will continue to be subject to liability for
breach of the director's duty of loyalty to the Company for acts or omissions
not in good faith or involving intentional misconduct, for knowing violations
of law, for actions leading to improper personal benefit to the director and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under California law. The provision also does not affect a
director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Company believes
that its Restated Articles of Incorporation and Amended and Restated Bylaw
provisions are necessary to attract and retain qualified persons as directors
and officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed 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.
56
<PAGE>
CERTAIN TRANSACTIONS
Since March 31, 1993 the Company issued, in private placement transactions,
shares of its Preferred Stock as follows: An aggregate of 5,749,344 shares of
Series AA Preferred Stock at $.913 per share in November of 1994 and 5,771,230
shares of Series BB Preferred Stock at $.37 per share in February and March of
1995. All of such Preferred Stock will convert into 11,520,574 shares of
Common Stock upon the closing of the sale of the shares offered hereby. The
following table summarizes the shares of Preferred Stock purchased by
executive officers, directors and five percent shareholders of the Company and
persons associated with them prior to March 31, 1996:
<TABLE>
<CAPTION>
SERIES AA SERIES BB
PREFERRED STOCK PREFERRED STOCK
--------------- ---------------
<S> <C> <C>
DIRECTORS
William J. Harding.............................. -- 54,000
Sven E. Simonsen(1)............................. 87,547 81,081
ENTITIES AFFILIATED WITH DIRECTORS
Mayfield V (William D. Unger)................... 1,329,928 2,027,027
OTHER 5% SHAREHOLDERS
J.H. Whitney & Co. ............................. 626,385 405,405
Menlo Ventures III.............................. 478,194 810,810
Oak Investment Partners III..................... 470,229 675,675
Suez Technology Fund............................ 388,426 675,675
Sequoia Capital entities(2)..................... 853,309 --
</TABLE>
- --------
(1) Includes shares held by the Sven Simonsen Trust, Marianne Simonsen Present
Interest Trust and Peter Simonsen Present Interest Trust.
(2) Includes shares held by Sequoia Capital IV, Sequoia XVII, Sequoia Capital
XXII & XVII and Sequoia Technology Partners II.
The shares of Common Stock issued upon conversion of the Series AA and
Series BB Preferred Stock are entitled to certain registration rights. See
"Description of Capital Stock--Registration Rights."
On January 20, 1992 the Company loaned $75,000 to Mr. Mino, President and
Chief Executive Officer of the Company, in connection with a negotiated
employment arrangement with the Company. The note was amended on September 20,
1995 and bears interest at a rate of 6.73% per annum compounded annually.
Interest accrues from January 20, 1992 and all principal and interest is due
and payable on September 30, 1997, or earlier upon certain events. The note is
secured by a stock pledge agreement that grants the Company a security
interest in 125,000 shares of the Company's Common Stock owned by Mr. Mino. On
December 15, 1995 the Company loaned $100,000 to Mr. Mino, in connection with
the purchase by Mr. Mino of a home in California. The note bears no interest.
The principal is due and payable two years from the effective date of the
Company's initial underwritten public offering. The note is secured by a deed
of trust on Mr. Mino's residence.
The Company has granted options to certain of its directors and executive
officers. See "Management--Option Grants in Last Fiscal Year."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company intends that all future transactions,
including loans, between the Company and its officers, directors, principal
shareholders and their affiliates be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested outside
directors on the Board of Directors, and be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties.
57
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1996, as adjusted to
reflect the sale of shares offered hereby, by (i) each person who is known by
the Company to beneficially own five percent or more of the Company's Common
Stock, (ii) each of the Company's directors and named executive officers, and
(iii) all current executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1)(2) OFFERING(1)(2)(3)
NAME OF ----------------------SHARES BEING ----------------------
SHAREHOLDER NUMBER PERCENT OFFERED NUMBER PERCENT
----------- ----------- ---------------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Mayfield V.............. 3,431,717 24.39% -- 3,431,717 19.42%
2800 Sand Hill Road
Menlo Park, CA 94025
Menlo Ventures III...... 1,313,335 9.33% 150,000 1,163,335 6.58%
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Oak Investment Partners
III.................... 1,172,053 8.33% 501,110 670,944 3.80%
3000 Sand Hill Road
Building 3, Suite 240
Menlo Park, CA 94025
Suez Technology Fund.... 1,083,865 7.70% -- 1,083,865 6.13%
2180 Sand Hill Road
Suite 450
Menlo Park, CA 94025
J.H. Whitney & Co....... 1,061,998 7.55% 463,990 598,008 3.38%
177 Broad Street, 15th
Floor
Stamford, CT 06901
Entities affiliated with
Sequoia Capital (4).... 915,244 6.50% 414,492 500,752 2.83%
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Thomas D. Mino (5)...... 534,200 3.76% -- 534,200 3.00%
T. Olin Nichols (6)..... 149,400 1.06% -- 149,400 *
Thomas C. Lauer (7)..... 119,000 * -- 119,000 *
Thomas S. Wong (8)...... 351,364 2.49% -- 351,364 1.98%
Sven E. Simonsen (9).... 236,327 1.55% -- 236,327 1.24%
Larry Boucher (10)...... 15,000 * -- 15,000 *
William J. Harding (11). 95,000 * -- 95,000 *
D. Scott Mercer (12).... 15,000 * -- 15,000 *
William D. Unger (13)... -- * -- -- *
Fred Horne (14)......... 202,300 1.42% -- 202,300 1.13%
All directors, named
executive officers and
current executive
officers as a group
(10 persons) (15)...... 1,717,591 11.83% -- 1,717,591 9.48%
<CAPTION>
SELLING SHAREHOLDERS
--------------------
<S> <C> <C> <C> <C> <C>
Matrix Partners II,
L.P. .................. 297,160 2.11% 16,441 280,719 1.59%
Harris Corporation (16). 200,000 1.40% 141,906 58,094 *
William M. Gust......... 74,375 * 10,000 64,375 *
Thomas E. Pallante...... 70,152 * 23,661 46,491 *
North Investment Limited
Partnership............ 68,000 * 22,935 45,065 *
Broventure Financial
Development............ 54,189 * 18,277 35,912 *
Digital Equipment
Corporation............ 30,161 * 10,173 19,988 *
Thomas H. Wong.......... 27,358 * 9,107 18,261 *
Michael Allen........... 25,307 * 8,432 16,875 *
Other Selling
Shareholders........... 28,098 * 9,476 18,622 *
</TABLE>
- --------
* Less than one percent.
58
<PAGE>
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) The number of shares of Common Stock deemed outstanding prior to and
after this offering includes the shares issuable pursuant to stock
options that may be exercised by the respective person or group within 60
days after March 31, 1996. Shares issuable pursuant to such options are
deemed outstanding for computing the percentage of the person holding
such options, but are not deemed outstanding for computing the percentage
of any other person. The number of shares of Common Stock outstanding
after this offering includes the 3,600,000 shares of Common Stock offered
by the Company hereby.
(3) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." In the event the Underwriters' over-allotment is
exercised in full, the Selling Shareholders will sell an aggregate of
810,000 additional shares.
(4) Includes 1,905, 824,491, 34,132 and 54,716 shares held by Sequoia XVII,
Sequoia Capital IV, Sequoia Capital XXII & XVII and Sequoia Technology
Partners II, respectively.
(5) Includes options exercisable into 120,000 shares of Common Stock under
the 1987 Plan as of March 31, 1996.
(6) Includes options exercisable into 33,700 shares of Common Stock under the
1987 Plan as of March 31, 1996.
(7) Includes options exercisable into 29,000 shares of Common Stock under the
1987 Plan as of March 31, 1996.
(8) Includes options exercisable into 34,100 shares of Common Stock under the
1987 Plan as of March 31, 1996.
(9) Includes (i) 218,683 shares held by Sven Simonsen Trust, (ii) 8,822
shares held by Marian Simonsen Trust, (iii) 8,822 shares held by Peter
Simonsen Trust as of March 31, 1996. Mr. Simonsen disclaims beneficial
ownership for the shares held by the Marian Simonsen Trust and the Peter
Simonsen Trust.
(10) Total reflects options exercisable into 15,000 shares of Common Stock
under the 1987 Plan as of March 31, 1996.
(11) Includes options exercisable into 15,000 shares of Common Stock under the
1987 Plan as of March 31, 1996. Does not include 1,061,998 shares held by
J. H. Whitney & Co. ("JHW&Co."). Mr. Harding, a director of the Company,
is a retired general partner of JHW&Co., and as such does not share
voting and investment power over such shares. In connection with Mr.
Harding's retirement as a general partner of JHW&Co. Mr. Harding has the
right to receive a portion of any increase in the value of the Company's
stock held by JHW&Co. above such firms' valuation per share on December
31, 1993. Amounts payable to Mr. Harding will be determined upon any sale
or deemed sale of the Company's stock by JHW&Co. Mr. Harding disclaims
beneficial ownership of the shares held by JHW&Co. except to the extent
of his pecuniary interest described in this footnote.
(12) Total reflects options exercisable into 15,000 shares of Common Stock
under the 1987 Plan as of March 31, 1996.
(13) Does not include 3,431,717 shares held by Mayfield V. Mr. Unger, a
director of the Company, is a limited partner of Mayfield V Management
Partners, which is the General Partner of Mayfield V. As a limited
partner, Mr. Unger does not share voting and investment power over such
shares. Mr. Unger disclaims beneficial ownership of the shares held by
Mayfield V except to the extent of his pecuniary interest in Mayfield V
Management Partners, the general partner of Mayfield V.
(14) Total reflects options exercisable into 202,300 shares of Common Stock
under the 1987 Plan as of March 31, 1996.
(15) Includes options exercisable into 449,100 shares of Common Stock under
the 1987 Plan as of March 31, 1996.
(16) Represents a warrant to purchase 200,000 shares of Common Stock.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Restated Articles of Incorporation, which will become
effective upon the closing of this offering, authorizes 50,000,000 shares of
Common Stock, no par value, and 5,000,000 shares of Preferred Stock, no par
value, after giving effect to the amendment of the Company's Articles of
Incorporation, which, among other things, deletes references to the Company's
Series AA and Series BB Preferred Stock, convertible into Common Stock upon
the closing of this Offering, and authorizes shares of undesignated Preferred
Stock, as described below.
COMMON STOCK
As of March 31, 1996, there were 14,072,179 shares of Common Stock
outstanding that were held of record by approximately 175 shareholders,
assuming no exercise after March 31, 1996 of outstanding stock options. There
will be 17,672,179 shares of Common Stock outstanding after giving effect to
the sale of the shares of Common Stock offered hereby.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of the liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of Preferred Stock, if any, then outstanding. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be issued upon completion of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorizes 5,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the
Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further
vote or action by the shareholders. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the shareholders and may adversely affect
the voting and other rights of the holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others.
ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation authorize the issuance of Preferred Stock on
terms that the Board of Directors has the authority to fix at the time of
issuance. The Bylaws require shareholders to provide advance notice to the
Company in order to make nominations for election to the Board of Directors or
to bring other business before a shareholders' meeting. These provisions of
the Articles of Incorporation and Bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. These provisions are also intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors and in
the policies formulated by the Board of Directors and to discourage certain
types of transactions that may involve an actual or threatened change of
control of the Company. These provisions are designed to reduce the
vulnerability of the Company to an unsolicited acquisition proposal. The
provisions, alone or in combination, could have the effect of discouraging
others from making tender offers for the Company's shares and, as a
consequence, they also may inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the
management of the Company.
60
<PAGE>
REGISTRATION RIGHTS
Upon completion of this Offering, the holders of 10,141,445 shares of the
Company's Stock (the "Registrable Securities") are entitled to certain rights
with respect to the registration of such shares under the Securities Act.
Those registration rights have been waived with respect to this offering.
Under the terms of an agreement between the Company and the holders of the
Registrable Securities, if the Company proposes to register any of its
securities under the Securities Act, either for its own account or the account
of other security holders exercising registration rights, those holders are
entitled to notice of registration and are entitled to include shares of
Registrable Securities therein. The holders of a majority of Registrable
Securities may also require the Company to file a registration statement under
the Securities Act at its expense with respect to their Registrable
Securities, and the Company is required to use its best efforts to effect that
registration, subject to, among other things, the right of the Company not to
effect any registration within four months following the offering made hereby.
Further, those shareholders may require the Company to file additional
registration statements on Form S-3. These registration rights are subject to
certain conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares included in that registration.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is the First National
Bank of Boston.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 17,672,179 shares of
Common Stock outstanding (assuming no exercise of options after March 31,
1996). Of these shares, the 5,400,000 shares sold in this offering will be
freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the
Company, as that term is defined under the Securities Act ("Affiliates"), may
generally only be sold in compliance with the limitations of Rule 144
described below.
The remaining 12,272,179 shares of Common Stock are deemed "Restricted
Shares" under Rule 144. The number of shares of Common Stock available for
sale in the public market is limited by restrictions under the Securities Act
and lock-up agreements under which the holders of such shares have agreed not
to sell or otherwise dispose of any of their shares for a period of 180 days
after the effective date of this offering without the prior written consent of
Robertson, Stephens & Company LLC. Because of these restrictions, on the date
of this Prospectus, no shares other than the 5,400,000 shares offered hereby
will be eligible for sale. Beginning 180 days after the effective date of this
offering (or earlier with the prior written consent of Robertson, Stephens &
Company LLC), 6,500,949 Restricted Shares (and, to the extent vested, an
additional 790,273 shares subject to outstanding stock options as of March 31,
1996) will become available for immediate sale in the public market subject to
Rule 144 and Rule 701 of the Securities Act, of which 5,149,308 shares will be
subject to the volume and other resale restrictions of Rule 144. The remaining
5,771,230 shares will become available for sale pursuant to Rule 144 upon
expiration of their two-year holding periods.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted" shares for at least two
years, including a person who may be deemed an Affiliate of the Company, is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of one percent of the then-outstanding
shares of Common Stock of the Company (approximately 176,722 shares after
giving effect to this offering) or the average weekly trading volume of the
Common Stock as reported through the Nasdaq National Market during the four
calendar weeks preceding such sale. Sales under Rule 144 of the Securities Act
are subject to certain restrictions relating to manner of sale, notice and the
availability of current public information about the Company. In addition,
under Rule 144(k) of the Securities Act, a person who is not an Affiliate of
the Company at any time 90 days preceding a sale, and who has beneficially
owned shares for at least three years, would be entitled to sell such shares
immediately following this offering without regard to the volume limitations,
manner of sale provisions or notice or other requirements of Rule 144 of the
Securities Act.
As of March 31, 1996, options to purchase a total of 790,273 shares of
Common Stock were outstanding and exercisable pursuant to the 1987 Plan. An
additional 997,061 shares of Common Stock were available for future option
grant under the 1987 Plan. Subsequent to March 31, 1996, the Company's Board
of Directors adopted, subject to shareholder approval, (i) the 1996 Plan to
serve as the successor to the 1987 Plan, with an additional 500,000 shares of
Common Stock reserved for issuance thereunder and (ii) the Purchase Plan,
pursuant to which 300,000 shares of Common Stock were reserved for issuance.
See "Management--1996 Stock Option/Stock Issuance Plan" and "--Employee Stock
Purchase Plan," and Notes 5 and 9 of Notes to Consolidated Financial
Statements.
Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than Affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by Affiliates,
beginning 90 days after the date of this Prospectus, subject to all provisions
of Rule 144 except its two-year minimum holding period. The Company intends to
register on a registration statement on Form S-8, concurrent with or following
the effective date of this offering, a total of 300,000 shares of Common Stock
reserved for issuance under the Purchase Plan, and 2,287,334 shares of Common
Stock subject to outstanding options or reserved for issuance under the 1996
Plan (assuming no exercise of outstanding stock options after March 31, 1996).
62
<PAGE>
Prior to this offering, there has been no public market for the Common Stock
of the Company, and any sale of substantial amounts of Common Stock in the
open market may adversely affect the market price of the Common Stock offered
hereby. After this offering, the holders of 9,720,574 shares of Common Stock
will be entitled to certain demand and piggyback registration rights with
respect to such shares. If such holders, by exercising their demand
registration rights, cause a large number of shares to be registered and sold
in the public market, such sales could have an adverse effect on the market
price of the Company's Common Stock. If the Company were required to include
in a Company-initiated registration shares held by such holders pursuant to
the exercise of their piggyback registration rights, such sales may have an
adverse effect on the Company's ability to raise needed capital.
63
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), acting through their
representatives, Robertson, Stephens & Company LLC and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (the "Representatives"), have severally agreed
with the Company, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company and the Selling Shareholders the
number of shares of Common Stock set forth opposite their respective names
below. The Underwriters are committed to purchase and pay for all of such
shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Robertson, Stephens & Company LLC...............................
Merrill Lynch, Pierce, Fenner and Smith
Incorporated...............................................
---
Total.......................................................
===
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the shares of Common Stock to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession of not
in excess of $ per share, of which $ may be reallowed to other dealers.
After the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such
reduction shall change the amount of proceeds to be received by the Company as
set forth on the cover page of this Prospectus.
The Selling Shareholders have granted the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 810,000 additional shares of Common Stock at the same price per
share as the Company receives for the 5,400,000 shares that the Underwriters
have agreed to purchase. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of Common Stock to be purchased by it shown in the above table
represents as a percentage of the 5,400,000 shares offered hereby. If
purchased, such additional shares will be sold by the Underwriters on the same
terms as those on which the 5,400,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Act.
Pursuant to the terms of Lockup Agreements, certain officers and directors
holding an aggregate of shares of Common Stock and certain
shareholders holding an aggregate of shares of Common Stock have
agreed with the Representatives that, for a period of 180 days after the date
of this Prospectus, they will not offer to sell, contract to sell or otherwise
sell, dispose of or grant any rights with respect to any shares of Common
Stock, any options or warrants to purchase shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock now
owned or hereinafter acquired directly by such holders or with respect to
which they have the power of disposition, otherwise than with the prior
written consent of the Robertson, Stephens & Company LLC. Robertson, Stephens
& Company LLC may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to Lockup Agreements. The
Company has also agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or any
64
<PAGE>
options or warrants to purchase Common Stock other than shares or options
issued under the Company's stock and option plans and stock issued upon the
exercise of presently outstanding warrants for a period ending the later of
180 days after the date of this Prospectus and four days after the
announcement by the Company of its operating results for the three months
ending March 30, 1996, except with the prior written consent of Robertson,
Stephens & Company LLC.
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations among the Company and the
Representatives. Among the factors considered in such negotiations will be
prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential
of the Company, the present state of the Company's development and other
factors deemed relevant.
65
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California and for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Edward M. Leonard, an attorney of Brobeck, Phleger &
Harrison LLP, is the Secretary of the Company. Attorneys of Brobeck, Phleger &
Harrison LLP, representing the Company in this offering, beneficially own
approximately 83,900 shares of Common Stock.
EXPERTS
The consolidated financial statements and schedule of the Company at
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 appearing in this Prospectus and the Registration Statement
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as set forth in its reports thereon appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such
reports, given on the authority of the firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to such Registration Statement
and the exhibits and schedules filed as a part thereof. A copy of the
Registration Statement, including exhibits and schedules thereto, may be
inspected by anyone without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from the Commission upon the payment of certain fees prescribed by the
Commission.
66
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Synergy Semiconductor Corporation:
We have audited the accompanying consolidated balance sheets of Synergy
Semiconductor Corporation and subsidiary (the Company) as of December 31, 1994
and 1995, and the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Synergy
Semiconductor Corporation and subsidiary as of December 31, 1994 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
San Jose, California
January 31, 1996
F-2
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
------------------------- ------------------------
1994 1995 ACTUAL PRO FORMA
ASSETS (SUBSTANTIALLY ALL PLEDGED) ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 289,121 1,939,727 2,307,228 2,307,228
Accounts receivable, net of
allowance for doubtful
accounts of $290,000,
$500,000, and $200,000 in
1994, 1995, and 1996,
respectively............... 3,750,302 3,442,476 3,242,464 3,242,464
Inventories................. 2,107,554 5,961,238 6,080,948 6,080,948
Prepaid expenses and other
current assets............. 207,632 211,106 326,930 326,930
------------ ----------- ----------- -----------
Total current assets...... 6,354,609 11,554,547 11,957,570 11,957,570
Machinery and equipment, net. 2,388,959 2,176,027 2,077,909 2,077,909
Other assets................. 130,673 235,720 236,982 236,982
------------ ----------- ----------- -----------
$ 8,874,241 13,966,294 14,272,461 14,272,461
============ =========== =========== ===========
LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED
STOCK, AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............ $ 1,947,003 2,132,476 1,537,473 1,537,473
Current portion of notes
payable and long-term
debt....................... 3,978,235 3,457,957 3,574,798 3,574,798
Deferred revenue............ 397,693 532,610 468,333 468,333
Accrued expenses............ 942,762 1,692,121 1,422,215 1,422,215
------------ ----------- ----------- -----------
Total current liabilities. 7,265,693 7,815,164 7,002,819 7,002,819
Long-term debt............... 1,498,444 1,200,855 885,427 885,427
------------ ----------- ----------- -----------
Total liabilities......... 8,764,137 9,016,019 7,888,246 7,888,246
------------ ----------- ----------- -----------
Redeemable convertible
preferred stock; actual--no
par value;
6,500,000, -0- and -0-
shares authorized in 1994,
1995, and as of
March 31, 1996,
respectively; 5,749,344, -0-
, and -0- shares issued and
outstanding in 1994, 1995,
and as of March 31, 1996,
respectively (liquidation
preference of $5,249,151 in
1994); pro forma--no shares
authorized, issued, or
outstanding................. 5,196,763 -- -- --
------------ ----------- ----------- -----------
Commitments
Shareholders' equity
(deficit):
Convertible preferred
stock; actual--no par
value; -0-, 14,000,000 and
14,000,000 shares
authorized in 1994, 1995,
and as of March 31, 1996,
respectively; -0-,
11,520,574, and
11,520,574, shares issued
and outstanding in 1994,
1995, and as of March 31,
1996, respectively
(liquidation preference of
$7,381,506 as of
March 31, 1996); pro
forma--5,000,000 shares
authorized, none issued or
outstanding................ -- 7,297,057 7,297,057 --
Common stock; actual--no
par value; 8,600,000,
18,000,000, 18,000,000
shares authorized in 1994,
1995, and as of March 31,
1996, respectively;
504,958, 2,553,803 and
2,551,605 shares issued
and outstanding in 1994,
1995, and as of March 31,
1996, respectively); pro
forma--14,072,179 shares
issued and outstanding..... 31,807,004 31,894,187 31,893,953 39,191,010
Accumulated deficit......... (36,893,663) (34,240,969) (32,806,795) (32,806,795)
------------ ----------- ----------- -----------
Total shareholders' equity
(deficit)................ (5,086,659) 4,950,275 6,384,215 6,384,215
------------ ----------- ----------- -----------
$ 8,874,241 13,966,294 14,272,461 14,272,461
============ =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
----------------------------------- -----------------------
APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
----------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Product sales......... $10,552,524 15,395,249 23,344,192 4,511,293 9,388,632
Contract engineering.. 503,046 1,749,530 1,041,258 48,740 198,525
License fees.......... 3,302,148 1,975,000 1,300,000 -- --
----------- ---------- ---------- --------- ----------
Total net revenues.. 14,357,718 19,119,779 25,685,450 4,560,033 9,587,157
Cost of product sales... 8,909,858 9,711,137 10,819,206 2,250,805 4,765,668
----------- ---------- ---------- --------- ----------
Gross margin............ 5,447,860 9,408,642 14,866,244 2,309,228 4,821,490
Operating expenses:
Research and
development.......... 7,015,085 6,457,070 7,792,852 1,764,246 1,806,212
Selling, general, and
administrative....... 2,688,532 2,778,376 3,910,041 825,499 1,489,007
----------- ---------- ---------- --------- ----------
Total operating
expenses........... 9,703,617 9,235,446 11,702,899 2,589,745 3,295,219
----------- ---------- ---------- --------- ----------
Income (loss) from
operations............. (4,255,757) 173,196 3,163,344 (280,517) 1,526,271
Other expenses, net..... (746,867) (656,537) (510,650) (135,274) (92,097)
----------- ---------- ---------- --------- ----------
Net income (loss) before
extraordinary item..... (5,002,624) (483,341) 2,652,694 (415,791) 1,434,174
Extraordinary item--gain
on debt restructuring.. 5,167,009 487,474 -- -- --
----------- ---------- ---------- --------- ----------
Net income (loss)....... $ 164,385 4,133 2,652,694 (415,791) 1,434,174
=========== ========== ========== ========= ==========
Pro forma net income per $ .20 $ .10
share.................. ========== ==========
Shares used in computing
pro forma net income
per share.............. 13,309,073 14,668,350
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK SHAREHOLDERS'
-------------------- ---------------------- ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT DEFICIT (DEFICIT)
---------- --------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December
27, 1992............... -- $ -- 82,793 $ 140,830 (37,062,181) (5,266,696)
Issuance of common
stock to employees,
net of repurchases.... -- -- 910 6,607 -- 6,607
Issuance of warrants in
connection with bridge
loan.................. -- -- -- 1,741 -- 1,741
Net income............. -- -- -- -- 164,385 164,385
---------- --------- --------- ----------- ----------- ----------
Balances as of December
31, 1993............... -- -- 83,703 149,178 (36,897,796) (5,093,963)
Issuance of common
stock to employees,
net of repurchases.... -- -- 384 3,171 -- 3,171
Conversion of
redeemable convertible
preferred stock to
common stock.......... -- -- 420,871 31,654,655 -- --
Net loss............... -- -- -- -- 4,133 4,133
---------- --------- --------- ----------- ----------- ----------
Balances as of December
31, 1994............... -- -- 504,958 31,807,004 (36,893,663) (5,086,659)
Issuance of common
stock to employees,
net of repurchases.... -- -- 2,049,774 87,183 -- 87,183
Net issuance of Series
BB preferred stock ... 5,771,230 2,100,294 -- -- -- 2,100,294
Elimination of
redemption feature of
Series AA preferred
stock................. 5,749,344 5,196,763 -- -- -- 5,196,763
Net income............. -- -- -- -- 2,652,694 2,652,694
---------- --------- --------- ----------- ----------- ----------
Balances as of December
31, 1995............... 11,520,574 7,297,057 2,554,732 31,894,187 (34,240,969) 4,950,275
Issuance of common
stock to employees,
net of repurchases
(unaudited)........... -- -- (3,127) (234) -- (234)
Net income (unaudited). -- -- -- -- 1,434,174 1,434,174
---------- --------- --------- ----------- ----------- ----------
Balances as of March 31,
1996 (unaudited)....... 11,520,574 7,297,057 2,551,605 31,893,953 (32,806,795) 6,384,215
========== ========= ========= =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
-------------------------------------- ------------------------
APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
----------- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)..... $ 164,385 4,133 2,652,694 (415,791) 1,434,174
Adjustments to
reconcile net income
(loss) to net cash
used in operating
activities:
Depreciation........ 1,709,914 1,384,411 1,185,306 327,080 247,099
Gain on capital
lease
extinguishment..... (5,167,009) -- -- -- --
Gain on sale of
capital equipment.. -- (39,032) -- -- --
Gain on debt
extinguishment..... -- (487,474) -- -- --
Interest expense
converted to Series
AA preferred stock. -- 310,901 -- -- --
Changes in operating
assets and
liabilities:
Accounts
receivable, net.. 1,467,130 (2,399,872) 307,826 580,405 200,012
Inventories....... (338,424) (521,278) (3,853,684) (699,851) (119,710)
Prepaid expenses
and other current
assets........... (114,246) (63,365) (3,474) (166,002) (115,824)
Other assets...... (5,047) (5,048) (105,047) (1,262) (1,262)
Accounts payable.. 193,575 503,433 185,473 (581,405) (595,003)
Accrued expenses.. 57,451 (243,858) 749,359 317,605 (269,906)
Deferred revenue.. (1,312,010) (80,869) 134,917 (21,190) (64,277)
----------- ------------ ----------- ---------- -----------
Net cash provided
by or (used in)
operating
activities...... (3,344,281) (1,637,918) 1,253,370 (660,411) 715,303
----------- ------------ ----------- ---------- -----------
Cash flows from
investing activities:
Proceeds from sale of
capital assets....... -- 40,500 -- -- --
Capital expenditures.. (431,759) (715,449) (720,829) (140,789) (148,981)
----------- ------------ ----------- ---------- -----------
Net cash used in
investing
activities...... (431,759) (674,949) (720,829) (140,789) (148,981)
----------- ------------ ----------- ---------- -----------
Cash flows from
financing activities:
Issuance of common
stock and warrants,
net of repurchases... 8,348 3,171 87,183 -- (234)
Issuance costs
associated with
Series AA redeemable
convertible preferred
stock conversion..... -- (49,500) -- -- --
Issuance of Series BB
convertible preferred
stock, net of
issuance costs....... -- -- 2,100,294 2,097,325 --
Proceeds from accounts
receivable line of
credit............... 892,003 15,966,999 24,906,858 4,652,820 8,631,000
Payments on accounts
receivable line of
credit............... -- (14,011,810) (25,586,288) (4,931,071) (8,508,458)
Proceeds from bridge
loans from
shareholders......... 1,741,530 1,501,171 -- -- --
Proceeds from issuance
of promissory note... 1,400,000 1,200,000 865,000 -- --
Payments on promissory
note................. (280,000) (905,000) (940,000) (210,000) (225,000)
Payment to Digital
Equipment Corporation
to extinguish certain
capital lease
obligations.......... (1,450,000) -- -- -- --
Payment to Storage
Technology
Corporation to
extinguish note
payable.............. -- (1,200,667) -- -- --
Payments on capital
lease obligations.... (252,749) (45,923) (314,982) (69,972) (96,129)
----------- ------------ ----------- ---------- -----------
Net cash provided
by or (used in)
financing
activities...... 2,059,132 2,458,441 1,118,065 1,539,102 (198,821)
----------- ------------ ----------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents........... (1,716,908) 145,574 1,650,606 737,902 367,501
Cash and cash
equivalents at
beginning of
year/period........... 1,860,455 143,547 289,121 289,121 1,939,727
----------- ------------ ----------- ---------- -----------
Cash and cash
equivalents at end of
year/period........... $ 143,547 289,121 1,939,727 1,027,023 2,307,228
=========== ============ =========== ========== ===========
Supplemental
disclosures of cash
flow information:
Cash paid during the
year/period:
Interest............ $ 512,239 $ 504,613 $ 554,564 $ 134,845 $ 134,764
=========== ============ =========== ========== ===========
Schedule of noncash
financing activities:
Assets acquired under
capital lease
obligations.......... $ -- $ 1,117,445 $ 251,545 $ -- $ --
=========== ============ =========== ========== ===========
Capital lease
extinguishment....... $ 5,167,009 $ -- $ -- $ -- $ --
=========== ============ =========== ========== ===========
Conversion of
redeemable
convertible preferred
stock to common
stock................ $ -- $ 31,654,655 $ -- $ -- $ --
=========== ============ =========== ========== ===========
Conversion of bridge
loans from
shareholders to
promissory notes..... $ -- $ 3,434,191 $ -- $ -- $ --
=========== ============ =========== ========== ===========
Conversion of
promissory notes to
Series AA redeemable
convertible preferred
stock................ $ -- $ 4,935,362 $ -- $ -- $ --
=========== ============ =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Synergy Semiconductor Corporation (the "Company" or "Synergy") operates in
one industry and is engaged in the design, manufacture and marketing of high
performance semiconductor products. The Company markets and distributes its
products through independent sales representatives and distributors in North
America, through a joint venture with Land Brandenburg in Europe, and through
stocking representatives and distributors in Asia.
Basis of Presentation and Preparation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Synergy Wafer Fabrication
Corporation. All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company accounts for its investment in a
German Joint Venture (see Note 7) under the equity method. The Company's
fiscal year-end is December 31 and the Company operates and reports on 13-week
quarterly periods each ending on the Sunday closest to month-end.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities as of 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.
Pro Forma Balance Sheet
In May 1996, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission (SEC) permitting Synergy
to sell shares of its common stock in connection with a proposed initial
public offering (IPO). If the offering is consummated under the terms
presently anticipated, all the currently outstanding preferred stock will
automatically convert to 11,520,574 shares of common stock upon closing of the
IPO. The conversion of the preferred stock has been reflected in the
accompanying pro forma balance sheet as of December 31, 1995.
Cash and Cash Equivalents
The Company considers all highly liquid investment instruments with original
maturities of less than 90 days to be cash equivalents.
Revenue Recognition
Revenues from the shipment of semiconductor products are generally
recognized upon shipment. Revenues on sales to domestic distributors are
deferred until the merchandise is sold by the distributors. Revenues on sales
to international distributors, whose return privileges are generally limited,
are recognized upon shipment. The Company provides specific reserves for
estimated returns and allowances when necessary.
Revenues relating to technology license agreements and contract engineering
services are recognized as the efforts are expended or as deliverables are
provided, which approximates the percentage of completion method.
F-7
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
The majority of the costs and expenses associated with contract engineering
are included in research and development expenses and total $343,000,
$880,000, $652,000, and $124,000 for the years ended December 31, 1993, 1994,
1995, and the three months ended March 31, 1996.
Inventories
Inventories are stated at the lower of actual cost (which approximates first
in, first out) or market. Market is based upon net realizable value, which is
selling price less disposal costs.
Research and Development
The Company charges all research and development costs associated with the
development of new products to expense when incurred. Engineering and design
costs related to revenues on nonrecurring engineering services billed to
customers are classified as research and development expense and are expensed
as incurred.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash equivalents and trade
receivables. The Company has short-term cash investment policies that limit the
amount of credit exposure to any one financial institution and restrict
placement of these investments to financial institutions evaluated as highly
creditworthy.
A majority of the Company's trade receivables are derived from sales to
manufacturers of computer systems. Management believes that any risk of loss
is substantially mitigated by the Company's credit evaluation process and
collection terms. The Company generally does not require collateral; credit
losses have been insignificant to date.
Depreciation and Amortization
Depreciation on machinery and equipment is calculated using the straight-
line method over the estimated useful life of the asset (generally three to
four years). Assets recorded under capital leases are amortized using the
straight-line method over the shorter of the lease term or estimated useful
life of the asset.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be recovered or
settled.
Pro Forma Net Income Per Share
Pro forma net income per share is computed using net income and is based on
the weighted average number of shares outstanding of common stock, convertible
preferred stock, on an "as if converted" basis, and dilutive common equivalent
shares from stock options and warrants using the treasury stock method. In
accordance with certain Securities and Exchange Commission (SEC) Staff
Accounting Bulletins, such computations include all
F-8
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
common and common equivalent shares issued within 12 months of the offering
date as if they were outstanding for all periods presented using the treasury
stock method and the anticipated initial public offering price.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 will be effective for fiscal years beginning after
December 15, 1995, and will require that the Company either recognize in its
financial statements costs on a "fair value" basis related to its employee
stock-based compensation plans, such as stock purchase plans, or make pro
forma disclosures of such costs in a footnote to the financial statements.
The Company expects to continue to use the intrinsic value based method of
Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123, to
account for all of its employee stock-based compensation plans. Therefore, in
fiscal 1996, the Company will make the required pro forma disclosures in a
footnote to the financial statements. SFAS No. 123 is not expected to have a
material effect on the Company's results of operations or financial position.
(2) BALANCE SHEET AND OPERATING STATEMENT COMPONENTS
Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- MARCH 31,
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Raw materials.................... $ 332,799 $ 314,703 $ 420,835 $ 946,515
Work in process.................. 748,564 1,266,481 4,226,963 4,250,753
Finished goods................... 504,913 526,370 1,313,440 883,680
---------- ---------- ---------- ----------
$1,586,276 $2,107,554 $5,961,238 $6,080,948
========== ========== ========== ==========
</TABLE>
Machinery and Equipment
Machinery and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Computers and equipment................. $13,166,729 $14,754,901 $15,697,973
Furniture and fixtures.................. 157,646 166,833 196,137
----------- ----------- -----------
13,324,375 14,921,734 15,894,110
Less accumulated depreciation........... 11,382,431 12,532,775 13,718,083
----------- ----------- -----------
$ 1,941,944 $ 2,388,959 $ 2,176,027
=========== =========== ===========
</TABLE>
Included in other assets is a note receivable from the Chief Executive
Officer of the Company, in connection with a negotiated employment
arrangement. The outstanding balances on the note (including accrued interest
at a rate of 6.73% per annum) as of December 31, 1994 and 1995 were $89,849
and $96,158. The note is secured by a stock pledge agreement that grants the
Company a security interest in 125,000 shares of the Company's common stock,
and is due and payable on September 30, 1997, or earlier upon certain events.
In December 1995, the Company loaned an additional $100,000 to the Chief
Executive Officer under a separate loan, which bears no interest, is due and
payable two years from the effective date of the IPO, and is secured by a deed
of trust on his residence.
F-9
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1993 1994 1995
---------- -------- ----------
<S> <C> <C> <C>
Accrued payroll and related liabilities...... $ 414,492 $506,739 $ 817,599
Other accrued liabilities.................... 811,292 436,023 874,522
---------- -------- ----------
$1,225,784 $942,762 $1,692,121
========== ======== ==========
</TABLE>
Other Expenses, Net
Other expenses, net, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest income............................. $ 18,945 $ 12,869 $ 15,326
Interest expense............................ (765,812) (757,015) (536,501)
Other income................................ -- 87,609 10,525
--------- --------- ---------
$(746,867) $(656,537) $(510,650)
========= ========= =========
</TABLE>
(3) NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Bank line of credit........................ $ 892,003 $2,847,192 $2,167,762
Notes payable to shareholders.............. 3,434,191 -- --
Notes payable to Storage Technology
Corporation............................... 1,648,977 -- --
Promissory note due to bank................ 1,120,000 1,415,000 1,340,000
Capital lease obligations.................. 142,965 1,214,487 1,151,050
---------- ---------- ----------
7,238,136 5,476,679 4,658,812
Less current portion....................... 5,514,582 3,978,235 3,457,957
---------- ---------- ----------
$1,723,554 $1,498,444 $1,200,855
========== ========== ==========
</TABLE>
Notes Payable to Shareholders
During July and August 1992, the Company negotiated a bridge loan of
approximately $1,693,000 with certain shareholders (the 1992 Bridge Loan),
secured by accounts receivable, inventory, and fixed assets. The bridge loan,
including interest accrued at 4.84% per annum, was scheduled to mature in
August 1994.
During October 1993, the Company negotiated a bridge loan of approximately
$1,740,000 with certain shareholders (the 1993 Bridge Loan), secured by
accounts receivable, inventory, and fixed assets. The bridge loan, including
interest accrued at 4.84% per annum, was scheduled to mature in April 1995.
In May 1994, the outstanding 1992 and 1993 Bridge Loans and related accrued
interest were converted to convertible promissory notes which in November 1994
were converted into Series AA convertible preferred stock (see Note 5).
F-10
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
Bank Line of Credit and Promissory Note
The Company has a $4,500,000 credit arrangement which is comprised of a line
of credit and a $1,625,000 promissory note. The credit arrangement is
available pursuant to a Loan and Security Agreement dated June 29, 1993, and
bears interest at the prime rate plus 3% per annum (11.75% as of December 31,
1995). As of December 31, 1994, the Company had $2,847,192 outstanding on the
line of credit and $1,415,000 outstanding on the promissory note, of which
$3,687,192 represents the aggregate current portion. The credit agreement is
collateralized by substantially all the assets of the Company. On May 1, 1995,
the credit arrangement was increased to $5.5 million which includes a $2
million promissory note and a line of credit. As of December 31, 1995, the
Company had $1,340,000 outstanding on the promissory note and $2,167,762
outstanding on the line of credit, of which $3,067,762 represents the
aggregate current portion. On March 25, 1996, the Company amended its bank
line of credit and promissory note with its bank. The line of credit agreement
was extended to December 31, 1996. Beginning May 1, 1996, the credit
arrangement will bear interest at the prime rate plus 1.5% per annum.
Debt Restructuring
In September 1994, the Company entered into an agreement with Storage
Technology Corporation ("STC") to extinguish a note payable which totaled
$1,648,977 as of December 31, 1993. Under terms of the agreement, the Company
paid STC $1,244,362 to retire a note with outstanding principal and interest
of $1,731,836 resulting in a gain to the Company on extinguishment of debt of
$487,474.
In June 1993, the Company entered into an agreement with Digital Equipment
Corporation ("Digital") to extinguish certain of its capital lease
obligations. The agreement with Digital provided for the Company to obtain
title to certain machinery and equipment secured by lease financing provided
by Digital. Under the terms of the agreement, the Company paid $1,450,000 in
cash to Digital. In exchange, Digital extinguished capital lease obligations
totaling approximately $6,600,000.
Capital Lease Obligations
Future minimum lease payments under capital lease obligations for certain
machinery and equipment, together with the present value of the net minimum
lease payments as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
1996........................................................... $ 491,293
1997........................................................... 438,412
1998........................................................... 405,320
1999........................................................... 2,747
---------
Total minimum lease payments................................... 1,337,772
Less amount representing interest.............................. 186,722
---------
Present value of net minimum lease payments.................... 1,151,050
Less current portion........................................... 390,195
---------
Long-term portion of capital lease obligations................. $ 760,855
=========
</TABLE>
As of December 31, 1994, machinery and equipment under capital leases was
approximately $1,350,000, with accumulated amortization of assets under
capital leases of approximately $390,000. As of December 31, 1995, machinery
and equipment under capital leases was approximately $1,603,458, with
accumulated amortization of assets under capital leases of approximately
$685,353.
F-11
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
(4) INCOME TAXES
The Company has not recorded any federal and California income taxes due to
losses having been incurred in all periods presented for income tax purposes.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Reserves and accruals............................... $ 735,628 $ 1,088,730
Capitalized research and development expenditures... 7,687,453 5,211,353
Other............................................... 12,000 16,497
Net operating loss carryforwards.................... 5,580,662 8,635,498
Research credit carryforwards....................... 3,226,283 3,339,682
----------- -----------
Total gross deferred tax assets................... 17,242,026 18,291,760
Valuation allowance................................. 16,888,156 18,126,450
----------- -----------
Net deferred tax assets........................... 353,870 165,310
Deferred tax liabilities:
Fixed assets........................................ (353,870) (165,310)
----------- -----------
Total gross deferred tax liabilities.............. (353,870) (165,310)
----------- -----------
Total net deferred tax assets..................... $ 0 $ 0
=========== ===========
</TABLE>
The net change in the total valuation allowance for the year ended December
31, 1995 was a decrease of approximately $1,238,294.
As of December 31, 1995, the Company had net operating loss carryforwards of
approximately $23,494,562 and $10,546,547 for federal and California income
tax purposes, respectively. Also, the Company had research credit
carryforwards of approximately $2,394,981 and $944,701 for federal and
California income tax purposes, respectively. There is no limitation on
California research credit carryforwards. If not utilized, the other federal
and California carryforwards expire through 2010 as follows:
<TABLE>
<CAPTION>
FEDERAL NET FEDERAL CALIFORNIA
OPERATING RESEARCH NET OPERATING
YEAR OF LOSS CREDIT LOSS
EXPIRATION CARRYFORWARDS CARRYFORWARDS CARRYFORWARDS
---------- ------------- ------------- -------------
<S> <C> <C> <C>
1996 $ -- $ -- $ 1,142,419
1997 -- -- 3,379,749
1998 -- -- 1,106,185
1999 -- -- 3,359,509
2000 -- -- 1,558,685
Thereafter 23,494,562 2,394,981 --
----------- ---------- -----------
$23,494,562 $2,394,981 $10,546,547
=========== ========== ===========
</TABLE>
F-12
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
Under the Tax Reform Act of 1986, the amounts of and benefit from net
operating losses and credits that can be carried forward may be limited in
certain circumstances. Events that may affect these carryforwards include, but
are not limited to, a cumulative stock ownership change of greater than 50%,
as defined, over a three-year period.
(5) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
As of December 31, 1995, the Company is authorized to issue two classes of
stock--preferred stock and common stock--each with no par value.
Preferred Stock
In May 1994, the Company and the holders of the 1992 and 1993 Bridge Loans
(see Note 3) negotiated the conversion of the loans (total principal and
interest balances outstanding as of May 1994 of $3,629,722), and the issuance
of $1,500,000 in new financing, through 5% convertible promissory notes.
During November 1994, a combination of the promissory notes and related
accrued interest totaling $5,246,263, net of issuance costs of $49,500, were
converted to 5,749,344 shares of Series AA redeemable convertible preferred
stock. This resulted in the conversion of the Series A, B, C, and D
convertible preferred stock into common stock.
In February and March 1995, the Company issued 5,771,230 shares of Series BB
convertible preferred stock for $2,135,355. As a result of the issuance of
Series BB convertible preferred stock, the Series AA convertible preferred
stock is no longer redeemable.
The rights, preferences, and privileges of the holders of Series AA and BB
preferred stock are as follows:
. The holders of Series AA and BB preferred stock are entitled to
noncumulative dividends of $0.0913 and $0.037, respectively, per share
per annum, or if greater, an amount equal to that paid on any other
outstanding shares by the Company, payable quarterly, when and if
declared by the Board of Directors.
. The holders of Series BB preferred stock are entitled to a distribution
in preference to the holders of Series AA preferred stock and holders of
common stock of $0.37 per share plus any declared but unpaid dividends on
such shares. The holders of Series AA preferred stock are entitled to a
distribution in preference to holders of common stock of $0.913 per share
plus any declared but unpaid dividends on such shares.
. The preferred stock is convertible at the option of the holder, at any
time, into one share of common stock, subject to certain adjustments.
Conversion is automatic upon the earlier of the closing of the Company's
sale of common stock in a public offering for which the aggregate
proceeds equal or exceed $7,500,000 and the per share offering price is
not less than $2.00, or upon written consent of a majority of the holders
of preferred stock. The Company has reserved sufficient shares of common
stock solely for the purpose of effecting the conversion of the Series AA
and BB preferred stock.
. The holders of preferred stock have voting rights equal to the number of
common stock shares that would be held upon conversion.
Common Stock--Stock Option Plan
In July 1987, the Company adopted a Stock Option Plan (the 1987 Plan) that
expires in 1997, under which employees, directors, and consultants may be
granted incentive or nonqualified stock options for the purchase of the
Company's common stock.
F-13
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
The option price per share shall be fixed by the plan administrator, but in
no event shall the option price per share be less than 85% of the fair market
value of a share of common stock on the date of the option grant. Options
granted are immediately exercisable. Unvested shares received upon the
exercise of options are subject to a right of repurchase by the Company
following the termination of employment, and unvested options are canceled.
Approximately 2.1 million options granted in 1995 were approximately 55%
vested upon grant. All other option grants generally vest 25% after one year,
with the balance vesting ratably over the next three years. As of December 31,
1995, there were 758,424 shares of common stock issued pursuant to options
subject to repurchase by the Company and approximately 248,209 vested options
outstanding.
The following is a summary of option activity:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------
OPTIONS NUMBER
AVAILABLE OF PRICE
FOR GRANT SHARES PER SHARE
---------- ---------- ----------
<S> <C> <C> <C>
Balances as of December 27, 1992............. 30,388 47,115 .335-12.50
Options granted............................ (18,633) 18,633 12.50
Options exercised.......................... -- (910) 5.00-12.50
Options canceled........................... 7,487 (7,487) 5.00-12.50
---------- ---------- ----------
Balances as of December 31, 1993............. 19,242 57,350 .335-12.50
Options authorized......................... 1,605,655 -- --
Options granted............................ (7,795) 7,795 12.50
Options exercised.......................... -- (384) 7.00-12.50
Options canceled........................... 8,124 (8,124) 5.00-12.50
---------- ---------- ----------
Balances as of December 31, 1994............. 1,625,226 56,637 .335-12.50
Options authorized......................... 2,140,920 -- --
Options granted............................ (2,670,255) 2,670,255 .04- 2.00
Options exercised.......................... -- (2,041,397) .04
Options canceled........................... 58,613 (58,613) .04-12.50
Unvested shares repurchased................ 5,668 -- .04
---------- ---------- ----------
Balances as of December 31, 1995............. 1,160,172 630,607 $.04-12.50
Options granted (unaudited)................ (164,550) 164,550 2.00- 3.00
Options exercised (unaudited).............. -- (459) .04
Options canceled (unaudited)............... 700 (700) 12.50
Unvested shares repurchased (unaudited).... 739 -- .04
---------- ---------- ----------
Balances as of March 31, 1996 (unaudited).... 997,061 790,273 $.04-12.50
========== ========== ==========
</TABLE>
Warrants
The Company issued 2,500 warrants for the purchase of shares of Series C and
D convertible preferred stock in conjunction with amendments to the note
payable to STC (see Note 3). The exercise prices range from $153.75 to $187.50
per share, and 1,174 warrants expire in November 1996; 826 warrants expire in
January 1998; and 500 warrants expire in January 1999. The aggregate value of
the above warrants is not material.
F-14
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
During 1991, as part of a line of credit arrangement, the Company issued
warrants to purchase 130 shares of Series D preferred stock to a bank at
$153.75 per share. All such warrants expired on December 15, 1995. The value
of these warrants was not material.
The Company has issued warrants for the purchase of convertible preferred
stock in conjunction with the lease financing under its strategic alliance
agreement with Digital (see Note 7). Warrants issued under this agreement are
priced at one and one-half times the current fair market value of the
preferred stock until reaching $350.00 per share, at which time, the price
becomes the current fair market value. The warrants may be exercised up to 7
years from the date of issuance. As of December 31, 1994, there were
outstanding warrants to purchase 2,480 shares of Series C preferred stock at
$153.75 per share under this agreement. In addition, in January 1991, the
Company issued warrants to purchase 22 shares of Series D preferred stock at
$187.50 per share under this agreement. The Company's obligation to issue
warrants in conjunction with lease financing under the strategic alliance
agreement has been fulfilled. The value of the warrants issued under the
strategic alliance agreement was not material.
During 1990, the Company issued warrants for the purchase of 2,411 shares of
common stock as an incentive for certain shareholders to enter into a bridge
loan. In addition, warrants for the purchase of 3,946 shares of common stock
were issued to those shareholders who elected to convert their debt to equity.
The exercise price of these warrants is $10.00 per share, and they expired on
September 19, 1995. The value associated with the warrants was not material.
In 1991, warrants to purchase 795 shares of common stock under this program
were exercised at $10.00 per share.
In connection with a bridge loan financing in July and August 1992 (see Note
3), the Company issued a total of 104,702 warrants to purchase the Company's
common stock at $12.50 per share. The warrants were assigned an estimated
value of $.50 per share.
In connection with a bridge loan financing in October 1993 (see Note 3), the
Company issued a total of 121,907 warrants to purchase the Company's common
stock at $12.50 per share. The warrants were assigned an estimated value of
$.05 per share.
The following summarizes all warrants outstanding as of December 31, 1995:
<TABLE>
<CAPTION>
NUMBER
PRICE PER SHARE OF SHARES
--------------- ---------
<S> <C> <C>
Series C........................................... $153.75 3,654
Series D........................................... 187.50 1,348
Common stock....................................... 12.50 226,609
</TABLE>
As of December 31, 1995, the Company has reserved a total of 231,611 shares
of common stock for the exercise of warrants.
In February 1996, in conjunction with a facility lease agreement, the
Company issued warrants to purchase 200,000 shares of its common stock at
$4.50 per share. The warrants expire upon the earlier of 5 years from the date
of the consummation of the IPO of the Company's common stock or 30 days from
the date of notice by the Company that the fair market value of a share of the
Company's common stock has reached $13.50.
F-15
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
(6) COMMITMENTS
Leases
The Company leases its existing facilities under an operating lease that
expires in February 1997. On February 29, 1996, the Company entered into a
lease agreement for new facilities. The term of the lease is ten years
commencing no later than November 1, 1996. Total rental commitments under all
noncancelable operating leases as of March 31, 1996 were as follows:
<TABLE>
<CAPTION>
PERIODS
ENDING
DECEMBER
31,
-----------
<S> <C>
1996.......................................................... $ 722,657
1997.......................................................... 1,531,830
1998.......................................................... 1,439,759
1999.......................................................... 1,487,777
2000 and after................................................ 10,939,784
-----------
$16,121,807
===========
</TABLE>
Rental expense was approximately $804,000, $719,000, and $734,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.
Employee Benefit Plan
The Company has a 401(k) plan which allows eligible employees to contribute
up to 20% of their compensation limited to $9,240 in 1995. Employee
contributions and earnings thereon vest immediately. The Company has no
employer match requirements. The Company made a voluntary contribution of
$17,000 in 1995, and no discretionary retirement contributions were made for
any other period presented.
(7) STRATEGIC ALLIANCES
Digital Equipment Corporation
In December 1987, the Company entered into a strategic alliance agreement
with Digital. Under the terms of this agreement, Digital purchased
approximately $1,800,000 (30,161 shares) of Series B preferred stock and
agreed to provide up to $8,500,000 of lease financing for machinery and
equipment through December 1992. In addition, the Company agreed to issue
warrants to purchase additional shares of preferred stock based upon the first
$8,500,000 of funds used under the lease line (see Notes 3 and 6). Digital and
the Company have also agreed to exchange certain technologies with the
understanding that the Company will be a preferred supplier of integrated
circuits and may provide Digital with certain percentages of the Company's
manufacturing output. Through December 31, 1995, sales to Digital have not
been significant.
Toshiba Corporation
In November 1990, the Company entered into a strategic alliance agreement
with Toshiba Corporation (Toshiba). Under the terms of this agreement, Toshiba
purchased $6,500,000 (52,000 shares) of Series D preferred stock, purchased a
license for the Company's proprietary process technology, agreed to serve as a
foundry to produce wafers for the Company, and entered into a joint
development program related to the development of high performance,
application specific, integrated circuits with the Company.
F-16
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
Under the joint development program, Toshiba paid the Company $565,000 in
1993 and $250,000 in 1994. These amounts are recorded as an offset to research
and development expenses in the Company's consolidated statements of
operations as the payments are received and efforts are expended for the
development program. The Company's contributions consist of actual direct
expenses, allocated expenses, including facilities, rent, general and
administrative expenses, and capital equipment acquired.
In 1994, Toshiba paid the Company a license fee for rights to the Company's
existing proprietary technology related to clock works and gate array
products. Revenue associated with the license fee was recognized upon delivery
of the technology to Toshiba.
German Joint Venture/Technology License
In March 1993, the Company entered into a joint venture with a privatization
agency of the German government (the German government) to establish a
semiconductor manufacturing operation in the Republic of Germany. A
contribution agreement called for Microelectronik and Technologie
Gessellschaft mbH (MTG) to contribute certain assets of its electronic
components division to HalbleiterElektronik GmbH (HEG), the Joint Venture, for
100% of the shares of the Joint Venture, which subsequently changed its name
to System Microelectronic Innovation GmbH (SMI). Through a capital increase,
SMI allocated a 49% ownership to the Company for approximately $30,000 in
cash.
As part of a shareholder agreement, the Company holds an option to buy an
additional ownership interest in the Joint Venture from the German government,
and the German government, in turn, has the right to sell its ownership
interest (or a portion thereof) to other investors. In addition, the Company
is required to use its best efforts to introduce acceptable additional
investors to purchase up to 19.5% of the total shares of the Joint Venture
from the German government. If the Company successfully introduces additional
investors, the Company will be granted an option to purchase not less than an
additional 2% and up to an additional 19.5% of the total shares of the Joint
Venture. If the Company is unsuccessful, the German government has the right
to sell up to 19.5% to its own selected investor or require the Company to
purchase such ownership interest. To date, an acceptable additional investor
has not been introduced.
As of March 1, 1996 (for a period of one year), the German government will
have an option to put to the Company, at the greater of the "fair market
value" or the "entry value" (defined terms), an amount of shares in the same
proportionate amount as the amount of shares of the other remaining
shareholders from the shares held by the German government. The Company
presently believes that the estimated amount of all put obligations to the
Company would not exceed approximately $400,000, if exercised.
The Company accounts for its investment in the Joint Venture under the
equity method. The unaudited financial statements of the Joint Venture
reflected total revenues of approximately $17 million and a net loss of
approximately $20 million for the fiscal year ended December 31, 1995
(prepared in accordance with German generally accepted accounting principles).
As the Company does not maintain any further material financial commitments
to, or guarantees on behalf of, the Joint Venture, 49% of its share of the
losses of the Joint Venture have been recorded only to the extent of the
Company's $30,000 initial cash contribution.
F-17
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
In late 1992, the Company signed a licensing agreement with HEG in which
certain technologies were licensed by HEG (and subsequently, SMI) for
approximately $5,000,000 (approximately $1,000,000 recognized as license
revenue in fiscal 1992; approximately $3,000,000 recognized as license revenue
in fiscal 1993; and approximately $1,000,000 recognized as license revenue in
1994).
The Company purchased and/or provided approximately $450,000, $492,000, and
$690,262 in reimbursable goods and services on behalf of the Joint Venture for
the years ended December 31, 1993, 1994 and 1995, respectively. Receivables
related to these reimbursements totaled $111,097, $175,588, and $3,100 as of
December 31, 1993, 1994 and 1995. During 1995, the Company began purchasing
product directly from the Joint Venture totaling $690,262 with $260,347
payable by the Company as of December 31, 1995.
Linear Technology Corporation
On April 17, 1995, the Company entered into an agreement with Linear
Technology Corporation (LTC) whereby LTC would license rights to certain wafer
fabrication processes of the Company for consideration of approximately
$2,000,000. As of October 1, 1995, $1,300,000 had been paid and recognized as
license revenue. The agreement also grants LTC an option to acquire a license
to the Company's BiCMOS. The option expires on October 17, 1996.
(8) SIGNIFICANT CUSTOMERS AND SEGMENT INFORMATION
The following table summarizes the annual contribution to total net revenues
by customers when revenues from such customers exceeded 10% of total net
revenues in the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
HY Associates.................................................... 16% 18% 37%
Nortel........................................................... 8 11 9
LTX-Trillium..................................................... 3 12 6
SMI.............................................................. 23 2 2
</TABLE>
Those customers exceeding 10% of total net revenues aggregated 12%, 51%, and
55% of accounts receivable as of December 31, 1993 and 1994, and 1995,
respectively.
Export revenues outside of North America, including license fees, are
summarized by geographic areas as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
---------- --------- ----------
<S> <C> <C> <C>
Far East........................................ $2,554,000 5,655,000 10,918,000
Europe.......................................... 3,302,000 1,495,000 611,000
---------- --------- ----------
$5,856,000 7,150,000 11,529,000
========== ========= ==========
</TABLE>
F-18
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
APRIL 2, 1995, AND MARCH 31, 1996, IS UNAUDITED)
(9) SUBSEQUENT EVENTS (UNAUDITED)
In May 1996, the Company's Board of Directors approved, subject to
shareholder approval, the 1996 Stock Option/Stock Issuance Plan (the "1996
Plan"), that expires in 2006, under which employees, directors and consultants
may be granted incentive or nonqualified stock options for the purchase of the
Company's common stock. The maximum number of shares of common stock which may
be issued over the term of the 1996 Plan is not to exceed approximately 2.3
million shares and is comprised of the number of shares which remain available
for issuance under the 1987 Plan plus an additional increase of 500,000
shares. No additional shares are to be issued under the 1987 Plan.
In May 1996, the Company's Board of Directors also approved, subject to
shareholder approval, the Employee Stock Purchase Plan which authorizes the
issuance of up to 300,000 shares of the Company's common stock. The plan
permits eligible employees to purchase common stock through payroll deductions
at a purchase price of the lower of 85% of the fair market value of the common
stock at the beginning or end of each offering period.
F-19
<PAGE>
Description of the Graphics pages:
Page 2/INSIDE FRONT COVER
In the upper left corner the text: "SYNERGY SEMICONDUCTOR" appears with the logo
for Synergy Semiconductor. The upper right corner of the page contains the
following text:
"Synergy Semiconductor designs and manufactures high-performance digital and
mixed-signal integrated circuits for use in high-speed and highly integrated
computer, networking and communications applications."
The graphic in the center of the page includes four ellipses that intersect. The
Synergy Semiconductor logo appears in the intersection area of the ellipses. The
ellipses contain text. The text in each ellipse beginning with the upper most
ellipse and continuing clockwise is as follows:
"HIGH SPEED", "MIXED SIGNAL", "LOW COST", and "HIGH INTEGRATION".
Scattered throughout the graphic are a number of Synergy Semiconductor
integrated circuits.
At the bottom of the page appears the following text:
"IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET, INCLUDING ON THE NASDAQ NATIONAL MARKET. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME."
The gatefold Two Page Color Gatefold.
On the left side of the page appears the following text:
"Synergy Semiconductor's Product Families:
High-Speed Logic Products used in telecommunication, networking, workstation and
ATE applications
ClockWorks (TM) products that control critical timing in high-speed workstations
and telecommunication systems
SuperCOM (TM) products that provide data links in networking and
telecommunication systems"
The text "SYNERGY SEMICONDUCTOR" and the logo appear in the bottom left corner.
The graphics that appear on the page are a circuit board and a box system on the
left side, and two computers in the middle and right of the gatefold. The
computer on the left has a circuit analysis program on the screen and the
computer on the right has a circuit design software program displayed. The text
on the top of the page says: "HIGH- PERFORMANCE SYSTEM SOLUTIONS".
Beneath the computers on the page are sketches of circuit diagrams.
The inside back cover
The graphic that appears on the page includes a circuit board at the top of the
page and a sketched diagram that describes a network that fills the rest of the
page. A Synergy Semiconductor chip appears on the left side of the page and the
text "SYNERGY SEMICONDUCTOR" and Synergy logo appear on the bottom left of the
page. In a text box on the right side of the page appears the following text:
"Synergy Semiconductor's SuperCOM(TM) products achieve high levels of
integration using its proprietary mixed-signal design methodology and ASSET(TM)
manufacturing process, thus enabling single chip replacement of board-level
subsystems."
The outside back cover
The text: "SYNERGY SEMICONDUCTOR" and the logo for Synergy appear at the top of
the page. In the center of the page appear two silicon wafers. Surrounding the
wafers in the center of the page appear diagrams and sketches detailing product
designs. Scattered throughout the page are Synergy Semiconductor integrated
circuits of various size.
<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, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee the NASD filing fees and the Nasdaq listing
fee.
<TABLE>
<S> <C>
SEC Registration fee............................................. $12,850.00
NASD fee......................................................... 4,226
Nasdaq National Market listing fee............................... *
Printing and engraving........................................... *
Legal fees and expenses of the Company........................... *
Accounting fees and expenses..................................... *
Blue sky fees and expenses....................................... *
Transfer agent fees.............................................. *
Directors and officers liability insurance....................... *
Miscellaneous.................................................... *
----------
Total.......................................................... $
==========
</TABLE>
- --------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code authorizes a corporation's
Board of Directors to grant indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended (the "Act"). Article V of the Restated
Articles of Incorporation of the Registrant (Exhibit 3.3) and Article VI of
the Company's Amended and Restated Bylaws (Exhibit 3.5) provide for
indemnification of the Company's directors, officers and other agents to the
maximum extent permitted by the California Corporations Code. Pursuant to the
foregoing, the Company will, prior to effectiveness of this Registration
Statement, enter into an Indemnification Agreement with each of its directors,
officers and certain controlling persons (Exhibit 10.19). The Underwriting
Agreement (Exhibit 1.1) provides for indemnification by the Underwriters of
the Registrant, its directors and executive officers and other persons for
certain liabilities arising under the Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(1) Since January 1, 1993, the Registrant has issued and sold 2,036,743 shares
(net of repurchases) of its Common Stock to directors, officers, employees
and consultants pursuant to exercises of options under its 1987 Stock
Option Plan.
(2) In October 1993, the Registrant issued approximately $1,740,000 of
promissory notes to certain investors.
(3) In May 1994, the Company issued $5,129,722 of convertible promissory
Notes.
(4) In November 1994, the Company issued 5,749,344 shares of Series AA
Redeemable Convertible Preferred Stock to certain investors pursuant to
the conversion of principal and accrued interest totaling $5,246,263,
under certain promissory notes. In connection therewith, all shares of the
Company's Series A, B, C and D Preferred Stock automatically converted
into shares of the Company's Common Stock.
II-1
<PAGE>
(5) In February 1995, the Company effected a 1-for-50 reverse split of its
Series AA Redeemable Convertible Preferred Stock and Common Stock.
(6) In February and March 1995, the Registrant sold to certain investors an
aggregate of 5,771,230 shares of its Series BB Preferred Stock for an
aggregate purchase price of $2,135,355.
The issuances described in Item 15(1) above were deemed to be exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
thereunder in that they were offered and sold either pursuant to written
compensatory benefit plans or pursuant to a written contract relating to
compensation, as provided by Rule 701. The exchange and issuances described in
Item 15(2), 15(3), 15(4) and 15(6) above were deemed to be exempt from
registration under the Securities Act in reliance upon Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering.
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 and appropriate legends
were affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with the
Registrant, to information about the Registrant. The transaction described in
Item 15(5) above was deemed to be exempt from registration under the Securities
Act because no "sale" occurred in connection with such transaction pursuant to
Section 2(3) of the Securities Act and Rule 145 promulgated thereunder.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
* 1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the
Registrant.
* 3.2 Form of Amended and Restated Articles of Incorporation of the
Registrant, to be filed with the Secretary of the State of
California prior to consummation of the Offering.
3.3 Form of Restated Articles of Incorporation of the Registrant, to
be filed with the Secretary of the State of California upon
consummation of the Offering.
3.4 Bylaws of the Registrant.
3.5 Form of Amended and Restated Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
* 4.2 Specimen Common Stock certificate.
4.3 Second Restated Investor Rights Agreement, dated March 20, 1996,
by and among the Registrant and the investors set forth on
Schedule A thereto.
* 5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1987 Stock Option Plan of the Registrant.
10.2 1996 Stock Option/Stock Issuance Plan of the Registrant.
10.3 Employee Stock Purchase Plan of the Registrant.
10.4 Form of Indemnification Agreement entered into between the
Registrant and its officers and directors.
10.5 Lease, dated July 28, 1989, by and between the Registrant and
Sobrato Interests as amended August 25, 1989, March 10, 1992 and
January 18, 1996.
10.6 Commercial Lease, dated February 29, 1996 by and between the
Registrant and Harris Corporation.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.7 Loan and Security Agreement, Secured Promissory Note, Accounts
Collateral Security Agreement and Equipment Collateral Security
Agreement dated June 29, 1993, between the Registrant and
CoastFed Business Credit Corporation, as amended by Amending
Letter Agreement, dated September 28, 1994, as amended by
Amending Letter Agreement, dated March 31, 1995, as amended by
Amending Letter Agreement, dated August 22, 1995 and as amended
March 25, 1996.
10.8 Business and Technology Transfer Agreement, dated December 15,
1987, between the Registrant and Digital Equipment Corporation.
**10.9 License Agreement, dated April 17, 1995, by and between the
Registrant and Linear Technology Corporation.
**10.10 License Agreement, dated November 14, 1990, by and between the
Registrant and Toshiba Corporation.
10.11 License Agreement, dated November 1, 1992, by and between the
Registrant and Halbleiter Elektronik Frankfurt Gmbh.
10.12 Foundry Agreement, dated November 14, 1990, by and between the
Registrant and Toshiba Corporation.
10.13 Quotaholder Agreement, dated January 23, 1993, between the
Registrant and Halbleiter Elektronik Frankfurt Gmbh.
**10.14 Development Agreement, dated November 14 , 1990, by and between
the Registrant and Toshiba Corporation.
10.15 Synergy Semiconductor International Stocking Representative
Agreement, dated July 1, 1991, by and between the Registrant and
H.Y. Associates Co., Ltd.
10.16 Employment Agreement, dated December 2, 1991, by and between the
Registrant and Thomas D. Mino as amended October 6, 1995.
10.17 Promissory Note, dated January 20, 1992, by and between the
Registrant and Thomas D. Mino, as amended by that certain
Amendment, dated September 20, 1995.
10.18 Stock Pledge Agreement, dated September 20, 1995, by and between
the Registrant and Thomas D. Mino.
10.19 Note Secured by Deed of Trust, dated December 15, 1995 by and
between the Registrant and Thomas D. Mino.
11.1 Computation of Pro Forma Net Income Per Share.
23.1 Report on Schedule and Consent of Independent Auditors.
*23.2 Consent of Brobeck, Phleger & Harrison LLP. Reference is made to
Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
</TABLE>
--------
* To be filed by Amendment
** Confidential treatment requested as to certain portions of this
Exhibit.
(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts (see page II-6).
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-3
<PAGE>
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
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 hereunder, 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 of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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 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
of 1933, 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-4
<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 SANTA
CLARA, STATE OF CALIFORNIA, ON THIS 5TH DAY OF JUNE, 1996.
Synergy Semiconductor Corporation
By: /s/ T. Olin Nichols
-------------------------------------
T. Olin Nichols
Chief Financial Officer (Principal
Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Thomas D. Mino and T.
Olin Nichols and each one of them (with full power to act alone), his
attorneys-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post effective amendments and any amendment or amendments or
abbreviated registration statement increasing the amount of securities which
registration is being sought), and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his substitute or substitutes, may do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas D. Mino President, Chief June 5, 1996
- ------------------------------------- Executive Officer
(THOMAS D. MINO) and Director
(Principal
Executive Officer)
/s/ T. Olin Nichols Chief Financial June 5, 1996
- ------------------------------------- Officer (Principal
(T. OLIN NICHOLS) Financial and
Accounting Officer)
Chairman of the June , 1996
- ------------------------------------- Board
(SVEN E. SIMONSEN)
/s/ Larry Boucher Director June 5, 1996
- -------------------------------------
(LARRY BOUCHER)
/s/ William J. Harding Director June 5, 1996
- -------------------------------------
(WILLIAM J. HARDING)
/s/ William D. Unger Director June 5, 1996
- -------------------------------------
(WILLIAM D. UNGER)
/s/ D. Scott Mercer Director June 5, 1996
- -------------------------------------
(D. SCOTT MERCER)
II-5
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS:
BEGINNING OF WRITE OFFS BALANCE AT
CLASSIFICATION PERIOD ADDITIONS OF ACCOUNTS END OF PERIOD
-------------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C>
Allowance for returns and
doubtful accounts
Year ended December 31,
1993...................... $201 $82 $128 $155
Year ended December 31,
1994...................... $155 $135 -- $290
Year ended December 31,
1995...................... $290 $629 $419 $500
</TABLE>
II-6
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
* 1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the
Registrant.
* 3.2 Form of Amended and Restated Articles of Incorporation of the
Registrant, to be filed with the Secretary of the State of
California prior to consummation of the Offering.
3.3 Form of Restated Articles of Incorporation of the Registrant, to
be filed with the Secretary of the State of California upon
consummation of the Offering.
3.4 Bylaws of the Registrant.
3.5 Form of Amended and Restated Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
* 4.2 Specimen Common Stock certificate.
4.3 Second Restated Investor Rights Agreement, dated March 20, 1996,
by and among the Registrant and the investors set forth on
Schedule A thereto.
* 5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1987 Stock Option Plan of the Registrant.
10.2 1996 Stock Option/Stock Issuance Plan of the Registrant.
10.3 Employee Stock Purchase Plan of the Registrant.
10.4 Form of Indemnification Agreement entered into between the
Registrant and its officers and directors.
10.5 Lease, dated July 28, 1989, by and between the Registrant and
Sobrato Interests as amended August 25, 1989, March 10, 1992 and
January 18, 1996.
10.6 Commercial Lease, dated February 29, 1996 by and between the
Registrant and Harris Corporation.
10.7 Loan and Security Agreement, Secured Promissory Note, Accounts
Collateral Security Agreement and Equipment Collateral Security
Agreement dated June 29, 1993, between the Registrant and
CoastFed Business Credit Corporation, as amended by Amending
Letter Agreement, dated September 28, 1994, as amended by
Amending Letter Agreement, dated March 31, 1995, as amended by
Amending Letter Agreement, dated August 22, 1995 and as amended
March 25, 1996.
10.8 Business and Technology Transfer Agreement, dated December 15,
1987, between the Registrant and Digital Equipment Corporation.
**10.9 License Agreement, dated April 17, 1995, by and between the
Registrant and Linear Technology Corporation.
**10.10 License Agreement, dated November 14, 1990, by and between the
Registrant and Toshiba Corporation.
10.11 License Agreement, dated November 1, 1992, by and between the
Registrant and Halbleiter Elektronik Frankfurt Gmbh.
10.12 Foundry Agreement, dated November 14, 1990, by and between the
Registrant and Toshiba Corporation.
10.13 Quotaholder Agreement, dated January 23, 1993, between the
Registrant and Halbleiter Elektronik Frankfurt Gmbh.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**10.14 Development Agreement, dated November 14 , 1990, by and between
the Registrant and Toshiba Corporation.
10.15 Synergy Semiconductor International Stocking Representative
Agreement, dated July 1, 1991, by and between the Registrant and
H.Y. Associates Co., Ltd.
10.16 Employment Agreement, dated December 2, 1991, by and between the
Registrant and Thomas D. Mino as amended October 6, 1995.
10.17 Promissory Note, dated January 20, 1992, by and between the
Registrant and Thomas D. Mino, as amended by that certain
Amendment, dated September 20, 1995.
10.18 Stock Pledge Agreement, dated September 20, 1995, by and between
the Registrant and Thomas D. Mino.
10.19 Note Secured by Deed of Trust, dated December 15, 1995 by and
between the Registrant and Thomas D. Mino.
11.1 Computation of Pro Forma Net Income Per Share.
23.1 Report on Schedule and Consent of Independent Auditors.
*23.2 Consent of Brobeck, Phleger & Harrison LLP. Reference is made to
Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
</TABLE>
--------
* To be filed by Amendment
** Confidential treatment requested as to certain portions of this
Exhibit.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF SYNERGY SEMICONDUCTOR CORPORATION,
A CALIFORNIA CORPORATION
The undersigned, Thomas D. Mino and Edward M. Leonard, hereby certify
that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: The Articles of Incorporation of said corporation shall be
amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is SYNERGY SEMICONDUCTOR CORPORATION.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
ARTICLE IV
(A) CLASSES OF STOCK. This corporation is authorized to issue two
----------------
classes of shares to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is Thirty Two Million (32,000,000) shares. Eighteen Million (18,000,000) shares
shall be Common Stock and Fourteen Million (14,000,000) shares shall be
Preferred Stock.
(B) RIGHTS. PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
-------------------------------------------------------
Preferred Stock authorized by these Amended and Restated Articles of
Incorporation may be issued from time to time in series. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series
AA Preferred Stock, which series shall consist of Five Million Eight Hundred
Thousand (5,800,000) shares and the Series BB Preferred Stock, which series
<PAGE>
shall consist of Eight Million Two Hundred Thousand (8,200,000) shares, are as
set forth below in this Article IV(B).
1. DIVIDEND PROVISIONS. The holders of shares of Series AA Preferred
-------------------
Stock and Series BB Preferred Stock, together, and not individually as separate
classes, shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
dividend payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of this corporation) on the Common
Stock of this corporation, at the rate of $0.0913 per share of Series AA
Preferred Stock per annum and $0.037 per share of Series BB Preferred Stock per
annum or, if greater than such amount (as determined on a per annum basis and an
as converted basis for the Preferred Stock), an amount equal to that paid on any
other outstanding shares of this corporation, payable quarterly when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative.
2. LIQUIDATION PREFERENCE.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, the holders of Series BB
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of Series
AA Preferred Stock and Common Stock by reason of their ownership thereof, an
amount per share equal to $0.37 (such amount to be adjusted to reflect stock
dividends, stock splits or other recapitalizations after the Purchase Date (as
defined hereinbelow)) for each outstanding share of Series BB Preferred Stock
(the "Series BB Original Issue Price"). If upon the occurrence of such event,
the assets and funds thus distributed among the holders of the Series BB
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire assets and funds of the
corporation legally available for distribution shall be distributed ratably
among the holders of the Series BB Preferred Stock in proportion to the number
of such shares owned by each such holder.
(b) Upon the completion of the distribution required by subsection
(a) of this Section 2, if assets remain in this corporation, the holders of
Series AA Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of this corporation to the holders of
Common Stock by reason of their ownership thereof, an amount per share equal to
$0.913 (such amount to be adjusted to reflect stock dividends, stock splits or
other recapitalizations after the Purchase Date for each outstanding share of
Series AA Preferred Stock (the "Series AA Original Issue Price"). If, upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series AA Preferred Stock shall be insufficient to permit the
payment to such holders of the full amount to be paid pursuant to this
subsection (b), then the entire assets and funds of the corporation legally
available for distribution, after the distribution required by subsection (a)
above, shall be distributed ratably
2.
<PAGE>
among the holders of the Series AA Preferred Stock in proportion to the number
of such shares owned by each such holder.
(c) After the distributions described in subsections (a) and (b)
above have been paid, the remaining assets of the corporation available for
distribution to shareholders shall be distributed among the holders of Series BB
Preferred Stock and Common Stock pro rata based on the number of shares of
Common Stock (assuming full conversion of all such Series BB Preferred Stock).
(d) A consolidation or merger of this corporation with or into any
other corporation or corporations, or a sale, conveyance or disposition of all
or substantially all of the assets of this corporation or the effectuation by
the corporation of a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the corporation is disposed of,
shall not be deemed to be a liquidation, dissolution or winding up within the
meaning of this Section 2, but shall instead be treated pursuant to Section 5
hereof.
3. REDEMPTION. The Series AA Preferred Stock and Series BB Preferred
----------
Stock are not redeemable.
4. CONVERSION. The holders of the Series AA and Series BB Preferred
----------
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT.
----------------
(i) Subject to subsection (c), each share of Series AA and
Series BB Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share at the office of
this corporation or any transfer agent for the Series AA and Series BB Preferred
Stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing the Series AA Original Issue Price for the Series
AA Preferred Stock or the Series BB Original Issue Price for the Series BB
Preferred Stock, as the case may be, by the Conversion Price at the time in
effect for such share. The initial Conversion Price per share for shares of
Series AA Preferred Stock shall be the Series AA Original Issue Price and the
initial Conversion Price per share of Series BB Preferred Stock shall be the
Series BB Original Issue Price; provided, however, that the Conversion Prices
for Series AA and Series BB Preferred Stock shall be subject to adjustment as
set forth in subsection 4(c).
(ii) Each share of Series AA and Series BB Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such series of Preferred Stock immediately upon the
earlier of (i) except as provided in subsection 4(b), the consummation of the
corporations sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement on Form S-1 under the
Securities Act of 1933, as amended, if the public offering price was not less
than $2.00 per share (adjusted to reflect stock dividends, stock splits or
recapitalizations after the Purchase
3.
<PAGE>
Date) and the aggregate gross proceeds thereof to the Company exceed $7,500,000,
(ii) the date specified by written consent or agreement of the holders of a
majority of the then outstanding shares of Series AA and Series BB Preferred
Stock voting together as one class.
(b) MECHANICS OF CONVERSION. Before any holder of Series AA and
-----------------------
Series BB Preferred Stock shall be entitled to convert shares of Preferred Stock
into shares of Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of this corporation or of
any transfer agent for the Series AA and Series BB Preferred Stock, as the case
may be, and shall give written notice by mail, postage prepaid, to this
corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Series AA and Series BB Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series AA and Series BB
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering. Series AA and Series BB Preferred
Stock for conversion, be conditioned upon the closing with the underwriter of
the sale of securities pursuant to such offering, in which event the person(s)
entitled to receive Common Stock issuable upon such conversion of the Series AA
and Series BB Preferred Stock shall not be deemed to have converted such Series
AA and Series BB Preferred Stock until simultaneously with the closing of such
sale of securities.
(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The Conversion
-----------------------------------------------
Prices of the Series AA and Series BB Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) (A) Upon each issuance by the corporation of any Additional
Stock (as defined below), after the date of filing of these Amended and Restated
Articles of Incorporation (the "Purchase Date"), without consideration or for a
consideration per share less than the Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause (i)) be adjusted to a
price equal to the price paid per share for such Additional Stock.
(B) No adjustment of the Conversion Price for the Series AA
or Series BB Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment
4.
<PAGE>
made prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3) years
from the date of the event giving rise to the adjustment being carried forward.
Except to the limited extent provided for in subsections (E)(3) and (E)(4), no
adjustment of such Conversion Price pursuant to this subsection 4(c)(i) shall
have the effect of increasing such Conversion Price for such series above the
Conversion Price for such series in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the event there are outstanding options to purchase
or rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or options to purchase or rights to
subscribe for such convertible or exchangeable securities, the following
provisions shall apply for all purposes of this subsection 4(c)(i), including
the determination hereunder of the number of shares of Common Stock outstanding
at any time:
1. The aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights
to subscribe for Common Stock shall be deemed to have been issued at
the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in
subsections 4(c)(i)(C) and (c)(i)(D)), if any, received by the
corporation upon the issuance of such options or rights plus the
exercise price provided in such options or rights for the Common Stock
covered thereby.
2. The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of options
to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof
shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration
equal to the consideration, if any, received by the corporation for
any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus
the additional consideration, if any, to be received by the
corporation upon the conversion or exchange of such securities or the
exercise of any related options
5.
<PAGE>
or rights (the consideration in each case to be determined in the
manner provided in subsections 4(c)(i)(C) and (c)(i)(D)).
3. In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion
of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the Series AA
and/or Series BB Preferred Stock, to the extent in any way computed
using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment to the Conversion Price
shall in any instance be made for the actual issuance of Common Stock
or any payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
4. Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the respective Conversion Prices of the
Series AA and/or Series BB Preferred Stock, to the extent in any way
computed using such options, rights or securities or options or rights
related to such securities, shall be recomputed to reflect such
expiration and termination and the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities
or upon the exercise of the options or rights related to such
securities.
5. The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections
4(c)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subsection 4(c)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(c)(i)(E))
by this corporation after the Purchase Date other than
(A) Common Stock issued pursuant to a transaction
described in subsection 4(c)(iii) hereof,
(B) Common Stock issued or issuable upon conversion of
the Series AA Preferred Stock,
6.
<PAGE>
(C) Up to 8,200,000 shares of Series BB Preferred
Stock and the Common Stock issued or issuable upon conversion of such Series BB
Preferred Stock,
(D) Up to 2,635,575 shares of Common Stock (net of any
repurchases) issuable or issued, to employees, consultants, directors or vendors
(if in transactions with primarily non-financing purposes) of this corporation
pursuant to a stock option plan, restricted stock plan or an individual
transaction approved by the Board of Directors of this corporation,
(E) Up to 10,900 shares of Common Stock issued or
deemed to be issued upon exercise of warrants issued pursuant to the terms of a
certain Note and Warrant Purchase Agreement dated September 26, 1990 between
this corporation and certain of this corporation's shareholders,
(F) Up to 104,703 shares of Common Stock issued or
deemed to be issued upon exercise of warrants issued pursuant to the terms of a
certain Note and Warrant Purchase Agreement dated July 29, 1992 between this
corporation and certain of this corporation's shareholders,
(G) Up to 208,984 shares of Common Stock issued or
deemed to be issued upon exercise of warrants issued pursuant to the terms of a
certain Note and Warrant Purchase Agreement dated October 20, 1993 between this
corporation and certain of this corporation's shareholders,
(H) warrants to purchase up to 2,505 shares of Common
Stock issued to Digital Equipment Corporation and any securities issued or
issuable upon exercise thereof and any securities issued or issuable upon
conversion of any such securities,
(I) warrants to purchase up to 2,500 shares of Common
Stock issued to Storage Technology Corporation and any securities issued or
issuable upon exercise thereof and any securities issued or issuable upon
conversion of any such securities,
(J) warrants to purchase up to 131 shares of Common
Stock issued to Silicon Valley Bank and any securities issued or issuable upon
exercise thereof and any securities issued or issuable upon conversion of any
such securities, or
(iii) In the event the corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly additional shares of Common Stock (hereinafter referred to as "Common
Stock Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of
7.
<PAGE>
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the respective the Conversion Prices of the Series AA
and Series BB Preferred Stock shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of each share of such
series shall be increased in proportion to such increase of outstanding shares.
(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the respective Conversion Prices for the Series AA and Series BB
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall be
decreased in proportion to such decrease in outstanding shares.
(d) OTHER DISTRIBUTIONS. In the event this corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 4(c)(iii), then, in each such
case for the purpose of this subsection 4(d), the holders of the Series AA and
Series BB Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their respective shares of Series AA and
Series BB Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the corporation entitled to
receive such distribution.
(e) RECAPITALIZATIONS. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 5), provision shall be made so that the holders of the
Series AA and Series BB Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series AA and Series BB Preferred Stock the number of
shares of stock or other securities or property of the Company or otherwise, to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Series AA and
Series BB Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the Conversion Price then
in effect for such series and the number of shares purchasable upon conversion
of shares of the Series AA and Series BB Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
(f) NO IMPAIRMENT. This corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the
8.
<PAGE>
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series AA and Series BB Preferred Stock
against impairment.
(g) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
------------------------------------------------------
(i) No fractional shares shall be issued upon conversion of the
Series AA or Series BB Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Series AA and Series BB Preferred Stock
the holder is at the time converting into Common Stock and the number of shares
of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Prices of the Series AA and Series BB Preferred Stock,
respectively, pursuant to this Section 4, this corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series AA and Series BB
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
This corporation shall, upon the written request at any time of any holder of
Series AA or Series BB Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of Series AA or Series BB Preferred
Stock, as the case may be.
(h) NOTICES OF RECORD DATE. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mall to each holder of Series AA and Series BB Preferred
Stock, at least twenty (20) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series AA and Series BB Preferred Stock such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series AA and Series BB Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of the Series AA and Series BB Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, this
corporation will take such corporate action
9.
<PAGE>
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(j) NOTICES. Any notice required by the provisions of this Section 4
-------
to be given to the holders of shares of Series AA and Series BB Preferred Stock
shall be deemed given seven business days after any such notice is deposited in
the United States mail, postage prepaid, and addressed to each holder of record
at his address appearing on the books of this corporation.
5. MERGER, CONSOLIDATION.
---------------------
(a) At any time, in the event of:
(i) any consolidation or merger of the corporation with or into
any other corporation or other entity or person, or any other corporate
reorganization, in which the corporation shall not be the continuing or
surviving entity of such consolidation, merger or reorganization (other than a
merger of the corporation into an affiliated entity for the sole purpose of
changing the domicile of the corporation without changing the rights, privileges
or preferences of the outstanding series of Preferred Stock) or any transaction
or series of related transactions by the corporation in which in excess of fifty
percent (50%) of the corporation's voting power is transferred, or
(ii) a sale of all or substantially all of the assets of the
corporation, unless the corporations shareholders immediately prior to such sale
will, as a result of such sale, hold (by virtue of securities issued as
consideration for the corporations sale)at least fifty percent (50%) of the
voting power of the purchasing entity, then the documents effecting such
transactions shall provide as follows:
(x) if the aggregate value of cash or securities to be issued to
this corporation or its shareholders by the acquiring entity is less than $2.00
per share of Common Stock outstanding or deemed outstanding pursuant to
subsection 4(c)(i)(E) (such dollar amount to be appropriately adjusted to
reflect any stock splits, stock dividends or other recapitalizations after the
Purchase Date), then (A) holders of the Series AA Preferred Stock or Common
Stock) for each share of such stock in cash or in securities received from the
acquiring corporation, or in a combination thereof, at the closing of such
transaction, an amount equal to the Series BB Original Issue Price for each
share of Series BB Preferred Stock (or, if the amount of cash or securities to
be issued shall be insufficient to permit the payment to the holders of Series
BB Preferred Stock of the full Series BB Issue Price, then the entire amount to
be issued shall be issued ratably amount the holders of Series BB Preferred
Stock in proportion to the number of such shares owned by each such holder; (B)
upon completion of the distribution required by subsection (A) of this Section
5(a)(ii)(x), holders of the Series AA Preferred Stock shall then receive (prior
and in preference to any other shares of Common Stock) for each share of such
stock in cash or in securities received from the acquiring corporation, or in a
combination thereof, at the closing of any such transaction, an amount
10.
<PAGE>
equal to the Series AA original Issue Price for each share of Series AA
Preferred Stock (or, if the amount of cash or securities to be issued shall be
insufficient to permit the payment to the holders of Series AA Preferred Stock
of the full Series AA Original Issue Price after the issuance of the Series BB
Original Issue Price to the holders of Series BB Preferred Stock required above,
then the entire amount remaining to be issued shall be issued ratably among the
holders of Series AA Preferred Stock in proportion to the number of such shares
owned by each such holder); (C) after the distribution described in subsections
(A) and (B) above have been made, the remaining proceeds of such transaction
shall be distributed between the holders of Common Stock and Series BB Preferred
Stock on an as converted bases, except that the holders of Series BB Preferred
Stock shall only receive cash or securities of the acquiring entity under this
subsection 5(a)(ii)(x) with a total value of $2.00 per share (such price to be
appropriately adjusted to reflect any stock splits, stock dividends or other
recapitalizations after the Purchase Date); (D) once the holders of Series BB
Preferred Stock have received cash or securities of the acquiring entity under
this subsection 5(a)(ii)(x) with a total value of $2.00 per share as provided in
(C) above, the remaining consideration shall be distributed to holders of Common
Stock; or
(y) if the aggregate value of cash or securities to be issued to
this corporation or its shareholders by the acquiring entity is equal to or
greater than $2.00 per share of Common Stock outstanding or deemed outstanding
pursuant to subsection 4(c)(i)(E) (such price to be appropriately adjusted to
reflect any stock splits, stock dividends or other recapitalizations after the
Purchase Date), all of the consideration of such transaction shall be
distributed between the holders of Common Stock and Series AA and Series BB
Preferred Stock on an as converted basis.
(b) Any securities to be delivered to the holders of the Series AA
and Series BB Preferred Stock pursuant to subsection 5(a) above shall be valued
as follows:
(i) In respect of securities that are freely tradeable:
(A) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the thirty (30) day period ending three (3) days prior to the
closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever are
applicable) over the thirty (30) day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be the
fair market value thereof, as mutually determined by the corporation and the
holders of at least a majority of the voting power of all then outstanding
shares of such Preferred Stock which would be entitled to receive such
securities or the same type of securities.
11.
<PAGE>
(ii) The method of valuation of securities that are not freely
tradeable shall be to make an appropriate discount from the market value
determined as above in (i) (A), (B) or (C) to reflect the approximate fair
market value thereof, as mutually determined by the corporation and the holders
of Preferred Stock which would be entitled to receive such securities or the
same type of securities and which represent at least a majority of the voting
power of all then outstanding shares of such Preferred Stock.
(c) In the event the requirements of subsection 5(a) are not complied
with, the corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 5 have been complied with, or
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series AA and Series BB
Preferred Stock shall revert to and be the same as such rights, preferences and
privileges existing immediately prior to the date of the first notice referred
to in subsection 5(d) hereof.
(d) The corporation shall give each holder of record of Series AA and
Series BB Preferred Stock written notice of such impending transaction not later
than twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 5, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock which is entitled to such notice rights or similar notice rights and which
represents at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(e) The provisions of this Section 5 are in addition to the
protective provisions of Section 7 hereof.
6. VOTING RIGHTS. The holder of each share of Series AA or Series BB
-------------
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Series AA or Series BB Preferred Stock could then be converted
(with any fractional share determined on an aggregate conversion basis being
rounded to the nearest whole share), and with respect to such vote, such holder
shall have full voting rights and powers equal to the voting rights and powers
of the holders of Common Stock, and shall be entitled, notwithstanding any
provision hereof, to notice of any shareholders' meeting in accordance with the
bylaws of this corporation, and shall be entitled to vote, together with holders
of
12.
<PAGE>
Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote.
7. PROTECTIVE PROVISIONS.
---------------------
(a) So long as shares of Series AA or Series BB Preferred Stock are
outstanding, this corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series AA and Series BB Preferred
Stock which is entitled, other than solely by law, to vote with respect to the
matter (voting together as one class):
(i) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of; or
(ii) voluntarily liquidate, dissolve or wind up the corporation;
or
(iii) alter or change the rights, preferences or privileges of the
shares of Series AA and Series BB Preferred Stock so as to affect adversely the
shares; or
(iv) increase the authorized number of shares of Series AA or
Series BB Preferred Stock; or
(v) create any new class or series of stock or any other
securities convertible into equity securities of the corporation having a
preference over, or being on a parity with, the Series AA or Series BB Preferred
Stock with respect to dividends or upon liquidation; or
(vi) do any act or thing which would result in taxation of the
holders of shares of the Series AA or Series BB Preferred Stock under Section
305 of the Internal Revenue Code of 1986, as amended (or any comparable
provision of the Internal Revenue Code as hereafter from time to time amended).
8. STATUS OF CONVERTED STOCK. In the event any shares of Series AA
-------------------------
or Series BB Preferred Stock shall be converted pursuant to Section 4 hereof,
the shares so converted shall be canceled and shall not be issuable by the
corporation, and the Articles of Incorporation of this corporation shall be
appropriately amended to effect the corresponding reduction in the corporation's
authorized capital stock.
(C) COMMON STOCK.
------------
13.
<PAGE>
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding
------------------
up of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV hereof.
3. REDEMPTION. The Common Stock is not redeemable.
----------
4. VOTING RIGHTS. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) through bylaw
provisions or through agreements with the agents, vote of shareholders or
disinterested directors or otherwise, in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject only to
applicable limits set forth in Section 204 of the California Corporations Code
with respect to actions for breach of duty to the corporation and its
shareholders.
* * *
THREE: The foregoing amendment and restatement of articles of
incorporation has been duly approved by the Board of Directors of said
corporation.
FOUR: The foregoing Amendment and Restatement to the Restated
Articles of Incorporation was approved by the holders of the requisite number of
shares of said corporation in accordance with Sections 902 and 903 of the
California General Corporation Law; the total number of outstanding shares of
each class entitled to vote with respect to the foregoing amendment was 504,740
shares of Common Stock and 5,746,199 shares of Series AA Preferred Stock. The
number of shares voting in favor of the foregoing amendment equaled or exceeded
the vote required, such required vote being a majority of the outstanding shares
of Common Stock voting together as a class, a majority of the outstanding shares
of Common Stock and Series AA Preferred Stock voting together as one class and a
majority of the outstanding shares of Series AA Preferred Stock voting as a
separate class.
14.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on
February 16, 1995.
--
__________________________________________
THOMAS D. MINO, PRESIDENT
__________________________________________
EDWARD M. LEONARD, SECRETARY
The undersigned certify under penalty of perjury under the laws of the
State of California that they have read the foregoing Amended and Restated
Articles of Incorporation and know the contents thereof, and that the statements
therein are true.
Executed at Palo Alto, California, on February 16, 1995.
--
__________________________________________
THOMAS D. MINO, PRESIDENT
__________________________________________
EDWARD M. LEONARD, SECRETARY
15.
<PAGE>
EXHIBIT 3.3
RESTATED ARTICLES OF INCORPORATION
OF SYNERGY SEMICONDUCTOR CORPORATION
A CALIFORNIA CORPORATION
The undersigned, Thomas D. Mino and Edward M. Leonard, hereby certify
that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: The Articles of Incorporation of said corporation shall be
restated to read in full as follows:
ARTICLE I
The name of this corporation is Synergy Semiconductor Corporation.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
ARTICLE IV
(A) CLASSES OF STOCK. This corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that the corporation is authorized to issue
is Fifty-Five Million (55,000,000) shares. Fifty Million (50,000,000) shares
shall be Common Stock and Five Million (5,000,000) shares shall be Preferred
Stock.
(B) RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
-------------------------------------------------------
Preferred Stock authorized by these Restated Articles of Incorporation may be
issued from time to time in series. The Board of Directors is hereby authorized
to fix or alter the rights, preferences, privileges and restrictions granted to
or imposed upon series of Preferred Stock, and the number of shares constituting
any such series and the designation thereof, or of any of them. Subject to
compliance with applicable protective voting rights that have been or may
1
<PAGE>
be granted to the Preferred Stock or any series thereof in any Certificate of
Determination or the corporation's Articles of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred Stock or any
series thereof, the rights, privileges, preferences and restrictions of any such
additional series may be subordinated to, pari passu with (including, without
---- -----
limitation, inclusion in provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent),
or senior to any of those of any present or future class or series of Preferred
Stock or Common Stock. Subject to compliance with applicable Protective
Provisions, the Board of Directors also is authorized to increase or decrease
the number of shares of any series prior or subsequent to the issue of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
(C) COMMON STOCK.
------------
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. LIQUIDATION RIGHTS. Subject to the prior rights of holders of all
------------------
classes of stock at the time outstanding having prior rights as to liquidation,
upon the liquidation, dissolution or winding up of the corporation, the assets
of the corporation shall be distributed to the holders of the Common Stock.
3. REDEMPTION. The Common Stock is not redeemable.
----------
4. VOTING RIGHTS. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the corporation and its shareholders.
ARTICLE VI
2
<PAGE>
Effective when this corporation becomes a listed corporation within
the meaning of Section 301.5 of the Corporations Code, shareholders of this
corporation shall not be entitled to cumulate their votes at any election of
directors of this corporation.
THREE: The foregoing restatement of Articles of Incorporation has
been duly approved by the Board of Directors of said corporation.
FOUR: The foregoing restatement was approved by the required vote of
shareholders in accordance with Sections 902 and 903 of the California
Corporations Code. The total number of outstanding shares of each class
entitled to vote with respect to the foregoing restatement was
__________________ shares of Common Stock. There are no shares of undesignated
Preferred Stock outstanding. The number of shares voting in favor of the
restatement equaled or exceeded the vote required, such required vote being a
majority of the outstanding shares of the Common Stock.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on
__________, 1996.
--------------------------------------------
Thomas D. Mino, President
--------------------------------------------
Edward M. Leonard, Secretary
The undersigned certifies under penalty of perjury that they have read
the foregoing Restated Articles of Incorporation and know the contents thereof,
and that the statements therein are true.
Executed at Santa Clara, California, on __________, 1996.
--------------------------------------------
Thomas D. Mino
--------------------------------------------
Edward M. Leonard
4
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
SYNERGY SEMICONDUCTOR CORPORATION,
A CALIFORNIA CORPORATION
DECEMBER 17, 1991
ARTICLE I
OFFICES
-------
Section 1. PRINCIPAL OFFICE. The principal office for the
transaction of business of the corporation shall be at such place inside or
outside the State of California as the Board of Directors may determine from
time to time. The location may be changed by approval of a majority of the
authorized Directors, and additional offices may be established and maintained
at such other place or places, either within or without California, as the Board
of Directors may from time to time designate.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any
time be established by the Board of Directors at any place or places where the
corporation is qualified to do business.
ARTICLE II
DIRECTORS - MANAGEMENT
----------------------
Section 1. RESPONSIBILITY OF BOARD OF DIRECTORS. Subject to the
provisions of the General Corporation Law (the "Code") and to any limitation in
the Articles of Incorporation of the corporation relating to action required to
be "approved by the Shareholders," as that term is defined in Section 153 of the
Code, or by the outstanding "shares," as that term is defined in Section 152 of
the Code, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors. The Board may delegate the management of the day-to-day operation of
the business of the corporation to a management company or other person,
provided that the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised under the ultimate direction of the
Board of Directors.
Section 2. STANDARD OF CARE. Each Director shall perform the duties
of a Director, including the duties as a member of any committee of the Board
upon which the Director may serve, in good faith, in a manner such Director
believes to be in
<PAGE>
the best interests of the corporation, and with such care, including reasonable
inquiry, as an ordinary prudent person in a like position would use under
similar circumstances. (Sec. 309).
Section 3. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the
provisions of Section 1, in the event that this corporation shall elect to
become a close corporation as defined in Sec. 186, its Shareholders may enter
into a Shareholders' Agreement as provided in Sec. 300 (b). Said agreement may
provide for the exercise of corporate powers and the management of the business
and affairs of this corporation by the Shareholders, provided, however, such
agreement shall, to the extent and so long as the discretion or the powers of
the Board in its management of corporate affairs is controlled by such
agreement, impose upon each Shareholder who is a party thereof, liability for
managerial acts performed or omitted by such person pursuant thereto otherwise
imposed upon Directors as provided in Sec. 300 (d).
Section 4. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
number of Directors of the corporation shall be not less than five (5) nor more
than nine (9), the exact number of Directors to be determined from time to time
by the Board of Directors, until changed by a duly adopted resolution of the
Board of Directors or shareholders.
Section 5. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall
be elected at each annual meeting of the Shareholders to hold office until the
next annual meeting. Each Director, including a Director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
Section 6. VACANCIES. Vacancies in the Board of Directors may be
filled by a majority of the remaining Directors, though less than a quorum, or
by a sole remaining Director, except that a vacancy created by the removal of a
Director by the vote or written consent of the Shareholders or by court order
may be filled only by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of a majority of the outstanding shares entitled to
vote. Each Director so elected shall hold office until the next annual meeting
of the Shareholders and until a successor has been elected and qualified.
2
<PAGE>
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the event of the death, resignation, or removal of any Director, if the
Board of Directors by resolution declares vacant the office of a Director who
has been declared of unsound mind by an order of court or convicted of a felony,
or if the authorized number of Directors is increased, or if the shareholders
fail, at any meeting of shareholders at which any Director or Directors are
elected, to elect the number of Directors to be voted for at that meeting.
The Shareholders may elect a Director or Directors at any time to fill
any vacancy or vacancies not filled by the Directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any Director may resign effective on giving written notice to the
Chairman of the Board, the President, the Secretary, or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a Director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of Directors shall have the
effect of removing any Director before that Director's term of office expires.
Section 7. REMOVAL OF DIRECTORS. The entire Board of Directors or
any individual Director may be removed from office as provided by Secs. 302, 303
and 304 of the Code of the State of California. In such case, the remaining
Board members may elect a successor Director to fill such vacancy for the
remaining unexpired term of the Director so removed.
Section 8. NOTICE, PLACE AND MANNER OF MEETINGS. Meetings of the
Board of Directors may be called by the Chairman of the Board, or the President,
or any Vice President, or the Secretary, or any two (2) Directors and shall be
held at the principal executive office of the corporation, unless some other
place is designated in the notice of the meeting. Members of the Board may
participate in a meeting through use of a conference telephone or similar
communications equipment so long as all members participating in such a meeting
can hear one another. Accurate minutes of any meeting of the Board, or any
committee thereof, shall be maintained as required by Sec. 312 of the Code by
the Secretary or other Officer designated for that purpose.
Section 9. ANNUAL MEETING. An annual meeting of the Board of
Directors shall be held immediately following the adjournment of the annual
meetings of the Shareholders.
3
<PAGE>
Section 10. OTHER REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at the corporate offices, or such other place as may be
designated by the Board of Directors at such regularly scheduled times and dates
as shall be set in advance by the Board of Directors.
Section 11. SPECIAL MEETINGS - NOTICES - WAIVERS. Special meetings
of the Board may be called at any time by the President or, if he or she is
absent or unable or refuses to act, by any Vice President or the Secretary or by
any two (2) Directors.
At least forty-eight (48) hours notice of the time and place of
special meetings shall be delivered personally to the Directors or personally
communicated to them by a corporate Officer by telephone or telegraph. If the
notice is sent to a Director by letter, it shall be addressed to him or her at
his or her address as it is shown upon the records of the corporation, or if it
is not so shown on such records or is not readily ascertainable, at the place in
which the meetings of the Directors are regularly held. In case such notice is
mailed, it shall be deposited in the United States mail, postage prepaid, in the
place in which the principal executive office of the corporation is located at
least four (4) days prior to the time of the holding of the meeting. Such
mailing, telegraphing, telephoning or delivery as above provided shall be due,
legal and personal notice to such Director.
Notice of a meeting need not be given to any director who (i) signs a
waiver of notice or written consent to holding the meeting or an approval of the
minutes of the meeting, whether prior to or after the holding of such meeting,
which said waiver, consent or approval shall be filed with the Secretary of the
corporation, or, (iii) if a Director attends a meeting without notice but
without protesting, prior thereto or at its commencement, the lack of notice.
Section 12. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION OR
Bylaws. In the event only one (1) Director is required by the Bylaws or
Articles of Incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the Directors
shall be deemed to refer to such notice, waiver, etc., by such sole Director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to a Board of Directors.
Section 13. DIRECTORS ACTION BY UNANIMOUS WRITTEN CONSENT. Any
action required or permitted to be taken by the Board of Directors may be taken
without a meeting and with the
4
<PAGE>
same force and effect as if taken by a unanimous vote of Directors, if
authorized by a writing signed individually or collectively by all members of
the Board. Such consent shall be filed with the regular minutes of the Board.
Section 14. QUORUM. A majority of the number of Directors as fixed
by the Articles of Incorporation or Bylaws shall be necessary to constitute a
quorum for the transaction of business, and the action of a majority of the
Directors present at any meeting at which there is a quorum, when duly
assembled, is valid as a corporate act; provided that a minority of the
Directors, in the absence of a quorum, may adjourn from time to time, but may
not transact any business. 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 a majority of the required quorum for such
meeting.
Section 15. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given to absent Directors if the time
and place be fixed at the meeting adjourned and held within twenty-four (24)
hours, but if adjourned more than twenty-four (24) hours, notice shall be given
to all Directors not present at the time of adjournment.
Section 16. COMPENSATION OF DIRECTORS. Directors, as such, shall not
receive any stated salary for their services, but by resolution of the Board a
fixed sum and expense of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board; provided that nothing herein
contained shall be construed to preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 17. COMMITTEES. Committees of the Board may be appointed by
resolution passed by a majority of the whole Board. Committees shall be
composed of two (2) or more members of the Board, and shall have such powers of
the Board as may be expressly delegated to it by resolution of the Board of
Directors, except those powers expressly made non-delegable by Sec. 311.
Section 18. ADVISORY DIRECTORS. The Board of Directors from time to
time may elect one or more persons to be Advisory Directors who shall not by
such appointment be members of the Board of Directors. Advisory Directors shall
be available from time to time to perform special assignments specified by the
President, to attend meetings of the Board of Directors upon invitation and to
furnish consultation to the Board. The period during which the title shall be
held may be prescribed by the
5
<PAGE>
Board of Directors. If no period is prescribed, the title shall be held at the
pleasure of the Board.
Section 19. RESIGNATIONS. Any Director may resign effective upon
giving written notice to the Chairman of the Board, the President, the Secretary
or the Board of Directors of the corporation, unless the notice specifies a
later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to take office when the
resignation becomes effective.
ARTICLE III
OFFICERS
--------
Section 1. OFFICERS. The Officers of the corporation shall be a
President, a Secretary, and a Chief Financial Officer. The corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, one
or more Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, and such other Officers as may be appointed in accordance
with the provisions of Section 3 of this Article III each of whom shall have
such authority and perform such duties as the Board of Directors from time to
time may determine. Any number of offices may be held by the same person.
Section 2. ELECTION. The Officers of the corporation, except such
Officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen annually by the Board of Directors,
and each shall hold office until he or she shall resign or shall be removed or
otherwise disqualified to serve, or a successor shall be elected and qualified.
In the case of absence or inability to act of any officer of the corporation and
of any person herein authorized to act in his place, the Board of Directors may
from time to time delegate the powers or duties of such officer to any other
officer, or any director or other person whom it may select.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may
appoint such other Officers as the business of the corporation may require, each
of whom shall hold office for such period, have such authority and perform such
duties as are provided in the Bylaws or as the Board of Directors may from time
to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any, of an Officer under any contract of employment, any Officer may
be removed, either with or without cause, by the Board of Directors, at any
regular or special meeting of the Board, or, except in case of an Officer chosen
by the Board of Directors, by any Officer upon whom such power of removal may be
conferred by the Board of Directors.
6
<PAGE>
Any Officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Officer is a
party.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the Bylaws for regular appointments to that office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such
an officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned by the Board of Directors or prescribed by the Bylaws. If
there is no President, the Chairman of the Board shall in addition be the Chief
Executive Officer of the corporation and shall have the powers and duties
prescribed in Section 7 of this Article III.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there be
such an Officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and Officers of the
corporation. He or she shall preside at all meetings of the Shareholders and in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Directors. The President shall be ex officio a member of all
the standing committees, including the Executive Committee, if any, and 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 the Bylaws.
Section 8. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors, or if not ranked, the Vice President designated by the Board
of Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to, all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
President, Board of Directors or the Bylaws.
7
<PAGE>
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept,
a book of minutes at the principal office or such other place as the Board of
Directors may order, of all meetings of Directors and Shareholders, with the
time and place of holding, 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.
The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the corporation's transfer agent, a share register, or
duplicate share register, showing the names of the Shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same; and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the Shareholders and of the Board of Directors required by the
Bylaws or by law to be given. He or she shall keep the seal of the corporation
in safe custody, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or by the Bylaws.
The Assistant Secretary or the Assistant Secretaries, in the order of
their seniority, shall, in the absence or disability of the Secretary, or in the
event of such officer's refusal to act, perform the duties and exercise the
powers and discharge such duties as may be assigned from time to time by the
President or by the Board of Directors.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep and maintain, or cause to be kept and maintained in accordance with
generally accepted accounting principles, adequate and correct accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
earnings (or surplus) and shares. The books of account shall at all reasonable
times be open to inspection by any Director.
This Officer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositaries as may be designated
by the Board of Directors. He or she shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President and Directors, whenever they request it, an account of all of his or
her transactions and of the financial condition of the corporation, and shall
have such other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
8
<PAGE>
ARTICLE IV
SHAREHOLDERS' MEETINGS
----------------------
Section 1. PLACE OF MEETINGS. All meetings of the Shareholders shall
be held at the principal executive office of the corporation unless some other
appropriate and convenient location be designated for that purpose from time to
time by the Board of Directors.
Section 2. ANNUAL MEETINGS. The annual meetings of the Shareholders
shall be held, each year, at the time and on the day following or at such other
date and time as the Board of Directors may hereafter declare.
Time of Meeting: 9:00 a.m.
Date of Meeting: 2nd Tuesday of July
If this day shall be a legal holiday, then the meeting shall be held
on the next succeeding business day, at the same hour. At the annual meeting,
the Shareholders shall elect a Board of Directors, consider reports of the
affairs of the corporation and transact such other business as may be properly
brought before the meeting. If the annual meeting of the shareholders is not
held as herein prescribed, the election of directors may be held at any meeting
thereafter called pursuant to these Bylaws.
Section 3. SPECIAL MEETINGS. Special meetings of the Shareholders
may be called at any time by the Board of Directors, the Chairman of the Board,
the President, a Vice President, the Secretary, or by one or more Shareholders
holding not less than ten percent (10%) of the voting power of the corporation.
Except as next provided, notice shall be given as for the annual meeting.
Upon receipt of a written request addressed to the Chairman,
President, Vice President, or Secretary, mailed or delivered personally to such
Officer by any person (other than the Board) entitled to call a special meeting
of Shareholders, such Officer shall 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, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of such request. If such notice is
not given within twenty (20) days after receipt of such request, the persons
calling the meeting may give notice thereof in the manner provided by these
Bylaws or apply to the Superior Court as provided in Sec. 601(c).
9
<PAGE>
Section 4. NOTICE OF MEETINGS - REPORTS. Notice of meetings, annual
or special, shall be given in writing not less than ten (10) (or, if sent by
third class mail, thirty (30)) nor more than sixty (60) days before the date of
the meeting to Shareholders entitled to vote thereat. Such notice shall be
given by the Secretary or the Assistant Secretary, or if there be no such
Officer, or in the case of his or her neglect or refusal, by any Director or
Shareholder.
Such notices or any reports shall be given personally or by first
class mail (unless the corporation has 500 or more shareholders determined as
provided by the Code on the record date of the meeting, in which case notice may
be sent by third class mail) or other means of written communication as provided
by the Code and shall be sent to the Shareholder's address appearing on the
books of the corporation, or supplied by him or her to the corporation for the
purpose of notice, and in the absence thereof, as provided in Sec. 601 of the
Code.
Notice of any meeting of Shareholders shall specify the place, the day
and the hour of meeting, and (1) in case of a special meeting, the general
nature of the business to be transacted and no other business may be transacted,
or (2) in the case of an annual meeting, those matters which the Board at date
of mailing, intends to present for action by the Shareholders. At any meetings
where Directors are to be elected, notice shall include the names of the
nominees, if any, intended at date of notice to be presented by management for
election.
If a Shareholder supplies no address, notice shall be deemed to have
been given if mailed to the place where the principal executive office of the
corporation, in California, is situated, or published at least once in some
newspaper of general circulation in the County of said principal office.
Notice shall be deemed given at the time it is delivered personally or
deposited in the mail or sent by other means of written communication. The
Officer giving such notice or report shall prepare and file an affidavit or
declaration thereof.
When a meeting is adjourned for forty-five (45) days or more, notice
of the adjourned meeting shall be given as in the case of the original meeting;
provided however, that notice of any adjourned meeting need not be given unless
a meeting is adjourned for forty-five (45) days or more from the date set for
the original meeting.
10
<PAGE>
Section 5. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of Shareholders, however called and noticed, shall
be valid as though had at a meeting duly held after regular call and notice, if
a quorum be present either in person or by proxy, and if, either before or after
the meeting, each of the Shareholders entitled to vote, not present in person or
by proxy, sign 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 shall constitute a waiver of notice, unless
objection shall be made as provided in Sec. 601 (e).
Section 6. SHAREHOLDERS ACTING WITHOUT A MEETING DIRECTORS. Any
action which may be taken at a meeting of the Shareholders, may be taken without
a meeting or notice of meeting if authorized by a writing signed by all of the
Shareholders entitled to vote at a meeting for such purpose, and filed with the
Secretary of the corporation, provided, further, that while ordinarily Directors
can only be elected by unanimous written consent under Sec. 603 (d), if the
Directors fail to fill a vacancy, then a Director may be elected to fill that
vacancy by the written consent of persons holding a majority of shares entitled
to vote for the election of Directors.
Section 7. OTHER ACTIONS WITHOUT A MEETING. Unless otherwise
provided in the Code or the Articles, any action which may be taken at any
annual or special meeting of Shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take 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,
(1) Notice of any Shareholder approval pursuant to Secs. 310,
317, 1201 or 2007 without a meeting by less than unanimous written consent
shall be given at least ten (10) days before the consummation of the action
authorized by such approval, and
(2) Prompt notice shall be given of the taking of any other
corporate action approved by Shareholders without a meeting by less than
unanimous written consent, to each of those Shareholders entitled to vote
who have not consented in writing.
11
<PAGE>
Any Shareholder giving a written consent, or the Shareholder's
proxyholders, or a transferee of the shares of a personal representative of the
Shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation 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 corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
Section 8. QUORUM. The holders of a majority of the shares entitled
to vote thereat, present in person, or represented by proxy, shall constitute a
quorum at all meetings of the Shareholders for the transaction of business
except as otherwise provided by law, by the Articles of Incorporation, or by
these Bylaws. If, however, such majority shall not be present or represented at
any meeting of the Shareholders, the Shareholders entitled to vote thereat,
present in person, or by proxy, shall have the power to adjourn the meeting from
time to time, until the requisite amount of voting shares shall be present. At
such adjourned meeting at which the requisite amount of voting shares shall be
represented, any business may be transacted which might have been transacted at
a meeting as originally notified.
If a quorum be initially present, the Shareholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Shareholders to leave less than a quorum, if any action taken is approved by a
majority of the Shareholders required to initially constitute a quorum.
Section 9. VOTING. Only persons in whose names shares entitled to
vote stand on the stock records of the corporation on the day of any meeting of
Shareholders, unless some other day be fixed by the Board of Directors for the
determination of Shareholders of record, and then on such other day, shall be
entitled to vote at such meeting.
Provided the candidate's name has been placed in nomination prior to
the voting and one or more Shareholder has given notice at the meeting prior to
the voting of the Shareholder's intent to cumulate the Shareholder's votes,
every Shareholder entitled to vote at any election for Directors of any
corporation for profit may cumulate their 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 his or her shares are entitled, or distribute his or her votes
on the same principle among as many candidates as he or she thinks fit. The
candidates receiving the highest number of votes up to the number of Directors
to be elected are elected.
12
<PAGE>
The Board of Directors may fix a time in the future not exceeding
thirty (30) days preceding the date of any meeting of Shareholders or the date
fixed for the payment of any dividend or distribution, or for the allotment of
rights, or when any change or conversion of exchange of shares shall go into
effect, as a record date for the determination of the Shareholders entitled to
notice of and to vote at any such meeting, or entitled to receive any such
dividend or distribution, or any allotment of rights, or to exercise the rights
in respect to any such change, conversion or exchange of shares. In such case
only Shareholders of record on the date so fixed shall be entitled to notice of
and to vote at such meeting, or to receive such dividends, distribution or
allotment of rights, or to exercise such rights, as the case may be
notwithstanding any transfer of any share on the books of the corporation after
any record date fixed as aforesaid. The Board of Directors may close the books
of the corporation against transfers of shares during the whole or any part of
such period.
Section 10. PROXIES. Every Shareholder entitled to vote, or to
execute consents, may do so, either in person or by written proxy, executed in
accordance with the provisions of Secs. 604 and 705 of the Code and filed with
the Secretary of the corporation. No proxy shall be valid after the expiration
of 11 months from the date thereof unless otherwise provided in the proxy.
Section 11. ORGANIZATION. The President, or in the absence of the
President, any Vice President, shall call the meeting of the Shareholders to
order, and shall act as chairman of the meeting. In the absence of the
President and all of the Vice Presidents, Shareholders shall appoint a chairman
for such meeting. The Secretary of the corporation shall act as Secretary of
all meetings of the Shareholders, but in the absence of the Secretary at any
meeting of the Shareholders, the presiding Officer may appoint any person to act
as Secretary of the meeting.
Section 12. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders the Board of Directors may, if they so elect, appoint inspectors of
election to act at such meeting or any adjournment thereof. If inspectors of
election be not so appointed, or if any persons so appointed fail to appear or
refuse to act, the chairman of any such meeting may, and on the request of any
Shareholder or his or her proxy shall, make such appointment at the meeting in
which case the number of inspectors shall be either one (1) or three (3) as
determined by a majority of the Shareholders represented at the meeting.
13
<PAGE>
Section 13. (A) SHAREHOLDERS' AGREEMENTS. Notwithstanding the
above provisions, in the event this corporation elects to become a close
corporation, an agreement between two (2) or more Shareholders thereof, if in
writing and signed by the parties thereof, may provide that in exercising any
voting rights the shares held by them shall be voted as provided therein or in
Sec. 706, and may otherwise modify these provisions as to Shareholders' meetings
and actions.
(B) EFFECT OF SHAREHOLDERS' AGREEMENTS. Any Shareholders' Agreement
authorized by Sec. 300 (b), shall only be effective to modify the terms of these
Bylaws if this corporation elects to become a close corporation with appropriate
filing of or amendment to its Articles as required by Sec. 202 and shall
terminate when this corporation ceases to be a close corporation. Such an
agreement cannot waive or alter Secs. 158, (defining close corporations), 202
(requirements of Articles of Incorporation), 500 and 501 relative to
distributions, 111 (merger), 1201 (e) (reorganization) or Chapters 15 (Records
and Reports), 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22
(Crimes and Penalties). Any other provisions of the Code or these Bylaws may be
altered or waived thereby, but to the extent they are not so altered or waived,
these Bylaws shall be applicable.
ARTICLE V
CERTIFICATES AND TRANSFER OF SHARES
-----------------------------------
Section 1. CERTIFICATES FOR SHARES. Certificates for shares shall be
of such form and device as the Board of Directors may designate and shall state
the name of the record holder of the shares represented thereby; its number;
date of issuance; the number of shares for which it is issued; a statement of
the rights, privileges, preferences and restrictions, if any; a statement as to
the redemption or conversion, if any; a statement of liens or restrictions upon
transfer or voting, if any; if the shares be assessable or, if assessments are
collectible by personal action, a plain statement of such facts.
All certificates shall be signed in the name of the corporation by the
Chairman of the Board or Vice Chairman of the Board or the President or Vice
President and by the Chief Financial Officer or an Assistant Treasurer 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 on a certificate shall have ceased to be that Officer,
transfer agent,
14
<PAGE>
or registrar before that certificate is issued, it may be issued by the
corporation with the same effect as if that person were an Officer, transfer
agent, or registrar at the date of issue.
Section 2. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Prior to the due presentment for registration of
transfer in the stock transfer book of the corporation, the registered owner
shall be treated as the person exclusively entitled to vote, to receive
notifications and otherwise to exercise all the rights and powers of an owner,
except as expressly provided otherwise by the laws of the State of California.
Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a
certificate of stock to be lost or destroyed shall make an affidavit or
affirmation of that fact and shall, if the Directors so require, give the
corporation a bond of indemnity, in form and with one or more sureties
satisfactory to the Board, in at least double the value of the stock represented
by said certificate, whereupon a new certificate may be issued in the same tenor
and for the same number of Shares as the one alleged to be lost or destroyed.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may appoint one or more transfer agents or transfer clerks, and one or more
registrars, which shall be an incorporated bank or trust company, either
domestic or foreign, who shall be appointed at such times and places as the
requirements of the corporation may necessitate and the Board of Directors may
designate.
Section 5. CLOSING STOCK TRANSFER BOOKS - RECORD DATE. In order that
the corporation may determine the Shareholders entitled to notice of any meeting
or to vote or entitled to receive payment of any dividend or other distribution
or allotment of any rights or entitled to exercise any rights in respect of any
other lawful action, the Board may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days prior to the date of
such meeting nor more than sixty (60) days prior to any other action.
If no record date is fixed: (i) the record date for determining
Shareholders entitled to notice of or to vote at a meeting of Shareholders shall
be at the close of business on the business day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the
business day
15
<PAGE>
next preceding the day on which the meeting is held; (ii) 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 is necessary, shall be the
day on which the first written consent is given; (iii) the record date for
determining Shareholders for any other purpose shall be at the close of business
on the day on which the Board adopts the resolution relating thereto, or the
sixtieth (60th) day prior to the date of such other action, whichever is later.
Section 6. LEGEND CONDITION. In the event any shares of this
corporation are issued pursuant to a permit or exemption therefrom requiring the
imposition of a legend condition, the person or persons issuing or transferring
said shares shall make sure said legend appears on the certificate and shall not
be required to transfer any shares free of such legend unless an amendment to
such permit or a new permit be first issued so authorizing such a deletion.
Section 7. CLOSE CORPORATION CERTIFICATES. All certificates
representing shares of this corporation, in the event it shall elect to become a
close corporation, shall contain the legend required by Sec. 418 (c).
ARTICLE VI
RECORDS - REPORTS - INSPECTION
------------------------------
Section 1. RECORDS. The corporation shall maintain, in accordance
with generally accepted accounting principles, adequate and correct accounts,
books and records of its business and properties. All of such books, records
and accounts shall be kept at its principal executive office in the State of
California, as fixed by the Board of Directors from time to time.
Section 2. INSPECTION OF BOOKS AND RECORDS. All books and records
provided for in Sec. 1500 shall be open to inspection of the Directors and
Shareholders from time to time and in the manner provided in said Sec. 1600 -
1602.
Section 3. CERTIFICATION AND INSPECTION OF Bylaws. The original or a
copy of these Bylaws, as amended or otherwise altered to date, certified by the
Secretary, shall be kept at the corporation's principal executive office and
shall be open to inspection by the Shareholders of the corporation at all
reasonable times during office hours, as provided in Sec. 213 of the
Corporations Code.
16
<PAGE>
Section 4. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders
for payment of money, notes or other evidences of indebtedness, issued in the
name of or payable to the corporation, shall be signed or endorsed by such
person or persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
ARTICLE VII
ANNUAL REPORTS
--------------
The annual report to Shareholders referred to in Section 1501 of the
California General Corporation Law is expressly dispensed with so long as this
corporation shall have less than one hundred (100) Shareholders. However,
nothing herein shall be interpreted as prohibiting the Board of Directors from
issuing annual or other periodic reports to the Shareholders of the corporation
as they consider appropriate.
ARTICLE VIII
AMENDMENTS TO Bylaws
--------------------
Section 1. AMENDMENT. New Bylaws may be adopted or these Bylaws may
be amended or repealed by the vote or written consent of holders of a majority
of the outstanding shares entitled to vote or by approval of the Board of
Directors subject to the provisions of Sec. 212 of the Code.
Section 2. RECORD OF AMENDMENTS. Whenever an amendment or new Bylaw
is adopted, it shall be copied in the book of Bylaws with the original Bylaws,
in the appropriate place. If any Bylaw is repealed, the fact of repeal with the
date of the meeting at which the repeal was enacted or written assent was filed
shall be stated in said book.
ARTICLE IX
CORPORATE SEAL
--------------
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the corporation, the date of its incorporation, and the word
"California."
ARTICLE X
MISCELLANEOUS
-------------
Section 1. REFERENCES TO CODE SECTIONS. "Sec." references herein
refer to the equivalent Sections of the General Corporation Law effective
January 1, 1977, as amended.
Section 2. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of
other corporations standing in the name of this corporation may be voted or
represented and all incidents
17
<PAGE>
thereto may be exercised on behalf of the corporation by the Chairman of the
Board, the President or any Vice President and the Secretary or an Assistant
Secretary.
Section 3. SUBSIDIARY CORPORATIONS. Shares of this corporation owned
by a subsidiary shall not be entitled to vote on any matter. A subsidiary for
these purposes is defined as a corporation, the shares of which possessing more
than 25% of the total combined voting power of all classes of shares entitled to
vote, are owned directly or indirectly through one (1) or more subsidiaries.
Section 4. INDEMNIFICATION OF CORPORATE AGENTS. The corporation may
indemnify each of its agents against expenses, judgments, fines, settlements and
other amounts, actually and reasonably incurred by such person by reason of such
person's having been made or having threatened to be made a party to a
proceeding to the fullest extent permissible by the provisions of Section 317 of
the California Corporations Code and the Corporation may advance the expenses
reasonably expected to be incurred by such agent in defending any such
proceeding upon receipt of the undertaking required by subdivision (f) of such
Section. The terms "agent," "proceeding" and "expenses" made in this Section 7
shall have the same meaning as such terms in said Section 317.
Section 5. ACCOUNTING YEAR. The accounting year of the corporation
shall be fixed by resolution of the Board of Directors.
Section 6. APPROVAL OF LOANS TO OFFICERS. The corporation may, upon
the approval of the Board of Directors alone, make loans of money or property
to, or guarantee the obligations of, any officer of the corporation or its
parent or subsidiary, whether or not a director, or adopt an employee benefit
plan or plans authorizing such loans or guaranties provided that (i) the Board
of Directors determines that such a loan or guaranty or plan may reasonably be
expected to benefit the corporation, (ii) the corporation has outstanding shares
held of record by 100 or more persons (determined as provided in Section 605 of
the Code) on the date of approval by the Board of Directors, and (iii) the
approval of the Board of Directors is by a vote sufficient without counting the
vote of any interested director or directors.
18
<PAGE>
EXHIBIT 3.5
EXHIBIT A
---------
---------------------------
AMENDED AND RESTATED BYLAWS
OF
SYNERGY SEMICONDUCTOR CORPORATION
---------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I OFFICES.................................. 1
Section 1. PRINCIPAL OFFICES........................ 1
Section 2. OTHER OFFICES............................ 1
ARTICLE II MEETINGS OF SHAREHOLDERS................. 1
Section 1. PLACE OF MEETINGS........................ 1
Section 2. ANNUAL MEETING........................... 1
Section 3. SPECIAL MEETING.......................... 1
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS......... 2
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF
NOTICE................................... 2
Section 6. ADJOURNED MEETING; NOTICE................ 3
Section 7. QUORUM................................... 3
Section 8. VOTING................................... 3
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT
SHAREHOLDERS............................. 4
Section 10. SHAREHOLDER ACTION....................... 5
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE,
VOTING, AND GIVING CONSENTS.............. 5
Section 12. PROXIES.................................. 5
Section 13. INSPECTORS OF ELECTION................... 6
ARTICLE III DIRECTORS....................................... 7
Section 1. POWERS................................... 7
Section 2. NUMBER OF DIRECTORS...................... 7
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. 8
Section 4. VACANCIES................................ 8
Section 5. PLACE OF MEETINGS AND MEETINGS BY
TELEPHONE................................ 8
Section 6. ANNUAL MEETING........................... 9
Section 7. OTHER REGULAR MEETINGS................... 9
Section 8. SPECIAL MEETINGS......................... 9
Section 9. QUORUM................................... 9
Section 10. WAIVER OF NOTICE......................... 9
Section 11. ADJOURNMENT.............................. 10
Section 12. NOTICE OF ADJOURNMENT.................... 10
Section 13. ACTION WITHOUT MEETING................... 10
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 14. FEES AND COMPENSATION OF DIRECTORS....... 10
ARTICLE IV COMMITTEES...................................... 10
Section 1. COMMITTEES OF DIRECTORS.................. 10
Section 2. MEETINGS AND ACTION OF COMMITTEES........ 11
ARTICLE V OFFICERS........................................ 11
Section 1. OFFICERS................................. 11
Section 2. ELECTION OF OFFICERS..................... 12
Section 3. SUBORDINATE OFFICERS..................... 12
Section 4. REMOVAL AND RESIGNATION OF OFFICERS...... 12
Section 5. VACANCIES IN OFFICES..................... 12
Section 6. CHAIRMAN OF THE BOARD.................... 12
Section 7. PRESIDENT................................ 12
Section 8. VICE PRESIDENTS.......................... 13
Section 9. SECRETARY................................ 13
Section 10. ASSISTANT SECRETARY...................... 13
Section 11. CHIEF FINANCIAL OFFICER.................. 14
Section 12. APPROVAL OF LOANS TO OFFICERS............ 14
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS..................... 14
Section 1. AGENTS, PROCEEDINGS, AND EXPENSES........ 14
Section 2. INDEMNIFICATION.......................... 15
Section 3. ADVANCE OF EXPENSES...................... 15
Section 4. OTHER CONTRACTUAL RIGHTS................. 15
ARTICLE VII GENERAL CORPORATE MATTERS................ 15
Section 1. RECORD DATE FOR PURPOSES OTHER THAN
NOTICE AND VOTING........................ 15
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS 16
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW
EXECUTED................................. 16
Section 4. CERTIFICATES FOR SHARES.................. 16
Section 5. LOST CERTIFICATES........................ 16
Section 6. REPRESENTATION OF SHARES OF OTHER
CORPORATIONS............................. 17
Section 7. CONSTRUCTION AND DEFINITIONS............. 17
ARTICLE VIII AMENDMENTS.................................... 17
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. AMENDMENT BY SHAREHOLDERS................ 17
Section 2. AMENDMENT BY DIRECTORS................... 17
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
SYNERGY SEMICONDUCTOR CORPORATION
ARTICLE I
OFFICES
-------
Section 1. PRINCIPAL OFFICES. The Board of Directors shall fix the
-----------------
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside this state, and the corporation has one or more business offices
in this state, the Board of Directors shall fix and designate a principal
business office in the State of California.
Section 2. OTHER OFFICES. The Board of Directors may at any time
-------------
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
-----------------
at any place within or outside the State of California designated by the Board
of Directors. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING. The annual meeting of shareholders shall
--------------
be held each year on such date and at a time designated by the Board of
Directors. At each annual meeting Directors shall be elected, and any other
proper business may be transacted.
Section 3. SPECIAL MEETING. A special meeting of the shareholders
---------------
may be called at any time by the Board of Directors, or by the chairman of the
Board, or by the president, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes at that
meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the Board, the president, any
vice president, or the secretary of the corporation. The officer receiving the
<PAGE>
request shall cause notice to be promptly given to the shareholders entitled to
vote, in accordance with the provisions of Sections 4 and 5 of this Article II,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this Section
3 shall be construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the Board of Directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings
--------------------------------
of shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) (or, if sent by third-class mail, thirty
(30) days) nor more than sixty (60) days before the date of the meeting. The
notice shall specify the place, date and hour of the meeting and (i) in the case
of a special meeting, the general nature of the business to be transacted, or
(ii) in the case of the annual meeting, those matters which the Board of
Directors, at the time of giving the notice, intends to present for action by
the shareholders. The notice of any meeting at which Directors are to be elected
shall include the name of any nominee or nominees whom, at the time of notice,
management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a Director has a direct or indirect financial
interest, pursuant to Section 310 of the California General Corporation Law
("GCL"), (ii) an amendment of the Articles of Incorporation, pursuant to Section
902 of the GCL, (iii) a reorganization of the corporation, pursuant to Section
1201 of the GCL, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the GCL, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of that Code, the notice shall also state the general nature of that
proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
--------------------------------------------
any meeting of shareholders shall be given either personally or by first-class
mail (unless the corporation has 500 or more shareholders of record determined
as provided by Section 601 of the GCL on the record date for the meeting, in
which case notice may be sent by third-class mail) or telegraph or other written
communication, charges prepaid, addressed to the shareholder at the address of
that shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or telegraphic or
other written communication to the corporation's principal executive office, or
if published at least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by telegram or
other means of written communication.
2
<PAGE>
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the shareholder on
written demand of the shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice.
Any affidavit of the mailing or other means of giving any notice of
any shareholders' meeting shall be executed by the secretary, assistant
secretary, or any transfer agent of the corporation giving the notice, and shall
be prima facie evidence of the giving of the report.
Section 6. ADJOURNED MEETING; NOTICE. Any shareholders' meeting,
-------------------------
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at that meeting, except as provided in this Section.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at a meeting at which the
adjournment is taken. In the event a new record date for the adjourned meeting
is fixed or the adjournment is for more than forty-five (45) days from the date
set for the original meeting, notice (in accordance with the provisions of
Sections 4 and 5 of this Article II) of any such adjourned meeting shall be
given to each shareholder of record entitled to vote at the adjourned meeting.
At any adjourned meeting the corporation may transact any business which might
have been transacted at the original meeting.
Section 7. QUORUM. The presence in person or by proxy of the holders
------
of a majority of the shares entitled to vote at any meeting of shareholders
shall constitute a quorum for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum. In the absence of a quorum, no business may be transacted
at the meeting except as provided above.
Section 8. VOTING. The shareholders entitled to vote at any meeting
------
of shareholders shall be determined in accordance with the provisions of Section
11 of this Article II, subject to the provisions of Sections 702 to 704,
inclusive, of the GCL (relating to voting shares held by a fiduciary, in the
name of a corporation, or in joint ownership).
3
<PAGE>
The voting at all meetings of shareholders need not be by ballot, but
any qualified shareholder before the voting begins may demand a stock vote
whereupon such stock vote shall be taken by ballot, each of which shall state
the name of the shareholder voting and the number of shares voted by such
shareholder, and if such ballot be cast by a proxy, it shall also state the name
of such proxy.
At any meeting of the shareholders, every shareholder having the right
to vote shall be entitled to vote in person, or by proxy appointed in a writing
subscribed by such shareholder and bearing a date not more than eleven (11)
months prior to said meeting, unless the writing states that it is irrevocable
and is held by a person specified in Section 705(e) of the GCL, in which event
it is irrevocable for the period specified in said writing and said Section
705(e). Except as otherwise provided in the Amended and Restated Articles of
Incorporation, each outstanding share, regardless of class, shall be entitled to
one vote on each matter submitted to a vote of shareholders.
At a shareholders' meeting involving the election of Directors, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of the shareholder's
shares) unless such candidate or candidates' names have been placed in
nomination prior to the voting and a shareholder has given notice prior to the
voting of the shareholder's intention to cumulate votes. If any shareholder has
given such notice, then every shareholder entitled to vote may cumulate such
shareholder's votes for candidates in nomination 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 such shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the candidates, as
the shareholder thinks fit. The candidates receiving the highest number of
votes up to the number of Directors to be elected shall be elected.
The preceding paragraph of this provision shall cease to have force or
further effect at such time the Corporation becomes a listed corporation within
the meaning of Section 301.5 of the GCL.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
--------------------------------------------------
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though a meeting had
been duly held after regular call and notice, if a quorum is present either in
person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to a holding of the meeting, or an approval of the
minutes. The waiver of notice or consent need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article II,
the waiver of notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
4
<PAGE>
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting.
Section 10. SHAREHOLDER ACTION. Any action required or permitted to
------------------
be taken by the holders of the Common Stock or Preferred Stock of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
------------------------------------------------------
CONSENTS. For purposes of determining the shareholders entitled to give consent
- --------
to corporate action without a meeting, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) days nor less
than ten (10) days before the date of any such meeting, and in this event only
shareholders of record on the date so fixed are entitled to notice and to vote
or to give consents, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in GCL.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of
or to a vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held.
(b) The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto, or the sixtieth (60th) day before the
date of such other action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for Directors or
-------
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation 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 attendance at the meeting and voting in person by, the person
executing the proxy; or (ii) written notice of the death or incapacity of the
maker of
5
<PAGE>
that proxy is received by the corporation before the vote pursuant to that proxy
is counted; provided, however, that no proxy shall be valid after the expiration
of eleven (11) months from the date of the proxy, unless otherwise provided in
the proxy. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of
the Corporations Code of California.
Section 13. INSPECTORS OF ELECTION. Before any meeting of
----------------------
shareholders, the Board of Directors may appoint any persons other than nominees
for office to act as inspectors of election at the meeting or its adjournment.
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 (1) or three (3). 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 (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and upon
the request of any shareholder or a shareholder's proxy shall, appoint a person
to fill that vacancy.
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.
ARTICLE III
DIRECTORS
---------
Section 1. POWERS. Subject to the provisions of the GCL and any
------
limitation in the Articles of Incorporation and these Bylaws relating to action
required to be
6
<PAGE>
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors.
Without prejudice to these general powers, and subject to the same
limitations, the Directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the Articles of Incorporation, and with these Bylaws; fix their
compensation; and require from them security for faithful service.
(b) Change the principal executive office or the principal business
office in the State of California from one location to another; cause the
corporation to be qualified to do business in any other state, territory,
dependency, or country an conduct business within or without the State of
California; and designate any place within or without the State of California
for the holding of any shareholders' meeting, or meetings, including annual
meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the corporation on
any lawful terms, in consideration of money paid, labor done, services actually
rendered, debts or securities cancelled, or tangible or intangible property
actually received.
(e) Borrow money and incur indebtedness on behalf of the corporation,
and cause to be executed and delivered for the corporation' s purposes, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidences of debt and securities.
Section 2. NUMBER OF DIRECTORS. The number of Directors of the
-------------------
corporation shall be no less than five (5) nor more than nine (9), the exact
number of Directors to be fixed from time to time within such limit by a duly
adopted resolution of the Board of Directors or shareholders. The exact number
of Directors presently authorized shall be six (6) until changed within the
limits specified above by a duly adopted resolution of the Board of Directors or
shareholders.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall
----------------------------------------
be elected at each annual meeting of the shareholders to hold office until the
next annual meeting. Each Director, including a Director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been qualified and elected.
7
<PAGE>
Section 4. VACANCIES. Vacancies in the Board of Directors may be
---------
filled by a majority of the remaining Directors, though less than a quorum, or
by a sole remaining Director, except that a vacancy created by the removal of a
Director by the vote of the shareholders or by court order may be filled only by
the vote of a majority of the shares entitled to vote represented at a duly held
meeting at which a quorum is present. Each Director so elected shall hold
office until the next annual meeting of the shareholders and until a successor
has been elected or qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the event of death or resignation or removal of any Director, of if the
Board of Directors by resolution declares vacant the office of a Director who
has been declared of unsound mind, by an order of Court or convicted of a
felony, or if the authorized number of Directors is increased, or if the
shareholders fail, at any meeting of shareholders at which any Director or
Directors are elected, to elect the number of Directors to be voted for at that
meeting.
Any Director may resign effective on giving written notice to the
chairman of the board, the president, the secretary, or the Board of Directors,
unless the notice specifies a later time for the resignation to become
effective. If the resignation of a Director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of Directors shall have the
effect of removing any Director before that Director's term of office expires.
Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular
-------------------------------------------
meetings of the Board of Directors may be held at any place within or outside
the State of California that has been designated from time to time by resolution
of the Board. In the absence of such a designation, regular meetings shall be
held at the principal executive office of the corporation. Special meetings of
the Board shall be held at any place within or outside the State of California
that has been designated in the notice of the meeting or, if not stated in the
notice or there is no notice, at the principal executive office of the
corporation. Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, so long as all Directors
participating in the meeting can hear one another, and all such Directors shall
be deemed to be present in person at the meeting.
Section 6. ANNUAL MEETING. Immediately following each annual meeting
--------------
of shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the
----------------------
Board of Directors shall be held without call at such time as shall from time to
time be fixed by the Board of Directors. Such regular meetings may be held
without notice.
8
<PAGE>
Section 8. SPECIAL MEETINGS. Special meetings of the Board of
----------------
Directors for any purpose or purposes may be called at any time by the chairman
of the Board or the president or any vice president or the secretary or any two
Directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Director or sent by first class mail or
telegram, charges prepaid, addressed to each Director at that Director's address
as it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is mailed, it shall
be deposited in the United States mail at least four (4) days before the time of
the holding of the meeting. In case the notice is delivered personally, or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the Director or to a person at the office of the Director
who the person giving the notice has reason to believe will promptly communicate
it to the Director. The notice need not specify the purpose of the meeting nor
the place if the meeting is to be held at the principal executive office of the
corporation.
Section 9. QUORUM. A majority of the authorized number of Directors
------
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. 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 shall be regarded as the act of the Board of Directors, subject to
the provisions of Section 310 of the GCL (as to approval of contracts or
transactions in which a Director has direct or indirect material financial
interest), Section 311 of that Code (as to appointment of committees), and
Section 317(e) of that Code (as to indemnification of Directors). A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of Directors, if any action taken is approved by
at least a majority of the required quorum for that meeting.
Section 10. WAIVER OF NOTICE. 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 the
meeting or an approval of the minutes. The waiver of notice or consent need not
specify the purpose of the meeting. All such waivers, consents, and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed given to any Director who
attends the meeting without protesting before or at its commencement, the lack
of notice to that Director.
Section 11. ADJOURNMENT. A majority of the Directors present,
-----------
whether or not constituting a quorum, may adjourn any meeting to another time
and place.
9
<PAGE>
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
---------------------
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four hours, in which case notice of the adjourned meeting,
in the manner specified in Section 8 of this Article II, to the Directors who
were not present at the time of the adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted
----------------------
to be taken by the Board of Directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and effect
as a unanimous vote of the Board of Directors. Such written consents shall be
filed with the minutes of the proceedings of the Board.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and
----------------------------------
members of committees may receive such compensation, if any, for their services,
and such reimbursement of expenses, as may be fixed or determined by resolution
of the Board of Directors. This Section 14 shall not be construed to preclude
any Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
ARTICLE IV
COMMITTEES
----------
Section 1. COMMITTEES OF DIRECTORS. The Board of Directors may, by
-----------------------
resolution adopted by a majority of the authorized number of Directors,
designate one or more committees, each consisting of two or more Directors, to
serve at the pleasure of the Board. The Board may designate one or more
Directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any committee, to the extent provided in
the resolution of the Board, shall have all the authority of the Board, except
with respect to:
(a) the approval of any action which, under the General Corporation
Law of California, also requires shareholders' approval or approval of the
outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
(c) the fixing of compensation of the Directors for serving on the
Board or any committee;
(d) the amendment or repeal of Bylaws or the adoption of new Bylaws;
(e) the amendment or repeal of Bylaws or the adoption of new Bylaws;
10
<PAGE>
(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the Board of
Directors; or
(g) the appointment of any other committees of the Board of Directors
or the members of such committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
---------------------------------
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, Sections 5 (place of meetings, 7
(regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment), and 13 (action without
meeting), with such changes in the context of those Bylaws as are necessary to
substitute the committee and its members for the Board of Directors and its
members, except that the time of regular meetings of committees may be
determined either by resolution of the Board of Directors or by resolution of
the committee; special meetings of committees may also be called by resolution
of the Board of Directors; and notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The Board of Directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
Bylaws.
ARTICLE V
OFFICERS
--------
Section 1. OFFICERS. The officers of the corporation shall be a
--------
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, a chairman of the Board, one
or more vice presidents, one or more assistant secretaries, one or more chief
financial officers, and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article V. Any number of offices may be
held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation,
--------------------
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen by the Board of
Directors, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint,
--------------------
and may empower the president to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the Bylaws or as
the Board of Directors may from time to time determine.
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Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
-----------------------------------
rights, if any, of an officer under any contract of employment, any officer may
be removed, either with or without cause, by the Board of Directors, at any
regular or special meeting of the Board, or, except in case of an officer chosen
by the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
--------------------
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular appointments to that
office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the Board, if such
---------------------
an officer is elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws. If there is no president, the chairman of the Board shall in addition be
the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
---------
may be given by the Board of Directors to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and the officers of
the corporation. he shall preside at all meetings of the shareholders and, in
the absence of the chairman of the Board, or if there be none, at all meetings
of the Board of Directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the Bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
---------------
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the Bylaws, and the president, or the chairman of the
Board.
Section 9. SECRETARY. The secretary shall keep or cause to be kept,
---------
at the principal executive office or such other place as the Board of Directors
may direct, a book of minutes of all meetings and actions of Directors,
committees or Directors, and
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<PAGE>
shareholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice given, the names of those present at
the Directors' meetings or committee meetings, the number of shares present or
represented at shareholders' meetings, and the proceedings.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required by the Bylaws or
ByLaw to be given, and he shall keep the seal of the corporation if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the Bylaws.
Section 10. ASSISTANT SECRETARY. The assistant secretary or the
-------------------
assistant secretaries, in the order of their seniority, shall, in the absence or
disability of the secretary, or in the event of such officer's refusal to act,
perform the duties and exercise the powers and discharge such duties as may be
assigned from time to time by the president or by the board of directors.
Section 11. CHIEF FINANCIAL OFFICER. The chief financial officer
-----------------------
shall keep and maintain, or cause to be kept and maintained, adequate and
correct books and records of accounts of the properties and business transaction
of the corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any Director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the corporation as may be ordered by the Board of Directors, shall
render to the president and Directors, whenever they request it, an account of
all of his transactions as chief financial officer and of the financial
condition of the corporation, and shall have other power and perform such other
duties as may be prescribed by the Board of Directors of the Bylaws.
Section 12. APPROVAL OF LOANS TO OFFICERS. The Corporation may, upon
-----------------------------
the approval of the Board of Directors alone, make loans of money or property
to, or guarantee the obligations of, any officer of the Corporation or its
parent or subsidiary, whether or not a director, or adopt an employee benefit
plan or plans authorizing such loans or guaranties provided that (i) the Board
of Directors determines that such a loan or guaranty
13
<PAGE>
or plan may reasonably be expected to benefit the Corporation, (ii) the
Corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the GCL) on the date of approval by
the Board of Directors, and (iii) the approval of the Board of Directors is by a
vote sufficient without counting the vote of any interested director or
directors.
The Corporation may also advance money to a director or officer of the
Corporation for any expenses reasonably anticipated to be incurred in the
performance of the duties of the director or officer, provided that in the
absence of the advance the Director or officer would be entitled to be
reimbursed for the expenses by the Corporation.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
---------------------------------------
EMPLOYEES, AND OTHER AGENTS
---------------------------
Section 1. AGENTS, PROCEEDINGS, AND EXPENSES. For the purposes of
---------------------------------
this Article, "agent" means any person who is or was a Director, officer,
employee, or other agent of this corporation, or is or was serving at the
request of this corporation as a Director, officer, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, or was a Director, officer, employee, or agent of a foreign or
domestic corporation which was a predecessor corporation of this corporation or
of another enterprise at the request of such predecessor corporation;
"proceeding" means any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative, or investigative; and "expenses"
includes, without limitation, attorneys' fees and any expenses of establishing a
right to indemnification under subdivision (d) or paragraph (4) of subdivision
(e) of Section 317 of the GCL.
Section 2. INDEMNIFICATION. The corporation is authorized to
---------------
indemnify each of its agents (and shall indemnify each agent who is a Director
of the corporation) against expenses, judgments, fines, settlements and other
amounts, actually and reasonably incurred by such person by reason of such
person's having been made, or having threatened to be made, a party to any
proceeding to the fullest extent permissible under the laws of the State of
California, as those laws may be amended and supplemented from time to time.
Section 3. ADVANCE OF EXPENSES. To the fullest extent permissible
-------------------
under, and subject to, the requirements of the laws of the State of California,
expenses incurred in defending any proceeding may be advanced by this
corporation before the final disposition of the proceeding on receipt of an
undertaking by or on behalf of the agent to repay the amount of the advance
unless it shall be determined ultimately that the agent is entitled to be
indemnified as authorized in this Article.
14
<PAGE>
Section 4. OTHER CONTRACTUAL RIGHTS. The indemnification provided by
------------------------
this Article shall not be deemed exclusive of any additional rights to which
those seeking indemnification may be entitled under any agreement, vote of
shareholders or disinterested Directors or otherwise, both as to action in
another capacity while holding such office, to the extent such additional rights
to indemnification are authorized in the articles of the corporation. The
rights to indemnity hereunder shall continue as to a person who has ceased to be
an agent and shall inure to the benefit of the heirs, executors, and
administrators of the person.
ARTICLE VII
GENERAL CORPORATE MATTERS
-------------------------
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the Board of Directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so fixed are entitled to receive the dividends, 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 corporation after the record date so
fixed, except as otherwise provided in the GCL.
If the Board of Directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the applicable resolutions or the
sixtieth (60th) day before the date of that action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
-----------------------------------------
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the Board of Directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
-------------------------------------------------
Board of Directors, except as otherwise provided in the Bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and this
authority may be general or confined to specific instances; and unless so
authorized or ratified by the Board of Directors or within the agency power of
an officer, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
tender it liable for any purpose or for any amount.
15
<PAGE>
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates
-----------------------
for shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the Board of Directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the chairman of the Board or vice chairman of the Board or
the president or vice president and by the chief financial officer or an
assistant treasurer or the secretary of 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 show facsimile signature
has been placed on a certificate shall have ceased to be that officer, transfer
agent, or registrar before that certificate is issued, it may be issued by the
corporation with the same effect as if that person were an officer, transfer
agent, or registrar at the date of issuance.
Section 5. LOST CERTIFICATES. Except as provided in this Section 5,
-----------------
no new certificates for shares shall be issued to replace an old certificate
unless the latter is surrendered to the corporation and cancelled at the same
time. The Board of Directors may, in case any share certificate or certificate
for any other security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the Board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft, or destruction of the certificate or the issuance of
the replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
----------------------------------------------
chairman of the Board, the president, or any vice president, or any other person
authorized by resolution of the Board of Directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to these officers
to vote or represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy duly
executed by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
----------------------------
otherwise, the general' provisions, rules of construction, and definitions in
the GCL shall govern the construction of these Bylaws. Without limiting the
generality of this provision, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both a
corporation and a natural person.
16
<PAGE>
ARTICLE VIII
AMENDMENTS
----------
Section 1. AMENDMENT BY SHAREHOLDERS. These Bylaws may be altered or
-------------------------
amended, or substitute Bylaws may be adopted, by the affirmative vote of a
majority of the outstanding shares entitled to vote; provided, however, that if
the Articles of Incorporation of the corporation set forth the number of
authorized Directors of the corporation, the authorized number of Directors may
be changed only by an amendment of the Articles of Incorporation.
Section 2. AMENDMENT BY DIRECTORS. These Bylaws may be repealed,
----------------------
altered or amended, or substitute Bylaws may be adopted, at any time by a
majority of the full Board of Directors.
17
<PAGE>
CERTIFICATE OF SECRETARY OF
SYNERGY SEMICONDUCTOR CORPORATION
The undersigned, Edward M. Leonard, hereby certifies that he is the
duly elected and acting Secretary of Synergy Semiconductor Corporation, a
California corporation (the "Corporation"), and that the Amended and Restated
Bylaws attached hereto constitute the Bylaws of said Corporation as duly adopted
by resolution of the Board of Directors at a meeting dated May 21, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this _______ day of ______________ 1996.
-----------------------------------
Edward M. Leonard
Secretary
18
<PAGE>
EXHIBIT 4.3
SYNERGY SEMICONDUCTOR CORPORATION
SECOND RESTATED INVESTOR RIGHTS AGREEMENT
MARCH 20, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights............................................ 1
1.1 Definitions............................................. 1
1.2 Request for Registration................................ 3
1.3 Company Registration.................................... 4
1.4 Obligations of the Company.............................. 4
1.5 Furnish Information..................................... 5
1.6 Expenses of Demand Registration......................... 6
1.7 Expenses of Company Registration........................ 6
1.8 Underwriting Requirements............................... 6
1.9 Delay of Registration................................... 7
1.10 Indemnification......................................... 7
1.11 Reports Under Securities Exchange Act of 1934........... 9
1.12 Form S-3 Registration................................... 9
1.13 Assignment of Registration Rights....................... 10
1.14 Limitations on Subsequent Registration Rights........... 11
1.15 "Market Stand-Off" Agreement............................ 11
1.16 Amendment of Registration Rights........................ 12
1.17 Termination of Registration Rights...................... 12
2. Covenants of the Company....................................... 13
2.1 Delivery of Financial Statements......................... 13
2.2 Inspection............................................... 14
2.3 Right of First Offer..................................... 14
2.4 FIRPTA Undertakings...................................... 15
2.5 Foreign Corrupt Practices Act Undertaking................ 15
2.6 Termination of Information and Inspection Covenants...... 15
2.7 Proprietary Information and Inventions Agreement......... 15
3. Waiver of Certain Anti-Dilution Adjustments.................... 16
3.1 Definitions.............................................. 16
3.2 Failure to Participate in Dilutive Financings............ 16
3.3 Legend; Transfer Subject to Waiver....................... 17
3.4 Termination.............................................. 17
3.5 Amendment of Waiver...................................... 17
4. Miscellaneous.................................................. 17
4.1 Successors and Assigns.................................. 17
4.2 Governing Law........................................... 17
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.3 Counterparts............................................ 17
4.4 Titles and Subtitles.................................... 18
4.5 Notices................................................. 18
4.6 Expenses................................................ 18
4.7 Amendments and Waivers.................................. 18
4.8 Severability............................................ 18
4.9 Aggregation of Stock.................................... 18
4.10 Entire Agreement........................................ 18
4.11 Amendment of Prior Agreement............................ 18
</TABLE>
Schedule A Schedule of Investors
Schedule B Schedule of Certain Common Shareholders
<PAGE>
SECOND RESTATED INVESTOR RIGHTS AGREEMENT
THIS SECOND RESTATED INVESTOR RIGHTS AGREEMENT (the "Agreement") is
made as of the ____ day of ________, 1996, by and between Synergy Semiconductor
Corporation, a California corporation (the "Company"), and the investors listed
on Schedule A hereto, each of which is herein referred to as an "Investor."
----------
RECITALS
--------
WHEREAS, certain of the Investors holding shares of the Company's
Series AA Preferred Stock and Series BB Preferred Stock possess registration
rights, rights of first offer, information rights and other rights pursuant to
an Investor Rights Agreement dated February 22, 1995 (the "Prior Agreement");
WHEREAS, the Company desires to issue warrants to purchase 200,000
shares of the Company's Common Stock (the "Harris Warrants") to Harris
Corporation ("Harris") in connection with the execution by Harris and the
Company of a Commercial Lease of even date herewith regarding the property
located at 3250 Scott Boulevard, Santa Clara, California (the "Lease") and grant
to the holders of the Harris Warrants certain registration rights;
NOW, THEREFORE, in connection with the Lease and in consideration
thereof, the Investors who are parties to the Prior Agreement, hereby amend the
Prior Agreement and the Investors to the Prior Agreement and the holders of the
Harris Warrants shall have the rights and be subject to the limitations of this
Agreement.
THE PARTIES HEREBY FURTHER AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
-------------------
follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or ordering of effectiveness of such registration
statement or document;
(b) The term "Registrable Securities" means (1) all outstanding
shares of Common Stock of the Company held by the shareholders listed on
Schedule B hereto, (2) the Common Stock issued upon conversion of the Series A,
- ----------
Series B, Series C and Series D Preferred Stock, (3) the Common Stock issuable
or issued upon conversion of the Series AA Preferred Stock and the Series BB
Preferred Stock, (4) the Common Stock issued or issuable pursuant to warrants
issued or upon conversion of securities issued pursuant to warrants issued to
Digital Equipment Corporation under a lease commitment dated December 15, 1987
("DEC Warrants"), (5) the Common Stock
<PAGE>
issuable or issued pursuant to the exercise of certain warrants issued to
various lenders pursuant to the Company's Note and Warrant Purchase Agreement
dated September 26, 1990 (the "September Warrants"), (6) the Common Stock
issuable or issued pursuant to the exercise of certain warrants issued to
various lenders pursuant to the Company's Note and Warrant Purchase Agreement
dated July 29, 1992 (the "July Warrants"), (7) the Common Stock issuable or
issued pursuant to the exercise of certain warrants issued to various lenders
pursuant to the Company's Note and Warrant Purchase Agreement dated October 20,
1993 (the "October Warrants"), (8) the Common Stock issuable or issued upon
conversion of securities exercisable upon exercise of warrants issued to Storage
Technology Corporation only for purposes of Sections 1.3, 1.4, 1.5, 1.7, 1.8,
1.9, 1.10, 1.13 and 1.15 (the "STC Warrants"), (9) the Common Stock issuable or
issued upon conversion of securities exercisable upon exercise of warrants for
issued to Silicon Valley Bank only for purposes of Sections 1.3, 1.4, 1.5, 1.7,
1.8, 1.9, 1.10, 1.13 and 1.15 (the "SVB Warrants"), (10) the Common Stock
issuable or issued upon exercise of the Harris Warrants only for purposes of
Sections 1.3, 1.4, 1.5, 1.7, 1.8, 1.9, 1.10, 1.11, 1.12, 1.13, 1.14, 1.15 and
1.16, and (11) any 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, such Series AA Preferred Stock, Series BB Preferred Stock, DEC
Warrants, July Warrants, October Warrants, STC Warrants, SVB Warrants, Harris
Warrants or Common Stock, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 1 are not assigned pursuant to Section 1.13;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof;
(e) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the Securities and Exchange Commission ("SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC; and
(f) The term "qualify," "qualified" and "qualification" refer to a
qualification effected under state securities or Blue Sky laws by preparing and
filing an application for qualification or similar document in compliance with
such law, and the granting or ordering of such qualification.
1.2 Request for Registration.
-------------------------
(a) If the Company shall receive at any time after the earlier of (i)
March 31, 1998, or (ii) three (3) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of
2.
<PAGE>
securities to employees or the Company pursuant to a stock option, stock
purchase or similar plan or a Rule 145 transaction), a written request from the
Holders of a majority of the Registrable Securities then outstanding that the
Company file a registration statement under the Act covering the registration of
at least twenty percent (20%) of the Registrable Securities then outstanding,
then the Company shall, within ten (10) days of the receipt thereof, give
written notice of such request to all Holders and shall, subject to the
limitations of subsection 1.2(b), effect as soon as practicable, and in any
event shall use its best efforts to effect within sixty (60) days of the receipt
of such request, the registration under the Act of all Registrable Securities
which the Holders request to be registered within twenty (20) days of the
mailing of such notice by the Company in accordance with Section 4.5.
(b) If the Holders initiating the registration request hereunder (the
"Initiating Holders") intend to distribute the Registrable Securities covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to this Section 1.2 and the Company shall
include such information in the written notice referred to in subsection 1.2(a).
The underwriter will be selected by a majority in interest of the Initiating
Holders and shall be reasonably acceptable to the Company. 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 (together with
the Company as provided in subsection 1.4(e)) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section 1.2, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders shall so advise the Company and the Company shall so advise all Holders
of Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration pursuant to this Section 1.2 a certificate
signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such registration statement to be filed and
it is therefore essential to defer the filing of such registration statement,
the Company shall have the right to defer such filing for a period of not more
than 120 days after receipt or the request
3.
<PAGE>
of the Initiating Holders; provided, however, that the Company may not utilize
this right more than once in any twelve month period.
1.3 Company Registration. If (but without any obligation to do so)
---------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 4.5, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
1.4 Obligations of the Company. Whenever required under this
--------------------------
Section 1 to effect the registration of any Registrable Securities, 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 one hundred twenty (120) 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
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(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 managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
4.
<PAGE>
(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 Act of the happening of any event as a result
of which the prospectus include 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 circumstance then existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1 on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, 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 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, addressed to the underwriters, if any, and to the Holder requesting
registration of Registrable Securities, and (ii) a letter dated 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, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
1.5 Furnish Information.
-------------------
(a) It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares of Registrable Securities
to be included in the registration does not equal or exceed the number of shares
required to originally trigger the Company's obligation to initiate such
registration as specified in subsection 1.2(a) or subsection 1.12(b)(2),
whichever is applicable.
1.6 Expenses of Demand Registration. All expenses, other than
-------------------------------
underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing 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 shall
be borne by the Company; provided, however, the Company shall not be required to
pay for any expenses of any registration proceeding begun pursuant to Section
1.2 if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all Participating Holders shall bear such expenses), unless the Holder of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2; provided
5.
<PAGE>
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 from that known to the Holders at the time of their request and have
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to Section
1.2.
1.7 Expenses of Company Registration. The Company shall bear and
--------------------------------
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters reasonably believe compatible with the success of the offering,
then the Company shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the underwriters
believe will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities owned by each selling shareholder that were
eligible to be included therein, or in such other proportions as shall mutually
be agreed to by such selling shareholders) but in no event shall (i) the amount
of securities of the selling Holders included in the offering be reduced below
twenty percent (20%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities in which case the selling shareholders may be excluded if the
underwriters make the determination described above and no other shareholder's
securities are included, except as set forth in clause (ii) below, or (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising a
demand registration right under Section 1.2 or similar to that granted in
Section 1.2 be excluded from such offering, unless such shareholder is an
executive officer of the Company who is exercising a demand registration with
respect to shares that were acquired by such executive officer other than as
part of a financing transaction or acquired upon conversion, exercise or
exchange of securities acquired in such a financing transaction. For purposes of
the preceding provisions concerning apportionment, in the case of any Holder
which is a partnership or corporation, the partners, former partners and
shareholder of such Holder, or the estates and family members (including spouses
and ancestors, lineal descendants and siblings of such partners or shareholders
or spouses who acquire Registrable Securities by gift, will or intestate
succession) of any such partners and former partners and any trusts for the
benefit of any of the foregoing persons, shall be deemed to be a single "selling
shareholder," and any pro-rata reduction with respect to such
6.
<PAGE>
"selling shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling shareholder," as defined in this sentence, whether or not they are
participating in the registration.
1.9 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 1.
1.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the 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 Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (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 Act, the 1934
Act, any state securities law or any rule or regulation promulgated under the
Act, or the 1934 Act or any state securities law. The Company will pay to each
such Holder, underwriter or controlling person any legal or other expenses
reasonably incurred (on a current basis as such legal or other expenses are
incurred) by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(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 an 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, underwriter or controlling person.
(b) 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 has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the 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
7.
<PAGE>
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with (on a current basis as such legal or other expenses are
incurred) investigating or defending any such loss, claim, damage, or liability,
or action; provided, however, that the indemnity agreement contained in this
subsection 1.10(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;
provided, that, in no event shall any indemnity under this subsection 1.10(b)
exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 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 1.10, 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
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party (on a current
basis as such legal or other expenses are incurred), if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 1.10, 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 1.10.
(d) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view
---------------------------------------------
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after ninety (90) days after
the effective date of the first registration statement filed by the Company for
the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the
8.
<PAGE>
sale of their Registrable Securities, such action to be taken as soon as
practicable after the end of the fiscal year in which the first registration
statement filed by the Company for the offering of its securities to the general
public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company), the Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the company shall receive from
---------------------
any Holder or Holders owning an aggregate of at least twenty percent (20%) of
the Registrable Securities then outstanding 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, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) 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 15
days after receipt 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 1.12: (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 (net of any
underwriters, discounts or commissions) of less than $250,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such 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 for a period of not more than 60 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any
9.
<PAGE>
twelve month period; (4) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two registrations on Form
S-3 for the Holders pursuant to this Section 1.12; 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) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration request
and pursuant to Section 1.12, including (without limitation) all registration,
filing, qualification, printer's and accounting fees and the reasonable fees and
disbursements of counsel for the selling Holder or Holders and counsel for the
Company, shall be borne pro rata by the Holder or Holders participating in the
Form S-3 Registration. Registrations effected pursuant to this Section 1.12
shall not be counted as demand for registration or registrations effected
pursuant to Sections 1.2 or 1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to an assignee of
such securities, provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. Each assignee who, after such assignment, holds less
than 25,000 shares of Registrable Securities (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other recapitalizations)
shall be deemed to have designated the initial Holder (or, in the case of a
partnership, a general partner thereof) of the Registrable Securities so
assigned to receive, on behalf of such assignee, and all subsequent assignees of
such rights, any and all notices or other communications from the Company in
respect of such rights, and the Company shall have no obligation to send notices
or the other communications to anyone other than such designee in respect of
such rights. For the purposes of determining the number of shares of Registrable
Securities held by a transferee or assignee or a Holder which is a partnership
or corporation, the holdings of such transferees and assignees who are partners,
retired partners or shareholders of such Holder or the estates and family
members of such transferee or assignee (including spouses and ancestors, lineal
descendants and siblings of such partners or shareholders or spouses who acquire
Registrable Securities by gift, will or intestate succession) and any trusts for
the benefit of the foregoing persons shall be aggregated together and with the
partnership; provided that all such assignees and transferees who, after such
assignment, hold less than 25,000 shares of Registrable Securities (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other
recapitalizations) shall be subject to the same notice provision as provided
above and in addition shall have a single attorney-in-fact for the purpose of
exercising any rights or taking any action under this Section 1.
1.14 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
10.
<PAGE>
the outstanding Registrable Securities, 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 1.2 hereof, 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, (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 1.2(a) or within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section 1.2,
or (c) to include such securities in any registration filed under Section 1.2
hereof pursuant to which the Registrable Securities covered thereby are being
distributed by means of an underwriting if the inclusion of such securities in
such registration is not conditioned upon such holder's participation in such
underwriting as set forth in Section 1.2(b).
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees
----------------------------
that, during the period (which period shall not exceed 180 days from the date of
effectiveness of the applicable registration statement) specified by the Company
and an underwriter of common stock or other securities of the Company, following
the effective date of a registration statement of the Company filed under the
Act, it shall not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
common stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) such agreement shall be applicable only if all officers and
directors of the Company and all other persons with registration rights (whether
or not pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.16 Amendment of Registration Rights. Any provision of this
--------------------------------
Section 1 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 the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder or any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
1.17 Termination of Registration Rights. No Holder shall be
----------------------------------
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the sale of
11.
<PAGE>
securities pursuant to a registration statement filed by the company under the
Act in connection with the initial firm commitment underwritten offering of its
securities to the general public; provided, however, that the prohibition in
this Section 1.17 on the exercise of any registration right shall not apply to
any person who at the time of exercise is an affiliate of the Company who holds
greater than one percent (1%) of the outstanding shares of Common Stock of the
Company (determined on a fully diluted basis). For purposes of this section, the
term "affiliate" shall have the meaning set forth in Rule 144 under the Act. If
the Company denies the right of a Holder to participate in a registration based
upon a determination that the foregoing proviso does not apply because the
Holder is not an affiliate, the Company shall provide to such Holder an opinion
of the Company's counsel confirming such determination.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Investor:
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, (i) an income statement for
such fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial statements to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("gaap"), and such financial statements to be audited and certified
by independent public accountants of nationally recognized standing selected by
the Company, and (ii) a written statement executed by the Company's president as
to whether the Company is in compliance with its covenants under this Agreement;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each fiscal quarter of the Company, an unaudited profit or
loss statement, schedule as to the sources and application of funds for such
fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter;
(c) within thirty (30) days after the end of each month an unaudited
income statement and schedule as to the sources and application of funds and
balance sheet for and as of the end of such month, in reasonable detail,
accompanied by a brief narrative prepared by the chief executive officer or
chief financial officer of the Company summarizing the financial highlights of
the Company for such period and explaining in narrative form any material
discrepancies between the results of operations as reported and the Company's
projections for the same period, as well as any other financial or business
events of material importance;
(d) as soon as practicable, but in any event within sixty (60) days
after the end of each fiscal year ending on December 31, 1995 and thereafter, a
budget and business plan for the next fiscal year (the "Annual Plan"), prepared
on a monthly basis, including balance sheets and sources and applications of
funds statements for such months and, as soon as prepared, any other budgets or
revised budgets prepared by the Company;
12.
<PAGE>
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with gaap consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by gaap) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided, however, that
the Company shall not be obligated under this subsection (f) or any other
subsection of Section 2.1 to provide information which it deems in good faith to
be a trade secret or similar confidential information.
2.2 Inspection. The Company shall permit each 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 the Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
2.3 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 2.3, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). An Investor shall be entitled to apportion the right
of first offer hereby granted it among itself and its partners and affiliates in
such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail (the
"Notice") to the Investors stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within 10
calendar days after receipt of the Notice, the Investor may elect to purchase or
obtain, at the price and on the terms specified in the Notice, up to that
portion of such Shares which equals the proportion that the number of shares of
Common Stock issued and held, or issuable upon conversion of the Series AA
Preferred Stock and Series BB Preferred Stock, then held by such Investor bears
to the total number of shares of Common Stock of the Company then outstanding
(assuming full conversion and exercise of all convertible or exercisable
securities of the Company).
(c) If all Shares which Investors are entitled to obtain pursuant to
subsection 2.3(b) are not elected to be obtained as provided in subsection
2.3(b) hereof, the Company may, during the
13.
<PAGE>
30-day period following the expiration of the period provided in subsection
2.3(b) hereof, offer the remaining unsubscribed portion of such Shares to any
person or persons at a price not less than, and upon terms no more favorable to
the offeree than, those specified in the Notice. If the Company does not enter
into an agreement for the sale of the Shares within such period, or if such
agreement is not consummated within 30 days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such Shares shall not be
offered unless first reoffered to the Investors in accordance herewith.
(d) The right of first offer in this Section 2.3 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor) to employees, directors or others pursuant to a stock option or other
employee benefit plan or individual stock arrangements approved by the Company's
Board of Directors, (ii) to or after consummation of a bona fide, firmly
underwritten public offering of shares of common stock, registered under the Act
pursuant to a registration statement on Form S-1, (iii) to the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities, (iv) to the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidations,
sale of assets, sale or exchange of stock or otherwise, (v) to the issuance of
stock, warrants or other securities or rights to persons or entities with which
the Company has business relationships provided such issuances are for other
than primarily equity financing purposes, and (v) to the DEC Warrants, September
Warrants, July Warrants, October Warrants, STC Warrants, SVB Warrants and Series
BB Preferred Stock.
2.4 FIRPTA Undertakings. The Company shall make, in a timely manner,
-------------------
all necessary filings and shall take all other actions as are necessary to
establish that the Company is not a United States real property holding
corporation, as defined in Section 297(c) of the Code and Section 1.897-2(b) of
the Regulations. The Company shall indemnify, defend and hold harmless each
Investor from and against any income tax liability incurred by such Investor
upon disposition of the Preferred Stock or Common Stock into which Preferred
Stock has been converted arising from the Company's failure to establish that it
is not a United States real property holding corporation.
2.5 Foreign Corrupt Practices Act Undertaking. The Company shall
-----------------------------------------
not offer or agree to offer anything of value to any governmental official,
political party or candidate for government office (or to any person whom the
Company knows or has reason to know will offer anything of value to any
governmental official, political party or candidate for government office) in
violation of the Foreign Corrupt Practices Act of 1977, as amended.
2.6 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in subsections 2.1(c), (d) and (f) and Sections 2.2, 2.3,
2.4, and 2.5 shall terminate as to an Investor and be of no further force or
effect (i) when the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the firm commitment
underwritten offering or its securities to the general public is consummated,
(ii) when the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, or (iii) when such
Investor no longer owns any shares of Preferred Stock, whichever event shall
first occur.
14.
<PAGE>
2.7 Proprietary Information and Inventions Agreement. The Company
------------------------------------------------
will use its best efforts to prevent any violation by key or technical employee
and officers of the Company of the Company's Proprietary Information and
Inventions Agreement.
3. Waiver of Certain Anti-Dilution Adjustments.
-------------------------------------------
3.1 Definitions. For purposes of this Section 3, the following
-----------
terms shall have the meanings set forth below:
(a) "Dilutive Financing" shall mean any sale by the Company of New
Securities (defined below) for consideration per share less than the Conversion
Price (defined in Article IV(B)4 of the Company's Amended and Restated Articles
of Incorporation) then in effect for such Series AA Preferred Stock and Series
BB Preferred Stock pursuant to Article IV(B)4 of such Amended and Restated
Certificate of Incorporation, however this Section 3.1(a) shall not apply to the
sale of Series BB Preferred Stock pursuant to the Series BB Preferred Stock
Purchase Agreement of even date herewith;
(b) "New Securities" shall mean any shares of (or securities
convertible or exercisable for any shares of) the Company's capital stock other
than those securities, the issuance of which is inapplicable to the right of
first offer in Section 2.3(d) hereof;
(c) "Pro Rata Share" shall mean that portion of New Securities which
equals the proportion that the number of shares of Common Stock issued and held,
or then issuable upon conversion of the shares of Series AA Preferred Stock and
Series BB Preferred Stock then held, by such Investor bears to the total number
of shares of Common Stock of the Company then outstanding (assuming full
conversion and exercise of all convertible securities and/or exercisable
securities).
3.2 Failure to Participate in Dilutive Financings. The Company and
---------------------------------------------
the Investors hereby agree that if the Company shall issue in a Dilutive
Financing any New Securities and an Investor does not purchase its full Pro Rata
Share (and such Pro Rata Share is not otherwise purchased by an affiliate or
partner of such Investor) in such financing, then (i) such Investor shall be
deemed to have forever waived, commencing as of the date of the issuance of such
New Securities, the benefit of any anti-dilution adjustment with respect to the
Series AA Preferred Stock and Series BB Preferred Stock that such Investor would
thereafter be entitled to pursuant to Article IV(V)4(c)(i) of the Amended and
Restated Articles of Incorporation (however, such Investor shall be entitled to
all adjustments made prior to the date of such Dilutive Financing), including
the right to receive any additional shares of Common Stock of the Company upon
conversion of such Investor's shares of Series AA Preferred Stock and Series BB
Preferred Stock which would otherwise be issuable by reason of the anti-dilution
adjustment (the "Adjustment Shares") from and after the date of such Dilutive
Financing; (ii) the Company will not issue such Adjustment Shares to such
Investor and such Investor will not be entitled to vote such Adjustment Shares;
and (iii) such Investor will return to the Company for cancellation any
Adjustment Shares held by such Investor due to the operation of Article
IV(V)4(c)(i) of the Amended and Restated Articles of Incorporation and issued in
violation of this Section 3, and (iv) if deemed necessary to effectuate the
purpose of this Section 3 and requested
15.
<PAGE>
by the Company, the Company will exchange the Series AA Preferred Stock held by
such Investor for shares of newly-created series of Preferred Stock identical to
such Preferred held by such Investor but not affording the anti-dilution
protection afforded by Article IV(V)4(c)(i) of the Amended and Restated Articles
of Incorporation.
3.3 Legend; Transfer Subject to Waiver. Each Investor agrees (i)
----------------------------------
that the certificates representing the Series AA Preferred Stock and Series BB
Preferred Stock shall include a legend referring to the waiver of anti-dilution
protection provision contained in this Section 3 and (ii) not to assign or
transfer any interest in the Series AA Preferred Stock and Series BB Preferred
Stock held by such Investor unless such assignee or transferee agrees in writing
to be bound by the provisions of this Section 3. Any purported assignment or
transfer in violation of the foregoing shall be null and void.
3.4 Termination. In the event the right of first offer set forth in
-----------
Section 2.3 hereof terminates for all Investors, Section 3.2 shall thereafter
terminate, but only with respect to those Investors whose antidilution
adjustment rights have not at such time been waived pursuant to Section 3.2.
Such termination shall have no effect on the status of the antidilution
adjustment with respect to any Investor whose antidilution adjustment rights
have at such time been previously waived pursuant to the terms of Section 3.2.
----------
3.5 Amendment of Waiver. Any provision of this Section 3 may be
-------------------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of holders of 66-2/3% of the Series AA Preferred Stock and Series BB
Preferred Stock then outstanding. Any amendment effected in accordance with this
Section 3.5 shall be binding upon each holder of all such Series AA Preferred
Stock and Series BB Preferred Stock then outstanding and each future holder of
all such Series AA Preferred Stock and Series BB Preferred Stock and the
Company.
4. Miscellaneous.
-------------
4.1 Successors and Assigns. Except as otherwise provided herein,
----------------------
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the Investors listed on
Schedule A hereto (including transferees of any shares of Series AA and Series
- ----------
BB Preferred Stock sold hereunder or any Common Stock issued upon conversion
thereof). Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations. or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
4.2 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
16.
<PAGE>
4.3 Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.4 Titles and Subtitles. The titles and subtitles use in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
4.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given or made (i) when delivered by hand, (ii) five days after
having been given by certified mail, return receipt requested, (iii) when
delivered to the telegraph company in the case of telegraphic notice, (iv) when
sent in the case of telex or telecopied notice, or (v) three business days after
deposit with a recognized overnight delivery service, in any of the above
enumerated cases, addressed to the party to be notified at the address indicated
for such party on Schedule A hereto, or at such other address as such party may
----------
designate by ten (10) days prior written notice to the other parties. Any notice
delivered to an address outside the United States shall be duplicated by
counterpart telex or telecopier notice.
4.6 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
4.7 Amendments and Waivers. Except as specified in subsection 1.16
----------------------
and 3.5, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Holders of a majority of the Registrable
Securities then outstanding. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of Registrable Securities then
outstanding, each future Holder of all Registrable Securities and the Company.
4.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
4.9 Aggregation of Stock. All shares of the Preferred Stock 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.
4.10 Entire Agreement. This Agreement and the exhibits and
----------------
attachments hereto constitute the full and entire understanding and agreement
between the parties with respect to the subjects hereof and thereof.
17.
<PAGE>
4.11 Amendment of Prior Agreement. The Investors who are parties
----------------------------
to the Prior Agreement hereby amend the Prior Agreement and the Investors of the
Prior Agreement and the New Investors shall have the rights and be subject to
the limitations of this Agreement.
18.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SYNERGY SEMICONDUCTOR CORPORATION
By:
------------------------------
Thomas D. Mino, President
Address: 3450 Central Expressway
Santa Clara, CA 95051
19.
<PAGE>
HARRIS CORPORATION
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Address: 1025 W. NASA Boulevard
Melbourne, FL 32919
20.
<PAGE>
ON BEHALF OF EXISTING INVESTORS:
GEORGE BROWN
By:
-----------------------------------
Address: Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, CA 95051
<PAGE>
WILLIAM HARDING
By:
-----------------------------------
Address: Morgan Stanley & Company, Inc.
3000 Sand Hill Road
Building 4, Suite 450
Menlo Park, CA 94025
<PAGE>
MATRIX PARTNERS II, L.P.
By:
-----------------------------------
Address: 2500 Sand Hill Road, Suite 113
Menlo Park, CA 94025
Attention: Mr. Joe Rizzi
<PAGE>
MAYFIELD V
By:
-----------------------------------
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Mr. William D. Unger
<PAGE>
OAK INVESTMENT PARTNERS III
A Limited Partnership
By:
-----------------------------------
Address: 525 University Avenue
Palo Alto, CA 94301
Attention: Mr. Edward Glassmeyer
<PAGE>
J.H. WHITNEY & CO.
By:
-----------------------------------
Address: 630 Fifth Avenue
Suite 3200
New York, NY 10111
Attention: Mr. Michael C. Brooks
<PAGE>
MENLO VENTURES III
By:
-----------------------------------
MENLO MANAGEMENT PARTNERS, ITS GENERAL PARTNER
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Attention: Mr. H. DuBose Montgomery
<PAGE>
MERRILL, PICKARD, ANDERSON & EYRE IV
By:
-----------------------------------
Address: 2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Attention: Mr. Steven Merrill
<PAGE>
THOMAS MINO
By:
-----------------------------------
Address: Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, CA 95051
<PAGE>
T. OLIN NICHOLS
By:
-----------------------------------
Address: Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, CA 95051
<PAGE>
LARRY POLLOCK
By:
-----------------------------------
Address: 171 Santa Rita Street
Palo Alto, CA 94301
<PAGE>
SEQUOIA CAPITAL IV; SEQUOIA TECHNOLOGY PARTNERS II;
SEQUOIA CAPITAL XVII; SEQUOIA CAPITAL XXIII; SEQUOIA
CAPITAL XXIV
By:
-----------------------------------
Address: 3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Attention: Mr. Mark Stevens
<PAGE>
SVEN ERIK SIMONSEN & TOVE SIMONSEN,
TRUSTEES FOR THE SIMONSEN REVOCABLE
TRUST DATED 10/14/82
By:
-----------------------------------
Address: 18433 Montewood Drive
Saratoga, CA 95070
<PAGE>
SUEZ TECHNOLOGY FUND
By:
-----------------------------------
Address: 2180 Sand Hill Road
Suite 450
Menlo Park, CA 94025
Attention: Mr. Guy H. Conger
<PAGE>
TECHNOLOGY INVESTORS
By:
-----------------------------------
Address: c/o Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Mr. Edward M. Leonard
<PAGE>
E. MARSHALL WILDER
By:
-----------------------------------
Address: Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, CA 95051
<PAGE>
THOMAS S. WONG
By:
-----------------------------------
Address: 927 Rock Canyon Circle
San Jose, CA 95127
<PAGE>
SCHEDULE A
----------
Bank of America Capital Corporation
650 Town Center Drive, 17th Floor
Costa Mesa, CA 92626-7158
Attention: Mr. James W. McCall
Chesapeake Ventures, L.P.
2809 Boston Street, Suite 7
Baltimore, MD 21224
Attention: Mr. William Gust
Mr. William Gust
119 West Montgomery Street
Baltimore, MD 21230
Digital Equipment Corporation
111 Powdermill Road, MS02-2/F19
Maynard, MA 01754-2571
Attention: Mr. John S. Doherty
Mayfield V
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Mr. William D. Unger
Oak Investment Partners III
A Limited Partnership
One Gorham Island
Westport, CT 06880
Attention: Mr. Edward F. Glassmeyer
J.H. Whitney & Co.
630 Fifth Avenue
Suite 3200
New York, NY 10111
Attention: Mr. Michael C. Brooks
<PAGE>
Mr. William Harding
Morgan Stanley & Company, Inc.
3000 Sand Hill Road, Bldg. 4, Suite 450
Menlo Park, CA 94025
Joanne C. Knight
793 View Street
Mountain View, CA 94041
KB Berkeley Japan Development Capital Limited
Minden House
6 Minden Place
St. Helier, Jersey
Channel Islands
Great Britain
Attention: Clive A.C. Chaplin
With a copy to: Berkeley International Capital Corporation
600 Montgomery Street
15th Floor
San Francisco, CA 94111
Attention: Mr. Thomas E. Pallante
Berkeley Development Capital
Minden House
6 Minden Place
St. Helier, Jersey
Channel Islands
Great Britain
Attention: Clive A.C. Chaplin
With a copy to: Berkeley International Capital Corporation
600 Montgomery Street
15th Floor
San Francisco, CA 94111
Attention: Mr. Thomas E. Pallante
Mr. Thomas E. Pallante
348 Gold Mine Drive
San Francisco, CA 94131-2526
<PAGE>
Matrix Partners II, L.P.
2500 Sand Hill Road, Suite 113
Menlo Park, CA 94025
Attention: Mr. Joe Rizzi
Menlo Ventures III
Menlo Management Partners, its General Partner
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Attention: Mr. H. DuBose Montgomery
Merrill, Pickard, Anderson & Eyre IV
2480 Sand Hill Road, Suite 200
Menlo Park, California 94025
Attention: Mr. Jeffers Pickard
MPAE Technology Partners
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Attention: Mr. Jeffers Pickard
Sequoia Capital IV;
Sequoia Technology Partners II;
Sequoia Capital XVII;
Sequoia Capital XXIII;
Sequoia Capital XXIV;
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Attention: Mr. Mark Stevens
Sobrato Development Companies
10600 N. DeAnza Boulevard, Suite 200
Cupertino, CA 95015-2031
Attention: Mr. John Sobrato, Jr.
Stanford University
2770 Sand Hill Road
Menlo Park, CA 94025
Attention: Ms. Carol Gilmer
<PAGE>
Suez Technology Fund
2180 Sand Hill Road, Suite 450
Menlo Park, CA 94025
Attention: Mr. Guy H. Conger
Claudia and Marshall Smith
16535 Weston Drive
Los Altos Hills, CA 94022
Technology Investors
c/o Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Mr. Edward M. Leonard
JAFCO G-1(A) Investment
Enterprise Partnership;
JAFCO G-1(B) Investment
Enterprise Partnership;
JAFCO G-2(A) Investment
Enterprise Partnership;
JAFCO G-2(B) Investment
Enterprise Partnership;
JAFCO P-2(A) Investment
Enterprise Partnership;
JAFCO P-2(B) Investment
Enterprise Partnership;
c/o Japan Associated Finance Co., Ltd.
Toshiba Building, 10th Floor
1-1-1 Shibaura, Minato-ku
Tokyo, JAPAN 105
Attention: Mr. Susumu Tanaka
Sino-Scan Venture Fund, Ltd.
c/o China Venture Management, Inc.
12th Floor
125 Nanking E. Road
Sec. 5
Taipei, Taiwan
Republic of China
<PAGE>
David Mitchell, Trustee of the Marianne
Simonsen Present Interest Trust Dated 12/27/76
c/o Hoge, Fenton, Jones & Appel
605 Market Street
San Jose, CA 95113-2396
Attention: Mr. David Mitchell
David Mitchell, Trustee of the Peter
Simonsen Present Interest Trust Dated 12/27/76
c/o Hoge, Fenton, Jones & Appel
605 Market Street
San Jose, CA 95113-2396
Attention: Mr. David Mitchell
Sven Erik Simonsen & Tove Simonsen,
Trustees for the Simonsen Revocable
Trust Dated 10/14/82
Sven Erik Simonsen
18433 Montewood Drive
Saratoga, CA 95070
George Brown
SMI Wildbahn
15236 Frankfurt (Oder)
Markendorf, Germany
Ralph Cognac
109 Chippendale Court
Los Gatos, CA 95030
Larry Pollock
171 Santa Rita Street
Palo Alto, CA 94301
Thomas H. Wong
12457 Beauchamps Lane
Saratoga, CA 95070
<PAGE>
E. Marshall Wilder
21 Woodhill Drive
Redwood City, CA 94061
Kenneth G. Wolf
1853 Booksin Avenue
San Jose, CA 94061
Palo Alto, CA 94301
Silicon Valley Bank
3000 Lakeside Drive
Santa Clara, CA 95054
Attention: Mr. William D. Unger
Storage Technology Corporation
2270 South 88th Street
Louisville, CO 80028-4308
Attention: Mr. Benjamin Brussell
Waltraud Finch
800 Westridge Drive
Portola Valley, CA 94028
Michael Allen
850 Page Street
San Francisco, CA 94117
Thomas S. Wong
c/o Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, CA 95051
Paul R. Findley
22431 Carnoustie Court
Cupertino, CA 95014-3949
North Investment Ltd. Partnership
Village of Cross Keys
Village Square II
Baltimore, MD 21210
Attention: Richard Pearlstone
<PAGE>
Broventure Financial Development, Inc.
16 West Madison Street
Baltimore, MD 21202
Attention: Philip D. English
William P. and Jane M. Garvey
3232 Emerson Street
Palo Alto, CA 94306
Harris Corporation
1025 W. NASA Boulevard
Melbourne, FL 32919
Attention: Robert W. Fry
<PAGE>
SCHEDULE B
----------
<TABLE>
<CAPTION>
NUMBER OF SHARES
COMMON SHAREHOLDER OF COMMON STOCK
- ------------------ ----------------
<S> <C>
George W. Brown 8,400
Ralph O. Cognac 8,400
Larry J. Pollock 8,400
E. Marshall Wilder 8,400
Kenneth G. Wolf 12,000
Thomas S. Wong 8,400
Mayfield V 7,095
Sequoia Capital IV 6,459
Sequoia Technology Partners II 390
Sequoia XVII 246
Sven E. Simonsen, Trustee of the 2,310
Simonsen Revocable Trust Dated 10/14/82
</TABLE>
<PAGE>
EXHIBIT 10.1
SYNERGY SEMICONDUCTOR CORPORATION
---------------------------------
1987 STOCK OPTION PLAN
----------------------
(ADOPTED JULY 16, 1987)
(AMENDED AND RESTATED THROUGH JUNE 28, 1994)
I. PURPOSES OF THE PLAN
--------------------
(a) This Stock Option Plan (the "Plan") is intended to promote the
interests of Synergy Semiconductor Corporation (the "Company") by providing a
method whereby eligible individuals who provide valuable services to the Company
(or its parent or subsidiary corporations) may be offered incentives and rewards
which will encourage them to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Company and continue to render
services to the Company (or its parent or subsidiary corporations).
(b) For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the Company:
(i) Any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company shall be considered to be a parent
corporation of the Company, provided each such corporation in the unbroken chain
(other than the Company) owns, at the time of the determination, 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.
(ii) Each corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company shall be considered to be a subsidiary
of the Company, provided each such corporation (other than the last corporation)
in the unbroken chain owns, at the time of the determination, 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.
II. ADMINISTRATION OF THE PLAN
--------------------------
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company. The Board, however, may at any time appoint a
committee ("Committee") of two (2) or more members of the Board and delegate to
such Committee one or more of the administrative powers allocated to the Board
under the provisions of the Plan, including (without limitation) the power to
grant options under the Plan and administer the option surrender provisions of
the Plan. Members of the Committee shall serve for such period of time as the
Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
(b) The Plan Administrator (either the Board or the Committee, to the
extent
<PAGE>
the Committee is at the time responsible for the administration of the
Plan) shall have full power and authority (subject to the provisions of the
Plan) to establish such rules and regulations as it may deem appropriate for the
proper administration of the Plan and to make such determinations under, and
issue such interpretations of, the Plan and any outstanding option as it may
deem necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties who have an interest in the Plan or any outstanding
option.
III. ELIGIBILITY FOR OPTION GRANTS
-----------------------------
(a) The persons eligible to receive option grants under the Plan are as
follows:
(i) Employees (as defined in Section V.3.F);
(ii) the non-employee members of the Board (or the non-employee
members of the board of directors of any of the Company's parent or subsidiary
corporations); and
(iii) those consultants who provide valuable services to the Company
(or its parent or subsidiary corporations).
(b) The Plan Administrator shall have full authority to determine which
eligible individuals are to receive option grants under the Plan, the number of
shares to be covered by each such grant, whether the granted option is to be an
incentive stock option ("Incentive Option") which satisfies the requirements of
Section 422 of the Internal Revenue Code or a non-statutory option not intended
to meet such requirements, the time or times at which each such option is to
become exercisable, the vesting schedule (if any) applicable to the option
shares and the maximum term for which the option is to be outstanding.
IV. STOCK SUBJECT TO THE PLAN
-------------------------
(a) The stock issuable under the Plan shall be shares of the Company's
authorized but unissued or reacquired common stock ("Common Stock"). The
aggregate number of shares which may be issued under the Plan shall not exceed
84,732,762 shares. The total number of shares issuable under the Plan shall be
subject to adjustment from time to time in accordance with Section IV(c) of the
Plan.
(b) Should an option be terminated for any reason without being exercised
or surrendered in whole or in part (including options cancelled in accordance
with the cancellation-regrant provisions of Section VIII of the Plan), the
shares subject to the portion of the option not so exercised or surrendered
shall be available for subsequent option grants under the Plan. Shares subject
to any option or portion thereof surrendered in accordance with Section IX of
the Plan and shares repurchased by the Company pursuant to its repurchase rights
under the Plan shall not be available for subsequent option grants under the
---
Plan.
2
<PAGE>
(c) In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Company's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan and (ii) the number
and/or class of securities and price per share of the Common Stock subject to
each outstanding option in order to prevent the dilution or enlargement of
benefits thereunder. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive. In no event shall any adjustments be made for
the conversion of one or more outstanding shares of the Company's preferred
stock into shares of the Common Stock.
V. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Options granted pursuant to the Plan shall be authorized by action of the
Plan Administrator and may, at the Plan Administrator's discretion, be either
Incentive Options or non-statutory options. Each granted option shall be
evidenced by one or more instruments in the form approved by the Plan
Administrator; provided, however, that each such instrument shall comply with
--------
and incorporate the terms and conditions specified below. Each instrument
evidencing an Incentive Option shall, in addition, comply with the applicable
provisions of Section VI.
1. Option Price.
------------
A. The option price per share shall be fixed by the Plan
Administrator, but, subject to the provisions of Section V.1.B. below, in no
event shall the option price per share be less than eighty-five percent (85%) of
the fair market value of a share of Common Stock on the date of the option
grant.
B. If any individual to whom an option is to be granted pursuant
to the provisions of the Plan is on the date of grant the owner of stock (as
determined under Section 424(d) of the Internal Revenue Code) possessing ten
percent (10%) or more of the total combined voting power of all classes of stock
of the Company or any one of its parent or subsidiary corporations (such person
to be herein referred to as a 10% Shareholder), then the option price per share
shall not be less than one hundred ten percent (110%) of the fair market value
of a share of Common Stock on the date of grant.
C. The option price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section X and the instrument
evidencing the grant, be payable in one of the alternative forms specified
below:
(i) full payment in cash or cash equivalents; or
(ii) full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Company's reported earnings upon
delivery and valued at fair market value on the Exercise Date (as defined below)
equal to the option price; or
3
<PAGE>
(iii) a combination of shares of Common Stock held for the requisite
period necessary to avoid a charge to the Company's reported earnings upon
delivery and valued at fair market value on the Exercise Date and cash or cash
equivalents, equal in the aggregate to the option price.
Should the Company's outstanding Common Stock be registered under Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") at
the time the option is exercised, then the option price may also be paid through
a special sale and remittance procedure pursuant to which the optionee shall
concurrently provide irrevocable written instructions (a) to a Company-
designated brokerage firm to effect the immediate sale of the purchased shares
and remit to the Company, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate option price payable for the
purchased shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Company by reason of such
purchase and (b) to the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale
transaction.
For purposes of this subparagraph C, the Exercise Date shall be the date
on which written notice of the exercise of the option is delivered to the
Company. Except to the extent the sale and remittance procedure is used,
payment of the option price for the purchased shares must be made on the
Exercise Date.
D. The fair market value of a share of Common Stock on any
relevant date under subparagraph A, B or C above (and for all other valuation
purposes under the Plan) shall be determined in accordance with the following
provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the Nasdaq National Market, the
fair market value shall be the closing selling price per share of Common Stock
on the date in question, as such price is reported by the National Association
of Securities Dealers through the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on the date
in question, then the fair market value shall be the closing selling price on
the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the fair market value shall be the
closing selling price on the last preceding date for which such quotation
exists.
(iii) If the Common Stock is at the time neither listed nor
4
<PAGE>
admitted to trading on any stock exchange nor traded on the Nasdaq National
Market, then such fair market value shall be determined by the Plan
Administrator after taking into account such factors as the Plan Administrator
shall deem appropriate.
2. Term and Exercise of Options. Each option granted under the Plan
----------------------------
shall be exercisable at such time or times, during such period, and for such
number of shares as shall be determined by the Plan Administrator and set forth
in the instrument evidencing such option; provided, however, that no such option
--------
shall have a term in excess of ten (10) years from the grant date. During the
lifetime of the optionee, the option shall be exercisable only by the optionee
and shall not be assignable or transferable by the optionee otherwise than by
will or by the laws of descent and distribution.
3. Effect of Termination of Service.
--------------------------------
A. Should the optionee cease to remain in Service (as defined below)
for any reason other than death or Disability (as defined below), then the
period during which each outstanding option held by such optionee is to remain
exercisable shall be limited to the three (3)-month period following the date of
such cessation of Service.
B. Should such Service terminate by reason of Disability, then the
period during which each outstanding option held by the optionee is to remain
exercisable shall be limited to the six (6)-month period following the date of
such cessation of Service. However, should such Disability be deemed to
constitute Permanent Disability (as defined below), then the period during which
each outstanding option held by the optionee is to remain exercisable shall be
extended by an additional six (6) months so that the exercise period shall be
limited to the twelve (12)-month period following the date of the optionee's
cessation of Service by reason of such Permanent Disability.
C. Should the optionee die while holding one or more outstanding
options, then the period during which each such option is to remain exercisable
shall be limited to the twelve (12)-month period following the date of the
optionee's death. During such limited period, the option may be exercised by
the personal representative of the optionee's estate or by the person or persons
to whom the option is transferred pursuant to the optionee's will or in
accordance with the laws of descent and distribution.
D. Under no circumstances, however, shall any such option be
exercisable after the specified expiration date of the option term.
E. During the applicable post-Service exercise period, the option may
not be exercised in the aggregate for more than the number of vested shares for
which the option is exercisable on the date of the optionee's cessation of
Service. Upon the expiration of the applicable exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and cease to
be exercisable for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the optionee's cessation
of Service,
5
<PAGE>
terminate and cease to be outstanding with respect to any option shares for
which the option is not at that time exercisable or in which the optionee is not
otherwise at that time vested.
F. For purposes of the foregoing provisions of this Section V.3 (and
all other provisions of the Plan), unless it is expressly provided otherwise in
the specific option agreement evidencing the option grant and/or the purchase
agreement evidencing the purchased shares, the optionee shall be deemed to
remain in Service for so long as the optionee continues to provide services to
the Company or any parent or subsidiary corporations, whether in the capacity of
an Employee, a non-employee member of the board of directors or a consultant.
The optionee shall be considered to be an Employee for so long as such
individual remains in the employ of the Company or one or more of its parent or
subsidiary corporations, subject to the control and direction of the employer
entity as to both the work to be performed and the manner and method of
performance. Disability shall mean the inability of an individual to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Plan Administrator
on the basis of such medical evidence as the Plan Administrator deems warranted
under the circumstances. Disability shall be deemed to constitute Permanent
Disability in the event that such Disability is expected to result in death or
has lasted or can be expected to last for a continuous period of not less than
twelve (12) months.
4. Shareholder Rights. An optionee shall have none of the rights of a
------------------
shareholder with respect to any shares covered by the option until such
individual shall have exercised the option and paid the option price.
5. Unvested Shares. The Plan Administrator shall have the discretion to
---------------
authorize the issuance of unvested shares of Common Stock under the Plan.
Should the optionee cease Service while holding such unvested shares, the
Company shall have the right to repurchase, at the option price paid per share,
all or (at the discretion of the Company and with the consent of the optionee)
any of those unvested shares. The terms and conditions upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the agreement evidencing
such repurchase right. In no event, however, may the Plan Administrator impose
a vesting schedule upon any option granted under the Plan or any shares of
Common Stock subject to the option which is more restrictive than twenty percent
(20%) per year vesting, beginning one (1) year after the grant date. All
outstanding repurchase rights under the Plan shall terminate automatically upon
the occurrence of any Corporate Transaction (as defined in Section VII), except
to the extent the repurchase rights are expressly assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction.
6. First Refusal Rights. Until such time as the Company's outstanding
--------------------
shares of Common Stock are first registered under Section 12(g) of the Exchange
Act, the Company shall have the right of first refusal with respect to any
proposed sale or other disposition by the optionee (or any successor in interest
by reason of purchase, gift or other transfer) of any shares
6
<PAGE>
of Common Stock issued under the Plan. Such right of first refusal shall be
exercisable in accordance with the terms and conditions established by the Plan
Administrator and set forth in the agreement evidencing such right.
VI. INCENTIVE OPTIONS.
-----------------
The terms and conditions specified below shall be applicable to all
Incentive Options granted under the Plan. Incentive Options may only be granted
to individuals who are Employees. Options which are specifically designated as
"non-statutory" options when issued under the Plan shall not be subject to such
---
terms and conditions.
(a) Option Price. The option price per share of the Common Stock subject
------------
to an Incentive Option shall in no event be less than one hundred percent (100%)
of the fair market value of a share of Common Stock on the date of grant.
(b) Dollar Limitation. The aggregate fair market value of the Common
-----------------
Stock (determined as of the respective date or dates of grant) for which one (1)
or more options granted to any Employee under this Plan (or any other option
plan of the Company or any parent or subsidiary corporation) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted. Should the applicable
One Hundred Thousand Dollar ($100,000) limitation in fact be exceeded in any
calendar year, then the option shall nevertheless become exercisable for the
excess number of shares in such calendar year as a non-statutory option.
(c) 10% Shareholder. If any individual to whom an Incentive Option is
---------------
granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the grant date.
Except as modified by the preceding provisions of this Section VI, all
the provisions of the Plan shall be applicable to the Incentive Options granted
hereunder.
VII. CORPORATE TRANSACTIONS
----------------------
(a) In the event of any of the following transactions (a "Corporate
Transaction"):
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is
to change the state of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or substantially
all of the
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Company's assets in complete liquidation or dissolution of the Company, or
(iii) any reverse merger in which the Company is the surviving
entity but in which all of the Company's outstanding voting stock is
transferred to the acquiring entity or its wholly-owned subsidiary,
each option at the time outstanding under the Plan shall terminate and cease to
be exercisable, except to the extent assumed by the successor corporation or
parent thereof.
(b) Each outstanding option which is assumed in connection with a
Corporate Transaction or is otherwise to remain outstanding shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would have been issuable
to the optionee in the consummation of such Corporate Transaction, had the
option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the class and number of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the option price payable per share, provided
--------
the aggregate option price payable for such securities shall remain the same.
(c) The grant of options under this Plan shall in no way affect the right
of the Company to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
VIII. CANCELLATION AND NEW GRANT OF OPTIONS
-------------------------------------
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options under the Plan covering the same or different
numbers of shares of Common Stock but having an option price per share not less
than eighty-five percent (85%) of fair market value (one hundred percent (100%)
of fair market value in the case of an Incentive Option or, in the case of a 10%
Shareholder, not less than one hundred ten percent (110%) of fair market value)
on the new grant date.
IX. SURRENDER OF OPTIONS FOR CASH OR STOCK
--------------------------------------
(a) Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
IX, one or more optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish at the time of the option
grant or at any time thereafter, to surrender all or part of an unexercised
option under the Plan in exchange for a distribution from the Company equal in
amount to the difference between (i) the fair market value (at date of
surrender) of the number of shares in which the optionee is at the time vested
under the surrendered option or portion thereof and (ii) the aggregate option
price payable for such vested shares.
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<PAGE>
(b) No surrender of an option shall be effective hereunder unless it is
approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the optionee shall accordingly become entitled under this
Section IX may be made in shares of Common Stock valued at fair market value at
date of surrender, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
(c) If the surrender of an option is rejected by the Plan Administrator,
then the optionee shall retain whatever rights the optionee had under the
surrendered option (or surrendered portion thereof) on the date of surrender and
may exercise such rights at any time prior to the later of (i) the receipt of
-----
the rejection notice or (ii) the last day on which the option is otherwise
exercisable in accordance with the terms of the instrument evidencing such
option, but in no event may such rights be exercised at any time after ten (10)
years after the date of the option grant.
(d) Notwithstanding the foregoing provisions of this Section IX, upon the
occurrence of a Change in Control (as defined below) at a time when one or more
classes of the Company's equity securities are registered under Section 12(g) of
the Exchange Act, then each officer or director who is at the time subject to
the short-swing profit restrictions of the Federal securities laws shall have
the right (exercisable for a period not to exceed thirty (30) days) to surrender
any or all options held by such individual under this Plan, to the extent such
options are at the time exercisable for vested shares and have been outstanding
for a period of at least six (6) months, and receive in exchange therefor an
appreciation distribution calculated in accordance with Section IX(a). The
approval of the Board shall not be required for such surrender, and the
distribution to which such individual shall become entitled upon such surrender
shall be made entirely in cash.
(e) For purposes of this Section IX, a Change in Control shall be deemed
to occur in the event (i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by, or
is under common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's shareholders which the Board does not
recommend such shareholders to accept and (ii) more than fifty percent (50%) of
---
the securities so acquired in such tender or exchange offer are accepted from
holders other than the Company's officers and directors subject to the short-
swing profit restrictions of Section 16(b) of the Exchange Act.
(f) The following special provisions shall be applicable to any Incentive
Option which is surrendered pursuant to the provisions of this Section IX:
(i) The Incentive Option may be surrendered only to the extent it is
at the time eligible for exercise in compliance with the dollar limitation
provisions of Section VI(b).
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<PAGE>
(ii) The right to surrender the Incentive Option may only be
transferred or assigned in connection with a transfer or assignment of the
Incentive Option in compliance with the limitations of Section V.2.
(iii) The Incentive Option may only be surrendered when there is a
positive spread between the fair market value of the shares subject to the
surrendered option and the aggregate option price payable for such shares.
(iv) The Incentive Option may not be surrendered at any time after
the expiration or sooner termination of the option term.
X. LOANS OR GUARANTEE OF LOANS
---------------------------
The Plan Administrator may assist any optionee (including any officer or
director) in the exercise of one or more options granted to such optionee under
the Plan by (a) authorizing the extension of a loan to such optionee from the
Company, (b) permitting the optionee to pay the option price for the purchased
Common Stock in installments over a period of years or (c) authorizing a
guarantee by the Company of a third party loan to the optionee. The terms of any
loan, installment method of payment or guarantee (including the interest rate
and terms of repayment) shall be established by the Plan Administrator in its
sole discretion. Loans, installment payments and guarantees may be granted
without security or collateral (other than to optionees who are consultants, in
which event the loan must be adequately secured by collateral other than the
purchased shares), but the maximum credit available to the optionee shall not
exceed the sum of (i) the aggregate option price payable for the purchased
---
shares plus (ii) any Federal and state income and employment tax liability
incurred by the optionee in connection with the exercise of the option.
XI. EXTENSION PERIODS
-----------------
The Plan Administrator shall have full power and authority exercisable in
its sole discretion to extend, either at the time the option is granted or at
the time during which the option remains outstanding, the period of time for
which the option is to remain exercisable following the optionee's cessation of
Service or death from the limited period in effect under Section V.3 or shorter
period set forth in the option agreement to such greater period of time as the
Plan Administrator shall deem appropriate; provided, however, that in no event
--------
shall such option be exercisable after the specified expiration date of the
option term.
XII. AMENDMENT OF THE PLAN
---------------------
The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects whatsoever; provided, however, that no
--------
such amendment or modification shall, without the consent of the holders,
adversely affect rights and obligations with respect to options at the time
outstanding under the Plan; and provided, further, that the Board shall not,
--------
without the approval of the shareholders of the Company (i) increase the
10
<PAGE>
maximum number of shares issuable under the Plan, except for permissible
adjustments under Section IV(c), (ii) materially modify the eligibility
requirements for the grant of options under the Plan or (iii) otherwise
materially increase the benefits accruing to participants under the Plan.
XIII. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
(a) The Plan was initially adopted by the Board on July 16, 1987 and was
ratified by the Company's shareholders in July 1987. On August 27, 1991, the
Board approved an amendment to the Plan to increase the number of shares
issuable under the Plan and such amendment was ratified by the Company's
shareholders on October 18, 1991. On May 19, 1994, the Board amended the Plan
to increase the number of shares issuable thereunder by 75,832,762 shares, and
the shareholders approved such amendment effective as of May 18, 1994. On June
28, 1994, the Board amended and restated the Plan (the "1994 Restatement") to
(i) increase the number of shares issuable thereunder by 4,450,000 shares and
(ii) implement certain provisions to bring the Plan into compliance with the
current requirements of the California Department of Corporations. The
4,450,000-share increase is subject to the approval of the shareholders and no
options granted on the basis of such 4,450,000-share increase shall become
exercisable in whole or in part unless and until such shareholder approval is
obtained.
(b) The provisions of the 1994 Restatement shall apply only to options
granted under the Plan from and after the date the 1994 Restatement was adopted
by the Board. Each option issued and outstanding under the Plan immediately
prior to such adoption of the 1994 Restatement shall continue to be governed by
the terms and conditions of the Plan (and the instrument evidencing such grant)
as in effect on the date each such option was previously granted, and nothing in
this 1994 Restatement shall be deemed to affect or otherwise modify the rights
or obligations of the holders of such prior options with respect to the
acquisition of shares of Common Stock thereunder.
(c) Unless sooner terminated in accordance with Section VII, the Plan
shall terminate upon the earlier of (i) July 15, 1997 or (ii) the date on which
all shares available for issuance under the Plan shall have been issued or
cancelled pursuant to the exercise or surrender of options granted hereunder.
If the date of termination is determined under clause (i) above, then options
and unvested share issuances outstanding on such date shall thereafter continue
to have force and effect in accordance with the provisions of the instruments
evidencing such options and share issuances.
(d) Options may be granted under this Plan to purchase shares of Common
Stock in excess of the number of shares then available for issuance under the
Plan, provided (i) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such option and within one (1) year thereafter such amendment is approved by
the shareholders of the Company and (ii) each option granted is not to become
exercisable, in whole or in part, at any time prior to the obtaining of such
shareholder approval.
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<PAGE>
XIV. USE OF PROCEEDS
---------------
Any cash proceeds received by the Company from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.
XV. REGULATORY APPROVALS
--------------------
The implementation of the Plan, the granting of any option hereunder, and
the issuance of stock upon the exercise or surrender of any such option shall be
subject to the procurement by the Company of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the options granted
under it and the stock issued pursuant to it.
XVI. NO EMPLOYMENT OR SERVICE RIGHTS
-------------------------------
Nothing in the Plan shall confer upon the optionee any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Company (or any parent or subsidiary
corporation) or of the optionee, which rights are hereby expressly reserved by
each, to terminate the optionee's Service at any time for any reason, with or
without cause.
XVII. WITHHOLDING
-----------
The Company's obligation to deliver shares upon the exercise of any
options granted under the Plan shall be subject to the satisfaction by the
optionee of all applicable Federal, state and local income and employment tax
withholding requirements.
XVIII. FINANCIAL REPORTS
-----------------
The Company shall deliver at least annually to each individual holding an
outstanding option under the Plan the same financial information furnished to
holders of the Common Stock, unless the optionee is a key employee whose duties
in connection with the Company assure such individual access to equivalent
information.
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<PAGE>
EXHIBIT 10.2
SYNERGY SEMICONDUCTOR CORPORATION
1996 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1996 Stock Option/Stock Issuance Plan is intended to promote the
interests of Synergy Semiconductor Corporation, a California corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three (3) separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares
or as a bonus for services rendered the Corporation (or any Parent or
Subsidiary), and
(iii) the Automatic Option Grant Program under which non-
employee Board members shall automatically receive option grants at
periodic intervals to purchase shares of Common Stock.
B. The Discretionary Option Grant and Stock Issuance Programs shall
become effective immediately upon the Plan Effective Date and the Automatic
Option Grant Program shall become effective upon the Underwriting Date.
C. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12(g) Registration Date, the Discretionary
Option Grant and Stock Issuance Programs shall be administered by the Board.
Beginning with the Section 12(g) Registration Date, the Primary Committee shall
have sole and exclusive authority to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to Section 16 Insiders. No non-employee
Board member shall be eligible to serve on the Primary Committee if such
individual has, during the twelve (12)-month period immediately preceding the
date of his or her appointment to such committee or (if shorter) the period
commencing with the Section 12(g) Registration Date and ending with the date of
his or her appointment to the Primary Committee, received an option grant or
direct stock issuance under the Plan or any other stock option, stock
appreciation, stock bonus or other stock plan of the Corporation (or any Parent
or Subsidiary), other than pursuant to the Automatic Option Grant Program.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock Issuance Programs and
to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any stock option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
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<PAGE>
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board (other than those
serving as members of the Primary Committee) or the board of directors of
any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be made,
the number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding and (ii) with respect to stock issuances under the
Stock Issuance Program, which eligible persons are to receive stock issuances,
the time or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. The individuals eligible to participate in the Automatic Option
Grant Program shall be limited to (i) those individuals serving as non-employee
Board members on the Underwriting Date, (ii) those individuals who first become
non-employee Board members after the Underwriting Date, whether through
appointment by the Board or election by the Corporation's stockholders, and
(iii) those individuals who continue to serve as non-employee Board members
after one or more Annual Stockholders Meetings held after the Underwriting Date.
A non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
initial option grant under the Automatic Option Grant Program on the
Underwriting Date or (if later) at the time he or she first
3
<PAGE>
becomes a non-employee Board member, but such individual shall be eligible to
receive periodic option grants under the Automatic Option Grant Program upon his
or her continued service as a non-employee Board member after one or more Annual
Stockholders Meetings.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 2,274,237 shares.
Such authorized share reserve is comprised of (i) the number of shares which
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to the outstanding options to be incorporated into the Plan
and any other shares which would have been available for future option grants
under the Predecessor Plan plus (ii) an additional increase of 500,000 shares
authorized by the Board, subject to stockholder approval.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year.
C. Shares of Common Stock subject to outstanding options (including
any options incorporated from the Predecessor Plan) shall be available for
subsequent issuance under the Plan to the extent (i) those options expire or
terminate for any reason prior to exercise in full or (ii) those options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
All shares issued under the Plan (including shares issued upon exercise of
options incorporated from the Predecessor Plan), whether or not those shares are
subsequently repurchased or cancelled by the Corporation pursuant to its
repurchase or cancellation rights under the Plan, shall reduce on a share-for-
share basis the number of shares of Common Stock available for subsequent
issuance under the Plan. In addition, should the exercise price of an option
under the Plan (including any option incorporated from the Predecessor Plan) be
paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or the
vesting of a stock issuance under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross number
of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance.
D. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock
4
<PAGE>
issuances per calendar year, (iii) the number and/or class of securities for
which automatic option grants are to be made subsequently per Eligible Director
under the Automatic Option Grant Program and (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option (including any option incorporated from the Predecessor Plan). Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the dilution or enlargement of benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Five and
the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to
(a) a Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale transaction.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
6
<PAGE>
B. Exercise and Term of Options. Each option shall be exercisable
----------------------------
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee
at the time of death may be exercised subsequently by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(v) In the event of an Involuntary Termination following a
Corporate Transaction, the provisions of Section III of this Article Two
shall govern the period for which the outstanding options are to remain
exercisable following the Optionee's cessation of Service and shall
supersede any provisions to the contrary in this section.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
7
<PAGE>
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
period otherwise in effect for that option to such greater period of time
as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested under the
option had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in whole or in part during the Optionee's lifetime in accordance
with the terms of a Qualified Domestic Relations Order. The assigned portion may
only be exercised by the person or persons who acquire a proprietary interest in
the option pursuant to such Qualified Domestic Relations Order. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
---
8
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A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Exercise Price. The exercise price per share for an Incentive
--------------
Option shall not be less than one hundred percent (100%) of the Fair Market
Value per share of Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares
-----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall NOT so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
9
<PAGE>
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the number and/or class of securities available for issuance under the
Plan following the consummation of such Corporate Transaction, (ii) the exercise
price payable per share under each outstanding option, provided the aggregate
--------
exercise price payable for such securities shall remain the same and (iii) the
maximum number of securities and/or class of securities for which any one person
may be granted stock options, separately exercisable stock appreciation rights
and direct stock issuances in the aggregate under the Plan.
E. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for fully-
vested shares until the earlier of (i) the expiration of the option term or
-------
(ii) the expiration of the one (1)-year period measured from the effective date
of the Involuntary Termination.
F. The Plan Administrator shall have the discretion, to grant
options with terms different from those described in this Section III in
connection with a Corporate Transaction.
G. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the Optionee's
Service within a specified period following the effective date of such Change in
Control. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
10
<PAGE>
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a Non-
Statutory Option under the Federal tax laws.
I. The grant of options under the Discretionary Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall be entitled may be made in
shares of Common Stock valued at Fair Market Value on the option surrender
date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
11
<PAGE>
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (a) five (5) business days after the receipt of the rejection
-----
notice or (b) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited stock
appreciation right in effect for at least six (6) months shall have the
unconditional right (exercisable for a thirty (30)-day period following
such Hostile Take-Over) to surrender each such option to the Corporation,
to the extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee shall
receive a cash distribution from the Corporation in an amount equal to the
excess of (a) the Take-Over Price of the shares of Common Stock which are
at the time vested under each surrendered option (or surrendered portion
thereof) over (b) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
option surrender date.
(iii) Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option
surrender and cash distribution.
(iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing such option.
12
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Five, shares of
Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or
the performance objectives to be attained,
(ii) the number of installments in which the shares are to
vest,
13
<PAGE>
(iii) the interval or intervals (if any) which are to lapse
between installments, and
(iv) the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have upon the vesting
schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect
to any shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one
or more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase-money indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender
and cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the
Participant's Service or the non-attainment of the performance objectives
applicable to those shares. Such waiver shall result in the immediate vesting of
the Participant's interest in the shares of Common Stock as to which the waiver
applies. Such waiver may be effected at any time, whether before or after the
Participant's cessation of Service or the attainment or non-attainment of the
applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
14
<PAGE>
A. All of the Corporation's outstanding cancellation rights under
the Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
cancellation rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
B. Any cancellation rights that are assigned in the Corporate
Transaction shall automatically terminate, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
the Participant's Service should subsequently terminate by reason of an
Involuntary Termination within eighteen (18) months following the effective date
of such Corporate Transaction.
C. The Plan Administrator shall have the discretion to provide for
cancellation rights with terms different from those in effect under this Section
II in connection with a Corporate Transaction.
D. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's cancellation rights remain outstanding, to (i) provide for the
automatic termination of one or more outstanding cancellation rights and the
immediate vesting of the shares of Common Stock subject to those rights upon the
occurrence of a Change in Control or (ii) condition any such accelerated vesting
upon the subsequent Involuntary Termination of the Participant's Service within
a specified period following the effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
15
<PAGE>
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
-----------
below:
1. Each individual who is serving as a non-employee Board member on
the Underwriting Date shall automatically be granted, on the Underwriting Date,
a Non-Statutory Option to purchase 15,000 shares of Common Stock, provided such
individual has not previously been in the employ of the Corporation (or any
Parent or Subsidiary).
2. Each individual who is first elected or appointed as a non-
employee Board member on or after the Underwriting Date shall automatically be
granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase 15,000 shares of Common Stock, provided such individual has
not previously been in the employ of the Corporation (or any Parent or
Subsidiary).
3. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, shall automatically be granted a Non-Statutory Option to purchase an
additional 5,000 shares of Common Stock, provided such individual has served as
a non-employee Board member for at least six (6) months. There shall be no limit
on the number of such 5,000-share option grants any one Eligible Director may
receive over his or her period of Board service.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be
-------------------------------
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the
16
<PAGE>
Optionee's cessation of Board service prior to vesting in those shares. Each
initial grant shall vest, and the Corporation's repurchase right shall lapse, in
a series of four (4) successive equal annual installments over the Optionee's
period of continued service as a Board member, with the first such installment
to vest upon the Optionee's completion of one (1) year of Board service measured
from the option grant date. Each annual grant shall vest, and the Corporation's
repurchase right shall lapse, upon the Optionee's completion of one (1) year of
Board service measured from the option grant date.
E. Effect of Termination of Board Service. The following provisions
--------------------------------------
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution) shall have a twelve
(12)-month period following the date of such cessation of Board service in
which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time of
the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Board service for any reason
other than death or Permanent Disability, terminate and cease to be
outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
17
<PAGE>
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as fully-
vested shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
automatic option held by him or her for a period of at least six (6) months. The
Optionee shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the shares of
Common Stock at the time subject to the surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator shall
be required in connection with such option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
18
<PAGE>
III. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM
The provisions of this Automatic Option Grant Program, together with
the option grants outstanding thereunder, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary to
comply with applicable Federal income tax laws and regulations.
IV. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
19
<PAGE>
ARTICLE FIVE
MISCELLANEOUS
-------------
I. FINANCING
A. The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price for shares issued under the Stock Issuance Program by
delivering a promissory note payable in one or more installments. The terms of
any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or upon the issuance or vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
20
<PAGE>
(ii) Stock Delivery: The election to deliver to the Corpora-
--------------
tion, at the time the Non-Statutory Option is exercised or the shares vest,
one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting
triggering the Taxes) with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective with respect to the Discretionary
Option Grant and Stock Issuance Programs on the Plan Effective Date. The
Automatic Option Grant Program shall become effective on the Underwriting Date.
Options may be granted under the Discretionary Option Grant Program at any time
on or after the Plan Effective Date and the initial options under the Automatic
Option Grant Program shall be made on the Underwriting Date to each Eligible
Director at that time. However, no options granted under the Plan may be
exercised, and no shares shall be issued under the Plan, until the Plan is
approved by the Corporation's stockholders. If such stockholder approval is not
obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants shall be made under the Predecessor Plan after the
Underwriting Date. All options outstanding under the Predecessor Plan as of such
date shall be incorporated into the Plan at that time and shall be treated as
outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i) May 20, 2006,
--------
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options or the issuance of
shares (whether vested or unvested) under the Plan or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Upon such
Plan termination, all outstanding options and unvested stock issuances shall
continue to have force and effect in accordance with the provisions of the
documents evidencing such options or issuances.
21
<PAGE>
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, (i) no such
amendment or modification shall adversely affect any rights and obligations with
respect to options, stock appreciation rights or unvested stock issuances at the
time outstanding under the Plan unless the Optionee or the Participant consents
to such amendment or modification, and (ii) any amendment made to the Automatic
Option Grant Program (or any options or stock issuances outstanding thereunder)
shall be in compliance with the limitations of that program. In addition, the
Board shall not, without the approval of the Corporation's stockholders, (i)
materially increase the maximum number of shares issuable under the Plan, the
number of shares for which options may be granted under the Automatic Option
Grant Program, or the maximum number of shares for which any one person may be
granted options, separately exercisable stock appreciation rights and direct
stock issuances per calendar year under the Plan, except for permissible
adjustments in the event of certain changes in the Corporation's capitalization,
(ii) materially modify the eligibility requirements for Plan participation or
(iii) materially increase the benefits accruing to Plan participants.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs are held in escrow until there is
obtained stockholder approval of an amendment sufficiently increasing the number
of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess grants or issuances are made, then (i) any unexercised
options granted on the basis of such excess shares shall terminate and cease to
be outstanding and (ii) the Corporation shall promptly refund to the Optionees
and the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or (ii)
under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
22
<PAGE>
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
23
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
------------------------------
program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
-----
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
-----------------
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders which the Board does not recommend such
stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
E. COMMON STOCK shall mean the Corporation's common stock.
------------
F. CORPORATE TRANSACTION shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction; or
A-1
<PAGE>
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. CORPORATION shall mean Synergy Semiconductor Corporation, a California
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Synergy Semiconductor Corporation which shall by
appropriate action adopt the Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
----------------------------------
grant program in effect under the Plan.
I. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
------------------------
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
-----------------
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall have
-------------
received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question,
A-2
<PAGE>
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the Underwriting
Date, the Fair Market Value shall be deemed to be equal to the price per
share at which the Common Stock is to be sold in the initial public
offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the Plan
Administrator, after taking into account such factors as it deems
appropriate.
N. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
-----------------
effected through the following transaction:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept, and
---
(ii) more than fifty percent (50%) of the securities so
acquired are accepted from persons other than Section 16 Insiders.
O. INCENTIVE OPTION shall mean an option which satisfies the requirements
----------------
of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service of
-----------------------
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.
A-3
<PAGE>
Q. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
--------
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under the
--------
Discretionary Option Grant or Automatic Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, 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.
V. PARTICIPANT shall mean any person who is issued shares of Common Stock
-----------
under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
--------------------------------------------
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for the purposes of the Automatic Option Grant Program,
Permanent Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board member
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
X. PLAN shall mean the Corporation's 1996 Stock Option/Stock Issuance
----
Plan, as set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
A-4
<PAGE>
Z. PLAN EFFECTIVE DATE shall mean May 21, 1996, the date on which the Plan
-------------------
was adopted by the Board.
AA. PREDECESSOR PLAN shall mean the Corporation's existing 1987 Stock
----------------
Option Plan.
BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-
-----------------
employee Board members appointed by the Board to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders.
CC. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
----------------------------------
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
DD. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
EE. SECTION 16 INSIDER shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. SECTION 12(G) REGISTRATION DATE shall mean the first date on which the
-------------------------------
Common Stock is first registered under Section 12(g) of the 1934 Act.
GG. SERVICE shall mean the performance of services to the Corporation (or
-------
any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
HH. STOCK EXCHANGE shall mean either the American Stock Exchange or the
--------------
New York Stock Exchange.
II. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
------------------------
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
JJ. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
----------------------
under the Plan.
KK. SUBSIDIARY shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, 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.
A-5
<PAGE>
LL. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
--------------- -------
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
MM. TAXES shall mean the Federal, state and local income and employment
-----
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
NN. 10% STOCKHOLDER shall mean the owner of stock (as determined under
---------------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
OO. UNDERWRITING AGREEMENT shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
PP. UNDERWRITING DATE shall mean the date on which the Underwriting
-----------------
Agreement is executed and priced in connection with the initial public offering
of the Common Stock.
A-6
<PAGE>
EXHIBIT 10.3
SYNERGY SEMICONDUCTOR CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Synergy Semiconductor Corporation by providing eligible employees with the
opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed Three Hundred
Thousand (300,000) shares.
B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
<PAGE>
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date. However, the initial offering period shall commence at the
Effective Time and terminate on the last business day in July 1998. The next
offering period shall commence on the first business day in August 1998, and
subsequent offering periods shall commence as designated by the Plan
Administrator.
C. Each offering period shall be comprised of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February each year to the last business day in July of the same
year and from the first business day in August each year to the last business
day in January of the following year. However, the first Purchase Interval in
effect under the initial offering period shall commence at the Effective Time
and terminate on the last business day in January 1997.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee at the Effective Time
may enter into the initial offering period at the Effective Time or on any
subsequent Semi-Annual Entry Date within the initial offering period, provided
he or she remains an Eligible Employee on such date. Each individual who first
becomes an Eligible Employee after the Effective Time may enter into the initial
offering period on any Semi-Annual Entry Date which occurs on or after his or
her completion of three (3) months of continuous service with the Corporation or
any Corporate Affiliate.
B. With respect to subsequent offering periods under the Plan, each
individual who is an Eligible Employee may enter into the offering period on the
start date of such offering period or on any subsequent Semi-Annual Entry Date
within such offering period, provided, in both cases, that such individual shall
have completed three (3) months of continuous service with the Corporation or
any Corporate Affiliate prior to such date.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock during an offering period may be any
multiple of one percent (1%) of the Base Salary paid to the Participant during
each Purchase Interval within that offering period, up to a maximum of twenty
percent (20%). The deduction rate so authorized shall
2
<PAGE>
continue in effect throughout the offering period, except to the extent such
rate is changed in accordance with the following guidelines:
(i) The Participant may, at any time during the offering period,
reduce his or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator.
The Participant may not, however, effect more than one (1) such reduction
per Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his or
her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the twenty percent (20%)
maximum) shall become effective as of the start date of the first Purchase
Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
-----------------------
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning
3
<PAGE>
of Code Section 424(d)) or hold outstanding options or other rights to purchase,
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
------------------------------
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded pursuant to the Termination of Purchase Right
provisions below) on each such Purchase Date. The purchase shall be effected by
applying the Participant's payroll deductions for the Purchase Interval ending
on such Purchase Date to the purchase of whole shares of Common Stock at the
purchase price in effect for the Participant for that Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which Common
--------------
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall not be less than eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock on the
- -----
Participant's Entry Date into that offering period or (ii) the Fair Market Value
per share of Common Stock on that Purchase Date. However, for each Participant
whose Entry Date is other than the start date of the offering period, the clause
(i) amount shall in no event be less than the Fair Market Value per share of
Common Stock on the start date of that offering period.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
----------------------------
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed One Thousand (1,000) shares, subject to periodic adjustments in the event
of certain changes in the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
-------------------------
the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan Administrator
(or its
4
<PAGE>
designate), and no further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right. Any payroll
deductions collected during the Purchase Interval in which such termination
occurs shall, at the Participant's election, be immediately refunded or
held for the purchase of shares on the next Purchase Date. If no such
election is made at the time such purchase right is terminated, then the
payroll deductions collected with respect to the terminated right shall be
refunded as soon as possible.
(ii) The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the offering period for
which the terminated purchase right was granted. In order to resume
participation in any subsequent offering period, such individual must re-
enroll in the Plan (by making a timely filing of the prescribed enrollment
forms) on or before his or her scheduled Entry Date into that offering
period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status)
while his or her purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Interval in which the purchase right so
terminates shall be immediately refunded. However, should the Participant
cease to remain in active service by reason of an approved unpaid leave of
absence, then the Participant shall have the right, exercisable up until
the last business day of the Purchase Interval in which such leave
commences, to (a) withdraw all the payroll deductions collected to date on
his or her behalf for that Purchase Interval or (b) have such funds held
for the purchase of shares on his or her behalf on the next scheduled
Purchase Date. In no event, however, shall any further payroll deductions
be collected on the Participant's behalf during such leave. Upon the
Participant's return to active service, his or her payroll deductions under
the Plan shall automatically resume at the rate in effect at the time the
leave began, unless the Participant withdraws from the Plan prior to his or
her return.
G. CORPORATE TRANSACTION. Each outstanding purchase right shall
---------------------
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Interval in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share not less
than eighty-five percent (85%) of the lower of (i) the Fair Market Value per
-----
share of Common Stock on the Participant's Entry Date into the offering period
in which such Corporate Transaction occurs or (ii) the Fair Market Value per
share of Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable limitation on the number of shares of
Common Stock purchasable per Participant shall continue to apply to any such
purchase, and the clause (i) amount above shall not, for any Participant whose
Entry Date for the offering period is other than the start date of that offering
period, be less than the Fair Market Value per share of Common Stock on that
start date.
5
<PAGE>
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares
----------------------------
of Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by
-------------
the Participant and shall not be assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each successive
Purchase Date during the offering period on which such right remains
outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one (1) or more other purchase rights at a rate equal to Twenty-Five
Thousand Dollars
6
<PAGE>
($25,000) worth of Common Stock (determined on the basis of the Fair Market
Value per share on the date or dates of grant) for each calendar year such
rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on May 21, 1996 and shall
become effective at the Effective Time, provided no purchase rights granted
--------
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in July 2006, (ii) the date on
--------
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction.
No further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Board may not, without the approval of the Corporation's
stockholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula
7
<PAGE>
so as to reduce the purchase price payable for the shares of Common Stock
purchasable under the Plan or (iii) materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility to participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
8
<PAGE>
SCHEDULE A
----------
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
------------------------
Synergy Semiconductor Corporation
9
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the regular base salary paid to a
-----------
Participant by one or more Participating Corporations during such individual's
period of participation in one or more offering periods under the Plan, plus any
pre-tax contributions made by the Participant to any Code Section 401(k) salary
deferral plan or any Code Section 125 cafeteria benefit program now or hereafter
established by the Corporation or any Corporate Affiliate. The following items
of compensation shall NOT be included in Base Salary: (i) all overtime
payments, bonuses, commissions (other than those functioning as base salary
equivalents), profit-sharing distributions and other incentive-type payments and
(ii) any and all contributions (other than Code Section 401(k) or Code Section
125 contributions) made on the Participant's behalf by the Corporation or any
Corporate Affiliate under any employee benefit or welfare plan now or hereafter
established.
B. BOARD shall mean the Corporation's Board of Directors.
-----
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
D. COMMON STOCK shall mean the Corporation's common stock.
------------
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean Synergy Semiconductor Corporation, a
-----------
California corporation, and any corporate successor to all or substantially all
of the assets or voting stock of Synergy Semiconductor Corporation which shall
by appropriate action adopt the Plan.
A-1
<PAGE>
H. EFFECTIVE TIME shall mean the time at which the Underwriting
--------------
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
-----------------
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first
----------
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is sold in the initial public
offering pursuant to the Underwriting Agreement.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
--------
M. PARTICIPANT shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
A-2
<PAGE>
N. PARTICIPATING CORPORATION shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
O. PLAN shall mean the Corporation's Employee Stock Purchase Plan, as
----
set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each Purchase
-------------
Interval. The initial Purchase Date shall be January 31, 1997.
R. PURCHASE INTERVAL shall mean each successive six (6)-month period
-----------------
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
----------------------
February and August each year on which an Eligible Employee who has completed
the applicable minimum service requirement with the Corporation may first enter
an offering period.
T. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3
<PAGE>
EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
THIS AGREEMENT, made and entered into this ____ day of ___________, 1996
between Synergy Semiconductor Corporation, a California corporation (the
"Corporation"), and FIELD(1) ("Indemnitee"),
RECITALS:
A. Indemnitee, an officer or director of the Corporation, performs a
valuable service in such capacity for the Corporation; and
B. The Amended and Restated Articles of Incorporation and
Bylaws of the Corporation authorize and permit contracts between the Corporation
and its executive officers and directors with respect to indemnification of such
officers and directors; and
C. In accordance with the authorization as provided by the California
General Corporation Law, as amended ("Code"), the Corporation may purchase and
maintain a policy or policies of Directors and Officers Liability Insurance ("D
& O Insurance"), covering certain liabilities which may be incurred by its
directors and officers in their performance as directors or officers of the
Corporation; and
D. As a result of developments affecting the terms, scope and availability
of D & O Insurance there exists general uncertainty as to the extent of
protection afforded members of the Board of Directors and officers by such D & O
Insurance and by statutory and bylaw indemnification provisions; and
E. In order to induce Indemnitee to continue to serve as an executive
officer of the Corporation, the Corporation has determined and agreed to enter
into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as an
executive officer after the date hereof, the parties hereto agree as follows:
1. INDEMNITY OF INDEMNITEE. The Corporation hereby agrees to hold
harmless and indemnify Indemnitee to the fullest extent authorized by the
provisions of the Code, as it may be amended from time to time.
2. ADDITIONAL INDEMNITY. Subject only to the limitations set forth in
Section 3 hereof, the Corporation hereby further agrees to hold harmless and
indemnify Indemnitee:
<PAGE>
(a) against any and all expenses (including attorneys' fees), witness fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by Indemnitee in connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the Corporation) to which Indemnitee
is, was or at any time becomes a party, or is threatened to be made a party, by
reason of the fact that Indemnitee is, was or at any time becomes a director,
officer, employee or agent of the Corporation, or is or was serving or at any
time serves at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Indemnitee by the
Corporation under the non-exclusivity provision of the Amended and Restated
Articles of Incorporation and Bylaws of the Corporation and the Code.
3. LIMITATIONS ON ADDITIONAL INDEMNITY.
(a) No indemnity pursuant to Section 2 hereof shall be paid by the
Corporation for any of the following:
i) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of such losses for which the Indemnitee
is indemnified pursuant to Section 1 hereof or pursuant to any D & O Insurance
purchased and maintained by the Corporation;
ii) in respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
iii) on account of any suit in which judgment is rendered against
Indemnitee for an accounting of profits made from the purchase or sale by
Indemnitee of securities of the Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
iv) on account of Indemnitee's acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law;
v) on account of any action, claim or proceeding (other than a
proceeding referred to in Section 8(b) hereof) initiated by the Indemnitee
unless such action, claim or proceeding was authorized in the specific case by
action of the Board of Directors;
<PAGE>
(vi) on account of Indemnitee's conduct which is the subject of
an action, suit or proceeding described in Section 7(c)(ii) hereof; or
(vii) if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful (and, in this
respect, both the Corporation and Indemnitee have been advised that the
Securities and Exchange Commission believes 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).
(b) In addition to those limitations set forth above in paragraph (a)
of this Section 3, no indemnity pursuant to Section 2 hereof in an action by or
in the right of the Corporation shall be paid by the Corporation for any of the
following:
i) on account of acts or omissions that Indemnitee believes to
be contrary to the best interests of the Corporation or its shareholders or that
involve the absence of good faith on the part of Indemnitee;
ii) with respect to any transaction from which Indemnitee
derived an improper personal benefit;
iii) on account of acts or omissions that show a reckless
disregard for Indemnitee's duty to the Corporation or its shareholders in
circumstances in which Indemnitee was aware, or should have been aware, in the
ordinary course of performing an officer's duties, of a risk of serious injury
to the Corporation or its shareholders;
iv) on account of acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of Indemnitee's duty to the
Corporation or its shareholders;
v) to the extent prohibited by Section 310 of the California
Corporations Code, "Contracts In Which Director Has Material Financial
Interest;"
vi) to the extent prohibited by Section 316 of the California
Corporations Code, "Corporate Actions Subjecting Directors To Joint And Several
Liability" (for prohibited distributions, loans and guarantees);
vii) in respect of any claim, issue or matter as to which
Indemnitee shall have been adjudged to be liable to the Corporation in the
performance of Indemnitee's duty to the Corporation and its shareholders, unless
and only to the extent that the court in which such proceeding is or was pending
shall determine upon application that, in view of all
<PAGE>
the circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for expenses and then only to the extent that the court shall
determine;
viii) of amounts paid in settling or otherwise disposing of a
pending action without court approval; or
ix) of expenses incurred in defending a pending action
which is settled or otherwise disposed of without court approval.
4. CONTRIBUTION. If the indemnification provided in Sections 1 and 2
------------
hereof is unavailable by reason of a Court decision described in subsection
3(a)(vii) hereof based on grounds other than any of those set forth in
subsections 3(a)(ii) through (vi) hereof or in subsections 3(b)(i) through (vi)
hereof, then in respect of any threatened, pending or completed action, suit or
proceeding in which the Corporation is jointly liable with Indemnitee (or would
be if joined in such action, suit or proceeding), the Corporation 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 Indemnitee in such proportion as is appropriate to reflect (i) the
relative benefits received by the Corporation on the one hand and Indemnitee on
the other hand from the transaction from which such action, suit or proceeding
arose, and (ii) the relative fault of the Corporation on the one hand and of
Indemnitee on the other 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 Corporation on the one hand
and of Indemnitee on the other 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 Corporation agrees that it would
not be just and equitable if contribution pursuant to this Section 4 were
determined by pro rata allocation or any other method of allocation which does
not take account of the foregoing equitable considerations.
5. CONTINUATION OF OBLIGATIONS. All agreements and obligations of the
---------------------------
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or agent of the Corporation (or is or was serving at
the request of the Corporation as a director, officer employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise) and shall continue thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative, by reason of the fact
that Indemnitee was a director of the Corporation or serving in any other
capacity referred to herein.
6. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
---------------------------------
after receipt by Indemnitee of notice of the commencement of any action, suit or
proceeding,
<PAGE>
Indemnitee will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, the Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee. After notice from the Corporation to Indemnitee of
its election so as to assume the defense thereof, the Corporation will not be
liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof other
than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ its counsel in such action, suit or
proceeding but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof shall be at the expense
of Indemnitee unless (i) the employment of counsel by Indemnitee has been
authorized by the Corporation, (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Corporation and Indemnitee
in the conduct of the defense of such action or (iii) the Corporation shall not
in fact have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of Indemnitee's separate counsel shall be at
the expense of the Corporation. The Corporation shall not be entitled to assume
the defense of any action, suit or proceeding brought by or on behalf of the
Corporation or as to which Indemnitee shall have made the conclusion provided
for in (ii) above; and
(c) The Corporation shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Corporation shall be permitted to
settle any action except that it shall not settle any action or claim in any
manner which would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. Neither the Corporation nor Indemnitee will
unreasonably withhold its consent to any proposed settlement.
7. ADVANCEMENT AND REPAYMENT OF EXPENSES.
-------------------------------------
(a) In the event that Indemnitee employs his own counsel pursuant to
Section 6(b)(i) through (iii) above, the Corporation shall advance to
Indemnitee, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding
<PAGE>
within ten (10) days after receiving copies of invoices presented to Indemnitee
for such expenses; and
(b) Indemnitee agrees that Indemnitee will reimburse the Corporation
for all reasonable expenses paid by the Corporation in defending any civil or
criminal action, suit or proceeding against Indemnitee in the event and only to
the extent it shall be ultimately determined by a final judicial decision (from
which there is no right of appeal) that Indemnitee is not entitled, under
applicable law, the Bylaws, this Agreement or otherwise, to be indemnified by
the Corporation for such expenses.
(c) Notwithstanding the foregoing, the Corporation shall not be
required to advance such expenses to Indemnitee if Indemnitee (i) commences any
action, suit or proceeding as a plaintiff unless such advance is specifically
approved by a majority of the Board of Directors or (ii) is a party to an
action, suit or proceeding brought by the Corporation and approved by a majority
of the Board which alleges willful misappropriation of corporate assets by
Indemnitee, disclosure of confidential information in violation of Indemnitee's
fiduciary or contractual obligations to the Corporation, or any other willful
and deliberate breach in bad faith of Indemnitee's duty to the Corporation or
its shareholders.
8. ENFORCEMENT.
-----------
(a) The Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on the Corporation
hereby in order to induce Indemnitee to continue as an executive officer of the
Corporation, and acknowledges that Indemnitee is relying upon this Agreement in
continuing in such capacity.
(b) In the event Indemnitee is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, the Corporation shall reimburse Indemnitee for all of Indemnitee's
reasonable fees and expenses in bringing and pursuing such action.
9. SUBROGATION. In the event of payment under this agreement, the
------------
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
10. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee by this
--------------------------
Agreement shall not be exclusive of any other right which Indemnitee may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or By-laws, agreement, vote of shareholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
<PAGE>
11. SURVIVAL OF RIGHTS. The rights conferred on Indemnitee by this
-------------------
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of the Corporation and shall inure to the benefit of
Indemnitee's heirs, executors and administrators.
12. SEPARABILITY. Each of the provisions of this Agreement is a separate
------------
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
13. GOVERNING LAW. This Agreement shall be interpreted and
-------------
enforced in accordance with the laws of the State of California.
14. BINDING EFFECT. This Agreement shall be binding upon Indemnitee and
--------------
upon the Corporation, its successors and assigns, and shall inure to the benefit
of Indemnitee, his heirs, personal representatives and assigns and to the
benefit of the Corporation, its successors and assigns.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
SYNERGY SEMICONDUCTOR CORPORATION
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
----------------------------------------------
INDEMNITEE
By:
------------------------------------------------
FIELD(1)
<PAGE>
EXHIBIT 10.5
[LOGO]
FIRST AMENDMENT TO LEASE
This Amendment is made this 25th day of August, 1989 by and between Sobrato
Interests, a California limited partnership having an address at 10600 N. De
Anza Blvd., Suite 200, Cupertino, California 95014 ("Landlord") and Synergy
Semiconductor, Incorporated, a California corporation having its principal place
of business at 3450 Central Expressway, Santa Clara, California ("Tenant").
WITNESSETH
WHEREAS Landlord and Tenant entered into a lease ("Lease") dated July 28, 1989
for the premises ("Premises") located at 3450 Central Expressway, Santa Clara,
California; and
WHEREAS effective August 5, 1989, Landlord and Tenant wish to modify the Lease
to reflect the revised term commencement and termination dates determined by the
surrender of the Premises by Zoran;
NOW, THEREFORE, in order to effect the intent of the parties as set forth above
and for good and valuable consideration exchanged between the parties, the Lease
is amended effective August 5, 1989 as follows:
1. The term commencement date is August 5, 1989 and the ending date is
August 4, 1996.
2. All other dates effected by this change will be adjusted accordingly.
3. Except as hereby amended, the Lease and all of the terms, covenants and
conditions thereof are ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have set their hands to this Amendment as
of the day and date first above written.
LANDLORD TENANT
Sobrato Interests Synergy Semiconductor, Inc.
a California limited partnership a California corporation
/s/ John M. Sobrato /s/ Gary Fischer
BY:_______________________________ BY:_____________________________
John M. Sobrato, Trustee
CFO
ITS: General Partner ITS:____________________________
<PAGE>
[SYNERGY SEMICONDUCTOR LETTERHEAD]
FIRST LETTER AMENDMENT
TO ORIGINAL LEASE DATED JULY 29, 1989
MARCH 10, 1992
Effective with the March 1992 rent payment Sobrato Interests agrees to a rent
deferral of $4,536 per month (equivalent to $0.10 per foot). This deferral shall
apply to each month for the remainder of the lease term.
If Synergy defaults or violates any other term of the lease this deferral will
be cancelled and all amounts deferred shall be subject to immediate payment on
the written notice and demand by Sobrato Interests.
SYNERGY SEMICONDUCTOR SOBRATO INTERESTS
/s/ Gary L. Fischer /s/ John M. Sobrato
- -------------------------------- ---------------------------------------
Gary L. Fischer John M. Sobrato
Chief Financial Officer General Partner
<PAGE>
THIRD AMENDMENT TO LEASE
This third amendment to lease ("Third Amendment") is made this 18th day of
January, 1996 by and between Sobrato Interests, a California limited partnership
having an address at 10600 N. De Anza Blvd., Suite 200, Cupertino, California
95014 ("Landlord") and Synergy Semiconductor, Inc., a California corporation
having its principal place of business at 3450 Central Expressway, Santa Clara,
California ("Tenant").
WITNESSETH
WHEREAS Landlord and Tenant entered into a lease dated July 28, 1989, an
amendment to the lease dated August 1989 and a second amendment to the lease
dated March 10, 1992 (collectively the "Lease") for the premises ("Premises")
located at 3450 Central Expressway, Santa Clara, California; and
WHEREAS effective January, Landlord and Tenant wish to modify the Lease to (i)
reflect a change in the Lease expiration date, and (ii) specify the base monthly
rent for the period from August 1, 1996 through December 31, 1996;
NOW THEREFORE, in order to effect the intent of the parties as set forth above
and for good and valuable consideration exchanged between the parties, the Lease
is amended effective January 5, 1996 as follows:
1. The expiration date of the Lease is changed from August 4, 1996 to Feb. 28,
1997.
2. Base monthly rent for the period from August 1, 1996 to December 31, 1996 is
Forty Five Thousand Three Hundred Sixty and No/100 Dollars ($45,360.00) per
month.
3. Lease paragraph 37 is deleted.
4. All defined terms shall have the same meanings as in the Lease, except as
otherwise stated in this Amendment.
<PAGE>
5. Except as hereby amended, the Lease and all of the terms, covenants and
conditions thereof shall remain unmodified and in full force and effect. In the
event of any conflict or inconsistency between the terms and provisions of this
Amendment and the terms and provisions of the Lease, the terms and provisions of
this Amendment shall prevail.
IN WITNESS WHEREOF, the parties hereto have set their hands to this Amendment as
of the day and date first above written.
LANDLORD TENANT
Sobrato Interests, Synergy Semiconductor Inc.,
a California limited partnership a California corporation
By: /s/ John M. Sobrato By: /s/ T. Olin Nichols
------------------------------------ --------------------------------
Its: General Partner Its: CFO
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1. PARTIES: THIS LEASE, is entered into on this 28th day of July, 1989, between
SOBRATO INTERESTS, a California Limited Partnership, and SYNERGY SEMICONDUCTOR,
INC., a California Corporation, hereinafter called respectively Landlord and
Tenant.
2. PREMISES: Landlord hereby leases to Tenant, and Tenant hires from Landlord
those certain Premises with the appurtenances, situated in the City of Santa
Clara, County of Santa Clara, State of California, and more particularly
described as follows, to-wit:
That certain real property commonly known and designated as 3450 Central
Expressway consisting of 45,360 square feet as outlined in red on Exhibit "A"
3. USE: Tenant shall use the Premises only for the following purposes and shall
not change the use of the Premises without the prior written consent of
Landlord, which consent shall not to be unreasonably withheld or delayed:
Office, research, development, testing, semiconductor manufacturing, ancillary
warehouse, and related legal uses.
4. TERM AND RENTAL: The term shall be for eighty four (84) months, commencing
one day following the surrender of the Premises by Zoran, and ending on the
thirty first day of July, 1996, at the total rent or sum of Four Million Seven
Hundred Fifty One Thousand Nine Hundred Thirteen and 60/100 Dollars
($4,751,913.60), payable, without deduction or offset, in monthly installments
of:
<TABLE>
<S> <C> <C>
8/1/89-7/31/90 $40,824.00 per month $ 489,888.00
8/1/90-7/31/91 $52,164.00 per month $ 625,968.00
8/1/91-7/31/92 $54,885.60 per month $ 658,627.20
8/1/92-7/31/93 $57,607.20 per month $ 691,286.40
8/1/93-7/31/94 $60,328.80 per month $ 723,945.60
8/1/94-7/31/95 $63,504.00 per month $ 762,048.00
8/1/95-7/31/96 $66,679.20 per month $ 800,150.40
-------------
$4,751,913.60
</TABLE>
due on or before the first day of each calendar month during the term hereof.
Said rental shall be paid in lawful money of the United States of America,
without offset or deduction, and shall be paid to Landlord at such place or
places as may be designated from time to time by Landlord. Rent for any period
less than a calendar month shall be a pro rata portion of the monthly
installment.
5. SECURITY DEPOSIT: Concurrently with Tenant's execution of this Lease,
Tenant has deposited with Landlord the sum of Forty Thousand Eight Hundred
Twenty Four and No/100 Dollars ($40,824.00) as a security deposit. If Tenant
defaults with respect to any provisions of this lease, including but not limited
to the provisions relating to payment of rent or other charges, Landlord may, to
the extent reasonably necessary to remedy Tenant's default, use all or any part
of said deposit for the payment of rent or other charges in default or the
payment of any other payment of any other amount which Landlord may spend or
become obligated to spend by reason of Tenant's default or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's default. If any portion of said deposit is so used or applied, Tenant
shall, within ten (10) days after written demand therefor, deposit cash with
Landlord in an amount sufficient to restore said deposit to the full amount
hereinabove stated and shall pay to Landlord such other sums as shall be
necessary to reimburse Landlord for any sums paid by Landlord. Said deposit
shall be returned to Tenant within thirty (30) days after the expiration of the
term hereof less any amount deducted in accordance with this paragraph, together
with Landlord's written notice itemizing the amounts and purposes for such
retention. In the event of termination of Landlord's interest in this Lease,
Landlord shall transfer said deposit to Landlord's successor in interest.
6. LATE CHARGES: Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent and other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs
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include, but are not limited to, administrative, processing, accounting charges,
and late charges, which may be imposed on Landlord by the terms of any contract,
revolving credit, mortgage or trust deed covering the Premises. Accordingly, if
any installment of rent or any other sum due from Tenant shall not be received
by Landlord or Landlord's designee within ten (10) days after such amount shall
be due, Tenant shall pay to Landlord a late charge equal to five (5%) percent
of such overdue amount which shall be due and payable with the payment then
delinquent. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord 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 rent, then rent shall
automatically become due and payable quarterly in advance, rather than monthly,
notwithstanding any provision of this Lease to the contrary.
IT IS FURTHER MUTUALLY AGREED BETWEEN THE PARTIES AS FOLLOWS:
7. POSSESSION: If Landlord, for any reason whatsoever, cannot
deliver possession of the said Premises to Tenant at the commencement of the
said term, as hereinbefore specified, this Lease shall not be void or voidable,
nor shall Landlord be reliable to Tenant for any loss or damage resulting
therefrom; but in the event the commencement and termination dates of the Lease
and all other dates affected thereby shall be revised to conform to the date of
Landlord's delivery of possession provided, however, that if Landlord is unable
to deliver the Premises to Tenant by November 1, 1989, Tenant shall have the
option to terminate this Lease by giving written notice of its election to
terminate to Landlord by November 10, 1989. In the event Tenant elects to
terminate as provided herein, the lease and sublease terminated in that certain
agreement dated 7/28/89 between Landlord, Tenant and Zoran shall be reinstated.
Landlord agrees to provide Tenant the sum of Fifty Thousand and No/100 Dollars
towards the cost of repainting, recarpeting or any other refurbishing desired by
Tenant of the Premises. Landlord additionally agrees to complete, at its sole
cost and expense, any Seismic or Title 24 improvements required to met mandatory
building codes not related to Tenant's specific use of the Premises.
8. ACCEPTANCE OF PREMISES AND COVENANTS TO SURRENDER: Landlord shall pay for a
structural engineer to inspect the Building, which such inspection shall be
completed within three (3) months of execution of this Lease. In the event the
structural engineer uncovers any structural problems with the Building, Landlord
shall pay to correct the same, including, but not limited to, sealing and
painting the roof skirt if necessary. By entry hereunder, Tenant accepts the
Premises as being in good and sanitary order, condition and repair and accepts
the Building and the other improvements in their present condition subject to
latent defects, defects covered by insurance and any repairs necessitated by the
structural inspection to be performed by Landlord. The Tenant agrees on the last
day of the term hereof, or on the sooner termination of this Lease, to surrender
the Premises to Landlord in good condition and repair, reasonable wear and tear
excepted. "Good condition" shall mean that the interior walls of all office and
warehouse areas, the floors of all office and warehouse areas, all suspended
ceilings and any carpeting will be cleaned to the same condition as existed at
the commencement of the Lease, normal wear and tear excepted. Landlord shall
notify Tenant contemporaneously with Landlord's consent if Landlord's consent is
required prior to installation of said alteration or prior to installation if
Landlord's consent is not required as to whether or not Landlord will require
Tenant to remove said alterations at the termination of the Lease. On or before
the end of the term or sooner termination of this Lease, Tenant shall remove all
its personal property and trade fixtures from the Premises, and all property not
so removed shall be deemed to be abandoned by Tenant. If the Premises are not
surrendered at the end of the term or sooner termination of this Lease, Tenant
shall indemnify Landlord against loss or liability resulting from delay by
Tenant in so surrendering the Premises including, without limitation, any claims
made by any succeeding tenant founded on such delay.
9. USES PROHIBITED: Tenant shall not commit, or suffer to be committed, any
waste upon the said Premises, or any nuisance, or other act or thing which may
unreasonably disturb the quiet enjoyment of any other tenant in or around the
Buildings in which the Premises may be located or allow any sale by auction upon
the Premises, or allow the Premises to be used for any unlawful or objectionable
purpose, or place any loads upon the floor, walls, or ceiling which endanger the
structure, or use any machinery or apparatus which will in any manner vibrate or
shake the Premises or the Building of which it is a part, or place any harmful
liquids, waste materials, or hazardous materials in the drainage system of, or
upon or in the soils surrounding the Building. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature or any waste materials, refuse, scrap or debris shall be
stored
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upon or permitted to remain on any portion of the Premises outside of the
Building proper or the enclosed pad area without Landlord's prior approval,
which may be withheld in its sole discretion.
10. ALTERATIONS AND ADDITIONS: Tenant shall not make, or suffer to be made, any
alteration or addition to the said Premises, or any part thereof, without the
written reasonable consent of Landlord first had and obtained based upon
Tenant's delivering to Landlord the proposed architectural and structural plans
for all such alterations which such consent shall be given to Tenant within five
(5) business days after Tenant delivers said plans to Landlord; any addition or
alteration to the said Premises, except movable furniture and trade fixtures,
shall, subject to Paragraph 8 herein, become at once a part of the realty and
belong to Landlord. Tenant shall have the right to make non-structural
alterations not to exceed Ten Thousand Dollars ($10,000) per occurrence, without
the prior written consent of Landlord. Alterations and additions which are not
to be deemed as trade fixtures shall include heating, lighting, electrical
systems, air conditioning, partitioning, carpeting, or any other installation
which has become an integral part of the Premises. After having obtained
Landlord's consent, Tenant agrees that it will not proceed to make such
alterations or additions until three (3) days from the receipt of such consent,
in order that Landlord may post appropriate notices to avoid any liability to
contractors or material suppliers for payment for Tenant's improvements. Tenant
will at all times permit such notices to be posted and to remain posted until
the completion of work. Tenant acknowledges Landlord's right to and hereby
consents to construction of additional building(s) on the land where the
Premises are located or on adjacent land owned by Landlord.
11. MAINTENANCE OF PREMISES: Tenant shall, at its sole cost, keep and maintain,
repair and replace, said Premises and appurtenances and every part hereof,
including but not limited to, glazing, sidewalks, parking areas, plumbing,
electrical and HVAC systems, and all the Tenant Interior Improvements in good
and sanitary order, condition, and repair. Tenant shall provide Landlord with a
copy of a service contract between Tenant and a licensed air-conditioning and
heating contractor which contract shall provide for bi-monthly maintenance of
all air conditioning and heating equipment at the Premises, or the name of a
qualified mechanic who is an employee of Tenant. Tenant shall pay the cost of
all air-conditioning and heating equipment repairs or replacements which are
either excluded from such service contract or any existing equipment warranties.
Tenant shall be responsible for the preventive maintenance of the membrane of
the roof, which responsibility shall be deemed properly discharged if (i) Tenant
contracts with a licensed roof contractor who is reasonably satisfactory to both
Tenant and Landlord, at Tenant's sole cost, to inspect the roof membrane at
least every six months, with the first inspection due the sixth (6th) month
after the Commencement Date, and (ii) Tenant performs, at Tenant's sole cost,
all preventive maintenance recommendations made by such contractor within a
reasonable time after such recommendations are made. Such preventive maintenance
might include acts such as clearing storm gutters and drains, removing debris
from the roof membrane, trimming trees overhanging the roof membrane, applying
coating materials to seal roof penetrations, repairing blisters, and other
routine measures. Tenant shall provide to Landlord a copy of such preventive
maintenance contract and paid invoices for the recommended work. All vinyl wall
surfaces and floor tile are to be maintained in an as good a condition as when
Tenant took possession free of holes, gouges, or defacements, except for
ordinary wear and tear. Landlord shall have the obligation at Landlord's sole
cost and expense to maintain the structural portions of the Building including,
but not limited to, the bearing walls, roof and foundation.
11.(a) Landlord's and Tenant's Obligations Regarding Site Common Area
Costs: Tenant agrees to reimburse Landlord for the expenses resulting from
Landlord's payment of Site Common Area Costs as defined below incurred by
Landlord because the cost is not directly allocable to or payable by a
single tenant in the Project. Tenant agrees to pay Tenant's Allocable Share
as defined below of the Site Common Area Costs, as additional rental,
within thirty (30) days of written invoice from Landlord.
For purposes of calculating Tenant's Allocable Share of Site Common Area
Costs, the term "Site Common Area Costs" shall mean all reasonable and
necessary costs and expenses related to the Central Technology Park
development ("Project") which are incurred in connection with ownership and
operation of the Project in which the Premises are located, not directly
allocable to or payable by a single tenant in the Project, including but
not limited to, the following:
(a) Common area utilities for the Project site, including water and power;
and
(b) All common area maintenance and service agreements for the Project site
including, without limitation, common area landscape maintenance services,
alarm and security
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services, maintenance of the sidewalks, waterscape, parking areas,
driveways, and service areas;
For purposes of prorating Site Common Area Costs which Tenant shall pay,
Tenant's Allocable Share of Site Common Area Costs shall be computed on a
shared service by service basis, by multiplying the total Site Common Area
Costs for services shared by the Building and one or more buildings in the
Project by a fraction, the numerator of which is the rentable square
footage of the Premises and the denominator of which is the total rentable
square footage of the Buildings in the Project which shares the services.
It is understood and agreed that Tenant's obligation to share in Site
Common Area Costs shall be adjusted to reflect the commencement and
termination dates of the Lease Term and are subject to recalculation in the
event of expansion of the Building or Project.
12. HAZARD INSURANCE: Tenant shall not use, or permit said Premises, or any part
thereof, to be used, for any purpose other than that for which the said Premises
are hereby leased; and no use shall be made or permitted to be made of the said
Premises, nor acts done, which will cause an increase in premiums (unless Tenant
agrees to pay for such increase) or a cancellation of any insurance policy
covering said Building, or any part thereof, nor shall Tenant sell or permit to
be kept, used or sold, in or about said Premises, any article which may be
prohibited by the standard form of fire insurance policies. Tenant shall, at its
sole cost and expense, comply with any and all requirements, pertaining to said
Premises, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance, covering said
Building and appurtenances. The Landlord agrees to purchase and keep in force
fire, earthquake (provided (i) the charge to the Tenant for the earthquake
coverage is no greater than the charge to the Tenant for the extended coverage
insurance without the earthquake coverage, and (ii) the earthquake coverage is
required by the lender on the Premises), and extended coverage insurance
covering the Premises in an amount equal to the full replacement value of said
Premises as determined by Landlord's insurance company's appraisers. The Tenant
agrees to pay to the Landlord as additional rent, on demand, the full cost of
said insurance as evidenced by insurance billings to the Landlord. Payment shall
be due to Landlord within thirty (30) days after written invoice to Tenant.
In addition, Tenant agrees to insure its personal property, additions,
alterations, and improvements for their full replacement value (without
depreciation) and to obtain worker's compensation and public liability and
property damage insurance for occurrences within the Premises of $5,000,000.00
combined single limited for bodily injury and property damage. Tenant shall name
Landlord as an additional insured, shall deliver a copy of the policies and
renewal certificates to Landlord. All such policies shall provide for thirty
(30) days' prior written notice to Landlord of any cancellation or termination.
Notwithstanding the above, Landlord retains the right to have Tenant provide
other forms of insurance which may be reasonably required to cover future risks.
It is understood and agreed that Tenant's obligation under this paragraph will
be prorated to reflect the commencement and termination dates of this Lease.
Landlord and Tenant hereby waive any rights each may have against the other on
account of any loss or damage occasioned to the Landlord or the Tenant as the
case may be, or to the Premises or its contents, and which may arise from any
risk covered by their respective insurance policies, as set forth above. The
parties shall obtain from their respective insurance companies a waiver of any
right of subrogation which said insurance company may have against the Landlord
or the Tenant, as the case may be.
13. TAXES: Tenant shall be liable for all taxes levied against personal property
and trade or business fixtures, and agrees to pay, as additional rental, all
real estate taxes and special assessment installments levied on the Premises,
upon the occupancy of the Premises and including any substitute or additional
charges which may be imposed during, or applicable to the Lease term including
real estate tax increases due to a sale or other transfer of the Premises, as
they appear on the City and County tax bills during the Lease term, and as they
become due. It is understood and agreed that Tenant's obligation under this
paragraph will be prorated to reflect the commencement and termination dates of
this Lease. In any time during the term of this Lease a tax, excise on rents,
business license tax, or any other tax, however described, is levied or assessed
against Landlord, as a substitute or addition in whole or in part for taxes
assessed or imposed on land or Buildings, Tenant shall pay and discharge his
prorata share of such tax or excise on rents or other tax before it becomes
delinquent, except that this provision is not intended to cover net income
taxes, inheritance, gift or estate tax imposed upon the Landlord. In the event
that a tax is placed, levied, or assessed against Landlord and the taxing
authority takes the position that the Tenant cannot pay and discharge his
prorata share of such tax on behalf of the Landlord, then at the sole
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election of the Landlord, the Landlord may increase the rental charged hereunder
by the exact amount of such tax. Notwithstanding the above, Tenant shall not be
liable for any increase in taxes resulting from a sale or other transfer of the
Premises during the first two years of the Lease term.
14. UTILITIES: Tenant shall pay directly to the providing utility all water,
gas, heat, light, power, telephone and other utilities supplied to the Premises.
Landlord shall not be liable for a loss of or injury to property, however
occurring, through or in connection with or incidental to furnishing or failure
to furnish any of utilities to the Premises and Tenant shall not be entitled to
abatement or reduction of any portion of the rent so long as any failure to
provide and furnish the utilities to the Premises due to any cause beyond the
Landlord's reasonable control.
15. ABANDONMENT: Tenant shall not abandon the Premises at any time during
the term; and if Tenant shall abandon or surrender said Premises, or be
dispossessed by process of law, or otherwise, any personal property belonging to
Tenant and left on the Premises shall be deemed to be abandoned, at the option
of Landlord, except such property as may be mortgaged to Landlord.
Notwithstanding the above, if the Tenant continues to pay rent and perform the
other obligations of this Lease it shall not be deemed to have abandoned the
Premises for the purposes of this Lease.
16. FREE FROM LIENS: Tenant shall keep the Premises and the property on which
the Premises are situated, free from any liens arising out of any work
performed, materials furnished, or obligations incurred by Tenant. Nothing
herein shall prohibit Tenant from contesting any liens which Tenant believes in
good faith to be erroneous, provided that Tenant first obtains a commercially
reasonable bond as to the lien(s) so contested.
17. COMPLIANCE WITH GOVERNMENTAL REGULATIONS: Tenant shall, at its sole cost
and expense, comply with all of the requirements of all Municipal, State and
Federal authorities now in force, or which may hereafter be in force, pertaining
to the said Premises, and shall faithfully observe in the use of the Premises
all Municipal ordinances and State and Federal statutes now in force or which
may hereafter be in force. The judgement of any court of competent jurisdiction,
or the admission of Tenant in any action or proceeding against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any such ordinance
or statute in the use of the Premises, shall be conclusive of that fact as
between Landlord and Tenant.
18. TOXIC WASTE AND ENVIRONMENTAL DAMAGE: Without the prior written consent of
Landlord, Tenant shall not bring, allow, use or permit upon the Premises, or
generate or create at or emit or dispose from the Premises any chemicals, toxic
or hazardous gaseous, liquid or solid materials or waste, including without
limitation, material or substance having characteristics of ignitability,
corrosivity, reactivity, or extraction procedure toxicity or substances or
materials which are listed on any of the Environmental Protection Agency's lists
of hazardous wastes or which are identified in Sections 66680 through 66685 of
Title 22 of the California Administrative Code as the same may be amended from
time to time. Notwithstanding the generality of the foregoing, Landlord is
familiar with Tenant's manufacturing process presently conducted in Santa Clara
County and consents to similar and relative activities in the Premises as
permitted by, and in compliance with, applicable law. Tenant shall comply, at
its sole cost, with all laws pertaining to, and shall indemnify and hold
Landlord harmless from any claims, liabilities, costs or expenses incurred or
suffered by Landlord arising from such bringing, allowing, using, permitting,
generating, creating, or emitting or disposing of any such materials. Tenant's
indemnification and hold harmless obligations include, without limitation,
(i) claims, liability, costs or expenses resulting from or based upon
administrative, judicial (civil or criminal) or other action, legal or
equitable, brought by any private or public person under common law or under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERLA"), the Resource Conservation and Recovery Act of 1980 ("RCRA") or any
other Federal, State, County or Municipal law, ordinance or regulation, (ii)
claims, liabilities, costs or expenses pertaining to the cleanup or containment
of wastes, the identification of the pollutants in the waste, the identification
of scope of any environmental contamination, the removal of pollutants from
soils, riverbeds or aquifers, the provision of an alternative public drinking
water source, or the long term monitoring of ground water and surface waters,
and (iii) all costs of defending such claims. In order to obtain consent, Tenant
shall deliver to Landlord its written proposal describing the toxic material to
be brought onto the Premises, measures to be taken for storage and disposal
thereof, safety measures to be employed to prevent pollution of the air, ground,
surface and ground water. Landlord's approval may be withheld in its reasonable
judgement. Tenant further agrees to properly close the facility with regard to
hazardous materials and obtain a Closure Certificate from the local
administering agency.
19. INDEMNITY: As a material part of the consideration to be rendered to
Landlord, Tenant
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hereby waives all claims against Landlord for damages to goods, wares and
merchandise, and all other personal property in, upon or about said Premises and
for injuries to persons in or about said Premises, from any cause arising at any
time except the negligence or willful misconduct of Landlord, and Tenant will
hold Landlord exempt and harmless from any damage or injury to any person, or to
the goods, wares and merchandise and all other personal property of any person,
arising from the use of the Premises by Tenant, or from the failure of Tenant to
keep the Premises in good condition and repair, as herein provided. Further, in
the event Landlord is made party to any litigation due to the acts or omission
of Tenant, Tenant will indemnify and hold Landlord harmless from any such claim
or liability including Landlord's costs and expenses and reasonable attorney's
fees incurred in defending such claims.
20. ADVERTISEMENTS AND SIGNS: Tenant will not place or permit to be placed, in,
upon or about the said Premises any signs not approved by the city or other
governing authority. The Tenant will not place, or permit to be placed, upon the
Premises, any signs, advertisements or notices without the written consent of
the Landlord as to type, size, design, lettering, coloring and location, and
such consent will not be unreasonably withheld. Any sign so placed on the
Premises shall be so placed upon the understanding and agreement that Tenant
will remove same at the termination of the tenancy herein created and repair any
damage or injury to the Premises caused thereby, and if not so removed by Tenant
then Landlord may have same so removed at Tenant's expense.
21. ATTORNEY'S FEES: In case suit should be brought for the possession of the
Premises, for the recovery of any sum due hereunder, or because of the breach of
any other covenant herein, the losing party shall pay to the prevailing party a
reasonable attorney's fees as part of its costs which shall be deemed to have
accrued on the commencement of such action and shall be enforceable whether or
not such action is prosecuted to judgement.
22. TENANT'S DEFAULT: The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant: a) Any failure by Tenant to
pay the rental or to make any other payment required to be made by Tenant
hereunder, where such failure continues for ten (10) days after written notice
thereof by Landlord to Tenant; b) The abandonment of the Premises by Tenant; c)
A failure by Tenant to observe and perform any other provision of this Lease to
be observed or performed by Tenant, where such failure continues for thirty (30)
days after written notice thereof by Landlord to Tenant; provided, however, that
if the nature of such default is such that the same cannot reasonably be cured
within such thirty (30) day period Tenant shall not be deemed to be in default
if Tenant shall within such period commence such cure and thereafter diligently
prosecute the same to completion; d) The making by Tenant of any general
assignment for the benefit of creditors' the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or of a petition for reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed after the filing); the
appointment of a trustee or receiver to take possession of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where possession is not restored to Tenant within thirty (30) days; or the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within thirty (30) days. The notice requirements set
forth herein are in lieu of and not in addition to the notices required by
California Code of Civil Procedure Section 1161.
22.(a) Remedies: In the event of any such default by Tenant, then in
addition to any other remedies available to Landlord at law or in equity,
Landlord shall have the immediate option to terminate this Lease and all
rights of Tenant hereunder by giving written notice of such intention to
terminate. In the event that Landlord shall elect to so terminate this
Lease then Landlord may recover from Tenant: a) the worth at the time of
award of any unpaid rent which had been earned at the time of such
termination; plus b) 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 Tenant proves could
have been reasonably avoided; plus c) 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 of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided; plus d) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's
failure to perform his obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom, and e) at
Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable California
law. The term "rent", as used herein, shall be deemed to be and to mean the
minimum monthly installments of rent and all other sums required to be paid
by Tenant
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pursuant to the terms of this Lease, all other such sums being deemed to be
additional rent due hereunder. As used in (a) and (b) above, the "worth at
the time of award" is computed by allowing interest at the rate of the
discount rate of the Federal Reserve Bank of San Francisco plus five (5%)
percent per annum. As used in (c) above, the "worth at the time of award"
is computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one (1%) percent.
22.(b) Right to Re-enter: In the event of any such default by Tenant,
Landlord shall also have the right, with or without terminating this Lease,
to re-enter the Premises and remove all persons and property from the
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant.
22.(c) Abandonment: In the event of the abandonment of the Premises by
Tenant or in the event that Landlord shall elect to re-enter as provided in
paragraph 22.(b) above or shall take possession of the Premises pursuant to
legal proceeding or pursuant to any notice provided by law, then if
Landlord does not elect to terminate this Lease as provided in paragraph
22.(a) above, then the provisions of California Civil Code Section 1951.4,
as amended from time to time, shall apply and Landlord may from time to
time, without terminating this Lease, either recover all rental as it
becomes due or relet the Premises or any part thereof for such term or
terms and at such rental or rentals and upon such other terms and
conditions as Landlord in its sole discretion may deem advisable with the
right to make alterations and repairs to the Premises. In the event that
Landlord shall elect to so relet, then rentals received by Landlord from
such reletting shall be applied: first, to the payment of any indebtedness
other than rent due hereunder from Tenant to Landlord; second, to the
payment of any cost of such reletting; third, to the payment of the cost of
any alterations and repairs to the Premises; fourth, to the payment of rent
due and unpaid hereunder, and the residue, if any, shall be held by
Landlord and applied in payment of future rent as the same may become due
and payable hereunder. Should that portion of such rentals received from
such reletting during any month, which is applied by the payment of rent
hereunder, be less than the rent payable during that month by Tenant
hereunder, then Tenant shall pay such deficiency to Landlord immediately
upon demand therefor by Landlord. Such deficiency shall be calculated and
paid monthly. Tenant shall also pay to Landlord, as soon as ascertained,
any costs and expenses incurred by Landlord in such reletting or in making
such alterations and repairs not covered by the rentals received from such
reletting.
22.(d) No Termination: No re-entry or taking possession of the Premises by
Landlord pursuant to 22.(b) or 22.(c) of this Article 22 shall be construed
as an election to terminate this Lease unless a written notice of such
intention be given to Tenant or unless the termination thereof be decreed
by a court of competent jurisdiction. Notwithstanding any reletting without
termination by Landlord because of any default by Tenant, Landlord may at
any time after such reletting elect to terminate this Lease for any such
default.
23. SURRENDER OF LEASE: The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not automatically effect a
merger of the Lease with Landlord's ownership of the Premises. Instead, at the
option of Landlord, Tenant's surrender may terminate all or any existing
sublease or subtenancies, or may operate as an assignment to Landlord of any or
all such subleases or subtenancies, thereby creating a direct relationship
between Landlord and any subtenants.
24. HABITUAL DEFAULT: Notwithstanding anything to the contrary contained in
paragraph 22, 22(a) (b) (c) and (d), the parties agree that if the Tenant shall
have defaulted in the performance of any (but not necessarily the same) material
term or condition of this Lease for three or more times during any twelve month
period during the term hereof, then such conduct shall, at the election of the
Landlord, represent a separate event of default which cannot be cured by the
Tenant. Tenant acknowledges that the purpose of this provision is to prevent
repetitive defaults by the Tenant under the Lease, which work a hardship upon
the Landlord, and deprive the Landlord of the timely performance by the Tenant
hereunder.
25. LANDLORD'S DEFAULT: In the event of Landlord's failure to perform any of its
covenants or agreements under this Lease, Tenant shall give Landlord written
notice of such failure and shall give Landlord the reasonable opportunity to
cure such failure prior to any claim for breach or for damages resulting from
such failure. In the event that Landlord fails to perform any of its obligations
pursuant to this Paragraph 25, Tenant shall have the right to proceed to take
the required action and to receive prompt reimbursement from Landlord of
Tenant's costs and expenses in taking such action.
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26. NOTICES: All notices given to Tenant may be given in writing personally or
by depositing the same in the United States mail, postage prepaid, and addressed
to Tenant at the said Premises, whether or not Tenant has departed from,
abandoned or vacated the Premises. All notices shall be deemed received three
(3) days after posting. Either party may change its address by giving written
notice of the same in accordance with this paragraph.
27. ENTRY BY LANDLORD: Tenant shall permit Landlord and his agents to enter
into and upon said Premises at all reasonable times upon prior notice to Tenant
and subject to any security regulations of Tenant for the purpose of inspecting
the same or for the purpose of maintaining the Premises or for the purpose of
making repairs, alterations or additions to any other portion of said Premises
or for the purpose of erecting additional building(s) and improvements on the
land where the Premises are situated, or on adjacent land owned by Landlord,
including the erection and maintenance of such scaffolding, canopies, fences and
props as may be required without any rebate of rent or without any liability to
Tenant for any loss of occupation or quiet enjoyment of the Premises thereby
occasioned; and Tenant shall permit Landlord and his agents, at any time within
ninety (90) days prior to the expiration of this Lease, to place upon said
Premises any "For Sale" or "to lease" signs and exhibit the Premises to
prospective tenants at reasonable hours.
28. DESTRUCTION OF PREMISES: In the event of a partial destruction of the
Premises by an insured casualty during the term from any cause, Landlord shall
forthwith repair the same, provided such repairs can be made within one hundred
eighty (180) days, including receipt of all necessary governmental approvals,
under the laws and regulations of State, Federal, County or Municipal
authorities, but such partial destruction shall in no way annul or void this
Lease, except that Tenant shall be entitled to a proportionate reduction of rent
while such repairs are being made, such proportionate reduction to be based upon
the extent to which the making of such repairs shall interfere with the business
carried on by Tenant in the Premises, in the reasonable judgement of Landlord
and Tenant. If such repairs cannot be made in one hundred eighty (180) days,
Landlord or Tenant may, at their option, terminate this Lease. For purposes of
this paragraph "partial destruction" shall mean destruction to the extent of
one-third (1/3) of the Replacement Cost of the Premises, including the
Replacement Cost of Tenant's Interior Improvements paid for by Landlord, or
less. In the event the Premises are more than partially destroyed, Landlord may
elect to terminate this Lease or may proceed with repairs, this Lease continuing
in full force and the rent to be proportionately reduced as aforesaid. In
respect to any partial destruction which Landlord is obligated to repair or may
elect to repair under the terms of this paragraph, the provision of Section
1932, Subdivision 2, and of Section 1933, Subdivision 4, of the Civil Code of
the State of California are waived by Tenant. In all events a total or partial
destruction of the Premises by an uninsured casualty shall terminate this Lease
at the option of Landlord. In all events Landlord shall not be required to
restore additions, alterations or improvements made by Tenant or replace
Tenant's fixtures of personal property.
29. ASSIGNMENT OR SUBLEASE: In the event Tenant desires to assign this Lease
or any interest therein including, without limitation, a pledge, mortgage or
other hypothecation, or sublet the Premises or any part thereof, Tenant shall
deliver to Landlord executed counterparts of any such agreement and of all
ancillary agreements with the proposed assignee or subtenant, financial
statements, and any additional information as reasonably required to determine
whether it will consent to the proposed assignment or sublease. Landlord shall
then have a period of five (5) business days following receipt of such notice
within which to notify Tenant in writing that Landlord elects (i) to terminate
this Lease in the event Tenant elects to sublease the entire Premises as of the
date so specified by Tenant in which event Tenant will be relieved of all
further obligations hereunder as to such space, (ii) to permit Tenant to assign
or sublet such space to the named assignee/subtenant on the terms and conditions
set forth in the notice, or (iii) to refuse consent. If Landlord should fail to
notify Tenant in writing of such election within said 5-day period, Landlord
shall be deemed to have elected option (ii) above. Any rent or other economic
consideration realized by Tenant under any such sublease and assignment in
excess of the Base Rental and Additional Rental payable hereunder (including an
allocation of the purchase price attributable to Tenant's leasehold interest in
the event of a sale of the Tenant's business), after the net unamortized cost of
the Tenant Extra Improvements for which Tenant has itself paid, and reasonable
subletting and assignment costs, shall be divided and paid sixty-seven percent
(67%) to Landlord and thirty-three percent (33%) to Tenant. Tenant's obligation
to pay over Landlord's portion of the consideration shall constitute an
obligation for additional rent hereunder. No assignment or subletting by Tenant
shall relieve Tenant of any obligation under this Lease. Any assignment or
subletting which conflicts with the provisions hereof shall be void.
Notwithstanding the foregoing, Landlord agrees to allow Tenant to sublease up to
fifteen thousand (15,000) square feet without the ability of Landlord to
participate in the excess rent.
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If Landlord exercises its option to terminate this Lease in part in the event
Tenant desires to sublet or assign part of the Premises, then (a) this Lease
shall end and expire, with respect to such part of the Premises, on the date
upon which the proposed sublease was to commence, and (b) from and after such
date, the rent and Tenant's allocable share of all other costs and charges shall
be adjusted, based upon the proportion that the rentable area of the Premises
remaining bears to the total rentable area of the Premises.
If Landlord does not exercise its option to terminate this Lease, Landlord's
consent (which must be in writing and in form reasonably satisfactory to
Landlord) to the proposed assignment or sublease shall not be unreasonably
withheld or delayed, provided and upon condition that:
(a) In Landlord's reasonable judgment, the proposed assignee or subtenant
is engaged in such a business, and the Premises, or the relevant part
thereof, will be used in such a manner, that is limited to the use
expressly permitted under this Lease;
(b) The proposed assignee or subtenant is a reputable company with
sufficient financial worth and management ability similar to that of the
Tenant at the commencement of the Lease to undertake the responsibility
involved, and Landlord has been furnished with reasonable proof thereof;
(c) The proposed sublease shall be in form reasonably satisfactory to
Landlord;
(d) Tenant shall reimburse Landlord on demand for any reasonable costs that
may be incurred by Landlord in connection with said assignment or sublease,
including the costs of making investigations as to the acceptability of the
proposed assignee or subtenant and legal costs incurred in connection with
the granting of any requested consent; and
(e) Tenant shall not have advertised or publicized in any way the
availability of the Premises without prior notice to, and approval by,
Landlord, nor shall any advertisement state the name or the address of the
Building or the proposed rental.
Any sublease or assignment executed with the consent of Landlord shall be
subject to all of the covenants, agreements, terms, provisions and conditions
contained in this Lease. Notwithstanding any such sublease or assignment and the
acceptance of rent or additional rent by Landlord from any subtenant or
assignee, Tenant shall and will remain fully liable for the payment of the rent
and additional rent due, and to become due hereunder, for the performance of all
of the covenants, agreements, terms, provisions and conditions contained in this
Lease on the part of Tenant to be performed and for all acts and omissions of
any licensee, subtenant, assignee or any other person claiming under or through
any subtenant that shall be in violation of any of the obligations of this
Lease, and any such violation shall be deemed to be a violation by Tenant.
Tenant shall further indemnify, defend and hold Landlord harmless from and
against any and all losses, liabilities, damages, costs and expenses (including
reasonable attorney fees) resulting from any claims that may be made against
Landlord by the proposed assignee or subtenant or by any real estate brokers or
other persons claiming a commission or similar compensation in connection with
the proposed assignment or sublease. In the event of Tenant's default, Tenant
hereby assigns all rents due from any assignment or subletting to Landlord as
security for performance of its obligations under this Lease and Landlord may
collect such rents as Tenant's Attorney-in-Fact, except that Tenant may collect
such rents unless a default occurs as described in paragraph 22 above.
Any assignment or transfer shall be made only if and shall not be effective
unless the assignee shall execute, acknowledge and deliver to Landlord an
agreement, in form and substance satisfactory to Landlord, whereby the assignee
shall assume all of the obligations of this Lease on the part of Tenant to be
performed or observed.
If Tenant is a corporation or partnership, all the above provisions shall apply
to a transfer (by one or more transfers) of a majority of the stock of the
corporation or the majority of ownership or control of the partnership, as if
such transfer were an assignment of this Lease; but said provisions shall not
apply to transactions with a corporation or partnership that controls, is
controlled by, or is under common control with Tenant, provided that, in any of
such events: (i) the successor to Tenant has a net worth, computed in accordance
with generally accepted accounting principles, at least equal to the greater of
(x) the net worth of Tenant immediately prior to such transfer or (y) the net
worth of Tenant herein named on the date of this Lease; and (ii) proof
satisfactory to Landlord of such net worth shall have been delivered to Landlord
at least ten (10) days prior to the effective date of any such transaction.
<PAGE>
The termination of this Lease due to Tenant's default shall not automatically
terminate any assignment or sublease then in existence. At the election of
Landlord, the assignee or subtenant shall attorn to Landlord and Landlord shall
undertake the obligations of the Tenant under the sublease or assignment;
provided the Landlord shall not be liable for prepaid rent, security deposits or
other defaults of the Tenant to the subtenant or assignee.
30. CONDEMNATION: If any part of the Premises shall be taken for any public or
quasi-public use, under any statute or by right of eminent domain or private
purchase in lieu thereof, and the remaining part is reasonably suitable for
Tenant's continued occupancy for the purpose and uses permitted by this Lease as
reasonable determined by Tenant, this Lease shall as to the part so taken,
terminate as of the date title shall vest in the condemnor or purchaser, and the
rent payable hereunder shall be adjusted so that the Tenant shall be required to
pay for the remainder of the term only such portion of such rent as the value of
the part remaining after such taking bears to the value of the entire Premises
prior to such taking; but in such event Landlord shall have the option to
terminate this Lease as of the date when title to the part so taken vests in the
condemnor or purchaser. If all of the Premises, or such part thereof be taken so
that there does not remain a portion susceptible for occupation hereunder, this
Lease shall thereupon terminate. If a part or all of the Premises be taken, all
compensation awarded upon such taking shall go to the Landlord and the Tenant
shall have no claim thereto but Landlord shall cooperate with Tenant to recover
compensation for damage to or taking of any alterations, additions or
improvements made by Tenant, for the interruption of Tenant's business or for
its moving costs. Tenant hereby waives the provisions of California Code of
Civil Procedures Section 1265.130.
31. EFFECTS OF CONVEYANCE: The term "Landlord" as used in this Lease, means
only the owner for the time being of the land and Building, containing the
Premises, so that, in the event of any sale of said land or Building, or in the
event of a master Lease of the Building, the Landlord shall be and hereby is
entirely freed and relieved of all covenants and obligations of the Landlord
hereunder, provided that the purchaser or master tenant of the Building has
assumed and agreed to carry out any and all covenants and obligations of the
Landlord hereunder in writing. Landlord shall transfer and deliver Tenant's
security deposit, to the purchaser at any such sale or the master tenant of the
Building, and thereupon the Landlord shall be discharged from any further
liability in reference thereto.
32. SUBORDINATION: In the event Landlord notifies Tenant in writing, this
Lease shall be subordinate to any ground Lease, deed of trust, or other
hypothecation for security now or hereafter placed upon the real property of
which the Premises are a part and to any and all advances made on the security
thereof and to renewals, modifications, replacements and extensions thereof.
Tenant agrees to promptly execute any documents which may be required to
effectuate such subordination. Notwithstanding such subordination, Tenant's
right to quiet possession of the Premises shall not be disturbed if Tenant is
not in default and so long as Tenant shall pay the rent and observe and perform
all of the provisions of this Lease. At the request of any lender, Tenant
agrees to execute and deliver any reasonable modifications of this Lease which
do not materially adversely affect the leasehold or Tenant's rights hereunder.
33. WAIVER: The waiver by Landlord of any breach of any term, covenant or
condition, herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent.
34. HOLDING OVER: Any holding over after the termination or expiration of the
said term, shall be construed to be a hold over tenancy and Tenant shall pay
rent to Landlord at a rate equal to one and one half (1 1/2) times the monthly
rental installment due in the month preceding the termination or expiration of
the Lease and shall otherwise be on the terms and conditions herein specified,
except those provisions relating to the term and any options to extend or renew,
which terms are expressly waived during any hold over. Furthermore, no holding
over shall be deemed or construed to exercise any option to extend or renew this
Lease in lieu of full and timely exercise of any such option as required
hereunder.
35. SUCCESSORS AND ASSIGNS: The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of all the parties hereto; and
all of the parties hereto shall be
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jointly and severally liable hereunder.
36. ESTOPPEL CERTIFICATES: Tenant shall at any time during the term of this
Lease, upon not less than ten (10) business days prior written notice from
Landlord, execute and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification) and the date to which the rent and
other charges are paid in advance, if any, and acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder or
specifying such defaults if they are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant's failure to deliver such statement within such time shall be
conclusive upon the Tenant that: (a) this Lease is in full force and effect,
without modification except as may be represented by Landlord; (b) there are not
uncured defaults in Landlord's performance.
37. OPTION TO EXTEND: Tenant shall have the option and right to extend the term
of this Lease for two (2) separate additional and consecutive terms of option
periods of five (5) years each, (each such period being referred to as the
"Renewal Term") commencing with rent at ninety five percent (95%) of "Fair
Market Value", as defined in paragraph 38 below, and subject to adjustment in
accordance with paragraph 39 only under the following conditions precedent: (i)
Tenant is not in default under the Lease and no event has occurred which but for
the giving of notice or the passage of time would constitute an event of default
hereunder, (ii) Tenant alone is in occupation of and is conducting the business
in the whole of the Premises and Tenant, for itself and its successors and
assigns, hereby expressly acknowledges and agrees that this Option to Extend is
personal to Tenant and its affiliates; and (iii) and Tenant has delivered
written notice by certified mail to Landlord not less than one hundred and
twenty (120) days prior and not more than one hundred and eighty (180) days
prior to the expiration of the then existing term of the Lease of Tenant's
intention to extend the term of the Lease.
38. FAIR MARKET VALUE: For purposes of this Lease the term "Fair Market Value"
shall mean the going market rental as of the date of commencement of each
Renewal Term, for equivalent space in Santa Clara of similar age and
construction, with improvements and equipment in similar condition and for a
lessee proposing to sign a five (5) year lease and having financial
qualifications similar to Tenant. The Parties agree that the 5% discount off the
Fair Market Value reflects the savings to Landlord from not having to pay a
brokerage commission or suffer any vacancy in connection with the renewal. It is
further understood that in determining "Fair Market Value" the parties shall
negotiate in good faith in order to reach agreement; and in the event the
parties are unable to reach agreement, the matter shall be referred to
arbitration by three (3) M.A.I. appraisers, experienced in the evaluation of
similar rental properties in the County of Santa Clara, State of California.
Landlord and Tenant shall each appoint one such arbitrator within thirty (30)
days of a written request for arbitration from the other, and the two
arbitrators so selected shall select a third arbitrator within fifteen (15) days
after the selection of the second arbitrator. The determination of the three
arbitrators shall be made by the vote of two (2) or more of the three
arbitrators within thirty (30) days from the date of the appointment of the
third arbitrator and shall be final for all purposes. The cost of arbitration
shall be shared equally. In no event shall such "Fair Market Value" be less than
the rental paid during the year immediately preceding the commencement of the
current extension.
39. RENTAL ADJUSTMENTS DURING RENEWAL PERIODS: As noted above the initial rental
rate for the first year of each Renewal Term shall be the "Fair Market Value"
calculated in accordance with paragraph 38. The rent during each Renewal Term
shall be subject to annual adjustments beginning the second year of each Renewal
Term based on the Consumer Price Index Adjustment ("Adjustment"). The basis for
computing the Adjustment shall be the U.S. Department of Labor, Bureau of Labor
Statistic's Consumer Price Index for All Urban Consumers, All Items,
1982-84=100, for the San Francisco-Oakland-San Jose area, ("Index"). The Index
most recently published preceding the commencement of each Renewal Term shall be
considered the "Beginning Index". If the Index most recently published preceding
the Adjustment Date ("Comparison Index") is greater than the Beginning Index,
the monthly rent shall be increased by multiplying the monthly rent by a
fraction, the numerator of which is the Comparison Index and the denominator of
which is the Beginning Index. Notwithstanding any subsequent decrease in the
Index, the new monthly rent shall never be less than the rent for the month
immediately preceding the Adjustment Date. On adjustment of the monthly rent
Landlord shall notify Tenant by letter stating the new monthly rent. If the
Index base year is changed so that it differs from 1982-84=100, the Index shall
be converted in accordance with the conversion factor published by the United
States Department of Labor, Bureau of Labor Statistics. If the Index is
discontinued or revised during the Renewal Term, such other government index or
computation with which it is replaced shall be used in order to obtain
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substantially the same result as would be obtained if the index had not been
discontinued or revised.
4.0 OPTIONS: All Options provided Tenant in this Lease are personal and
granted to original Tenant and its affiliates and are not exercisable by any
third party should Tenant assign or sublet all or a portion of its rights under
this Lease, unless Landlord consents to permit exercise of any option by any
assignee or subtenant, in Landlord's sole discretion. In the event that Tenant
hereunder has any multiple options to extend this Lease, a later option to
extend the Lease cannot be exercised unless the prior option has been so
exercised.
41. QUIET ENJOYMENT: Upon Tenant's faithful and timely performance of all the
terms and covenants of the Lease, Tenant shall quietly have and hold the
Premises for the term and any extensions thereof.
42. BROKERS: Landlord and Tenant each warrant and represent to the other party
that each of them has had no dealings with any real estate broker, agent or
finder in connection with the negotiation of this Lease except for Coldwell
Banker, whose commission shall be paid by Landlord, and further, that neither
party knows of any other real estate broker, agent or finder who is or might be
entitled to a commission or fee in connection with this Lease. Landlord and
Tenant each agree to indemnify and hold harmless the other party and its agents
from and against any and all liabilities or expenses, including attorney's fees
and costs, arising out of or in connection with claims made by any other broker
or individual for commissions or fees resulting from Tenant's execution of this
Lease.
43. LANDLORD'S LIABILITY: If Tenant should recover a money judgment against
Landlord arising in connection with this Lease, the judgement shall be satisfied
only out of Landlord's interest in the Project including the improvements and
real property and neither Landlord or any of its partners shall be liable
personally for any deficiency.
44. AUTHORITY OF PARTIES:
44.(a) CORPORATE AUTHORITY: If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants
that he is duly authorized to execute and deliver this Lease on behalf of
said corporation, in accordance with a duly adopted resolution of the Board
of Directors of said corporation or in accordance with the by-laws of said
corporation, and that this Lease is binding upon said corporation in
accordance with its terms.
44.(b) LIMITED PARTNERSHIPS: If the Landlord herein is a limited
partnership, it is understood and agreed that any claims by Tenant on
Landlord shall be limited to the assets of the limited partnership. And
furthermore, Tenant expressly waives any and all rights to proceed against
the individual partners or the officers, directors or shareholders of any
corporate partner, except to the extent of their interest in said limited
partnership.
45. TRANSPORTATION DEMAND MANAGEMENT REQUIREMENTS: Should a government agency
or municipality require Landlord to institute TDM (Transportation Demand
Management) facilities and/or program, Tenant hereby agrees that any ongoing
costs or expenses associated with a TDM program, such as an on-site TDM
coordinator, which are required for the Premises and not provided by Tenant
shall be provided by Landlord with such costs being included as Additional Rent
and reimbursed to Landlord by Tenant.
46. MISCELLANEOUS PROVISIONS: All rights and remedies hereunder are cumulative
and not alternative to the extent permitted by law and are in addition to all
other rights and remedies in law and in equity.
If any term or provision of this Lease is held unenforceable or invalid by a
court of competent jurisdiction, the remainder of the Lease shall not be
invalidated thereby but shall be enforceable in accordance with its terms,
omitting the invalid or unenforceable term.
This lease shall be governed by and construed in accordance with California law.
Tenant shall not permit or condone any nuisance or disturbance of any kind on
the Premises which unreasonably annoys or disturbs Landlord.
All sums due hereunder, including rent and additional rent, if not paid within
ten (10) days of
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when due, shall bear interest at the maximum rate permitted under California law
accruing from the date due until the date paid to Landlord.
Time is of the essence hereunder.
The headings or titles to the paragraphs of this Lease are not a part of this
Lease and shall have no effect upon the construction or interpretation of any
part thereof. This instrument contains all of the agreements and conditions made
between the parties hereto and may not be modified orally or in any other manner
than by an agreement in writing signed by all of the parties hereto or their
respective successors in interest.
If Tenant fails to perform any obligation required under this Lease or by law or
governmental regulation, Landlord in its sole discretion may, with prior written
notice to Tenant, perform such obligation, in which event Tenant shall pay
Landlord as additional rent all sums paid by Landlord in connection with such
substitute performance within ten (10) days following Landlord's written notice
for such payment. Any delinquent sum shall bear interest at the maximum lawful
contract rate permitted to be charged under California law.
Tenant acknowledges that neither Landlord or its affiliates or agents have made
any agreements, representations, warranties or promises with respect to the
demised Premises or the Building of which they are a part, or with respect to
present or future rents, expenses, operations, tenancies or any other matter.
Except as herein expressly set forth, Tenant relied on no statement of Landlord
or its agents for that purpose.
All monetary sums due from Tenant to Landlord under this Lease shall be deemed
to be rent.
IN WITNESS WHEREOF, Landlord and Tenant have executed these presents, the day
and year first above written.
LANDLORD: SOBRATO INTERESTS TENANT: SYNERGY SEMICONDUCTOR, INC.
a California Limited Partnership a California Corporation
/s/ John M. Sobrato /s/ Kenneth G. Wolf
BY:___________________________________ BY:________________________________
Trustee of the General Partner President and CEO
ITS:__________________________________ ITS:_______________________________
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EXHIBIT 10.6
COMMERCIAL LEASE
This Lease made this 29th day of February, 1996 at Santa Clara,
----
California, by and between HARRIS CORPORATION, a Delaware corporation
("Lessor"), and Synergy Semiconductor Corporation, a California corporation
----------
("Lessee").
1. PREMISES - Lessor hereby leases to Lessee and Lessee hires from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein that certain real property situated in the City of Santa Clara, County of
Santa Clara, State of California, located at 3250 Scott Blvd., consisting of
approximately 70,046 sq. ft. of an office, R&D, fabrication and manufacturing
building, which includes a total site of approximately 5.8 acres, as shown on
the site plan which is attached hereto marked Exhibit "A" and incorporated
herein by reference.
2. TERM - The term of this Lease shall be for one hundred twenty
(120) months commencing November 1, 1996 or on the date of issuance by the City
of Santa Clara of a Certificate of Occupancy relating to the Tenant Improvement
construction, whichever is sooner ("Commencement Date"). Upon execution of this
Lease, and prior to the Commencement Date, Lessor shall deliver possession of
the Premises to Lessee for the purposes of Lessee's construction of the Tenant
Improvements. Upon Lessee taking possession of the Premises (the "Possession
Date"), Lessee agrees to pay the following operating costs associated with the
Premises: any and all utilities, security services, landscaping services,
liability and property insurance, and costs for any contractors retained by
Lessee or Lessee's agents (except for costs for Tenant Improvements), and shall
comply with all terms and conditions hereunder, except for payment of rent and
property taxes, which shall commence as set forth above.
In the event that the Commencement Date is later than August 1,
1996, Lessee agrees to pay to Seller an amount equal to thirty (30) days'
interest for the months of August, September and October on August 1, 1996,
September 1, 1996, and October 1, 1996, as the case may be, on the amount of the
Tenant Improvement Allowance which has been expended as of August 1, 1996,
September 1, 1996, and October 1, 1996, respectively, at an interest rate equal
to the prime lending rate in effect on those dates at the Chase Manhattan Bank,
N.A. in New York City. If such payments are not received within ten (10) days of
August 1, 1996, September 1, 1996, and October 1, 1996, respectively, there
shall be added to the payment a late fee of five percent (5%) of said payment.
3. BASE RENT - Rent shall be payable in advance on the 1st day of
each month, commencing on the Commencement Date, plus any additional state sales
tax thereon that the United States or the State of California may impose. The
monthly rate is set forth below:
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Base Rent: Months 1 - 24- $0.75 Triple net/sq.ft./month
25 - 48 $0.81 "
49 - 72- $0.88 "
73 - 96- $0.94 "
97-120- $1.00 "
For any Commencement Date other than the first of the month, the month's rent
shall be prorated.
Upon execution of this Lease, Lessee shall pay to Lessor the first
month's rent (at the rate applicable to months 1-24). Thirty (30) days prior to
the Commencement Date, Lessee shall pay to Lessor an amount equal to the last
month's rent (at the rate applicable to months 97-120) as a security deposit for
Lessee's faithful performance of its obligations under the Lease. Should Lessee
comply with all of the terms of this Lease and promptly pay all Rent and all
other sums payable by Lessee when due to Lessor, the security deposit shall be
returned in full to lessee within ten (10) business days after the termination
of the Lease.
If rent payments are not received within ten (10) days of the date
rent is first due for a given month, there shall be added to the rent a late fee
of five percent (5%) of said rental payment.
4. ADDITIONAL RENT: Lessee shall pay an additional monthly rent to
repay the Tenant Improvement Allowance described in Section 10 below. The
additional monthly rent shall be payable in advance of the first day of each
month, commencing on the Commencement Date, plus any additional state sales tax
thereon that the United States or the State of California may impose. The rate
is set forth below:
Additional Rent:
Months 1 - 24- $0.95 /sq.ft./month
25 - 48 $0.96 "
49 - 72- $0.97 "
73 - 96- $0.98 "
97-120- $1.00 "
For any Commencement Date other than the first of the month, the month's
additional rent shall be prorated.
If additional rent payments are not received within ten (10) days of
the date rent is first due for a given month, there shall be added to the
additional rent a late fee of five percent (5%) of said additional rent payment.
5. USE - The Premises shall be used and occupied by Lessee for its
business consistent with the planning and zoning codes for the location. Lessee
shall notify
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Lessor and obtain Lessor's written approval, which shall not be unreasonably
withheld, before using the Premises for any purpose permitted under then
existing zoning other than office, light manufacturing and assembly, or
semiconductor manufacture and activities associated therewith, if such use would
involve the use of Hazardous Materials (as defined hereafter in Section 24(a))
other than those used by Lessee for its semiconductor manufacture operations.
Lessee is responsible to obtain any and all licenses and/or permits required for
the lawful operation of Lessee's business.
6. TAXES -
(a) Lessee to Pay Taxes: In addition to the rents required to be paid
under this Lease, Lessee shall pay, and Lessee hereby agrees to pay, any and all
real property taxes (including general and special assessments and other
charges) of any description levied or assessed during the term of this Lease by
any governmental agency or entity on or against said Premises, any portion of
said Premises, any interest in said Premises, or any improvements or other
property in or on said Premises. Such payment shall be made by Lessee on or
before the due date of said taxes. Lessee's liability for taxes for the first
and last partial tax years of the Lease shall be prorated on an annual basis
with the tax year commencing on the Commencement Date.
Lessee shall not be required to pay any income or franchise taxes of
Lessor. Lessee shall not be liable for increases in real property taxes that
result from changes in ownership (as defined in the California Revenue and
Taxation Code) of the Premises, but Lessee shall be liable for any and all
increases in real property taxes (including general and special assessments and
other charges) for any other cause.
(b) Tax Hold-Harmless Clause: Lessee shall indemnify and hold Lessor
and the property of Lessor, including said Premises and any improvements now or
hereafter on said Premises, free and harmless from any liability, loss, or
damage resulting through no fault of Lessor from any taxes, assessments, or
other charges required by this Article to be paid by Lessee and from all
interest, penalties, and other sums imposed thereon and from any sales or other
proceedings to enforce collection of any such taxes, assessments, or other
charges.
(c) Lessee shall have the right, at Lessee's sole cost and expense,
to protest or contest any tax or assessment or any increase in any tax or
assessment levied or assessed against the Premises, but Lessee shall have no
right to direct Lessor pending final determination of the protest or contest not
to pay any tax or assessment before it becomes delinquent, unless Lessee
deposits with Lessor the full amount of that tax or assessment plus the amount
of any penalty that will be imposed on the Premises for failure to timely pay
the tax or assessment and one year's interest at the rate charged by the
government entity imposing the tax or assessment on the amount of the tax or
assessment.
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(d) Payment by Lessor. Should Lessee fail to pay within the time
specified in this Article any taxes, assessments, or other charges required by
this Article to be paid by Lessee, Lessor may, without notice to or demand on
Lessee, pay, discharge, or adjust such tax, assessment, or other charge for the
benefit of Lessee. In such event, Lessee shall promptly on written demand of
Lessor reimburse Lessor for the full amount paid by Lessor in paying,
discharging, or adjusting such tax, assessment, or other charge together with
interest thereon at the rate often percent (10%) per annum from the date of
payment by Lessor until the date of repayment by Lessee. Where no time within
which any charge required by this Article to be paid by Lessee is specified in
this Article, such charge must be paid by Lessee before it becomes delinquent.
7. COMPLIANCE WITH LAW - Lessee shall, at Lessee's expense, comply
promptly with all applicable statutes, ordinances, rules, regulations, orders,
covenants and restrictions of record, and requirements in effect during the term
or any part of the term hereof, regulating the use by Lessee of the Premises.
Lessee shall not use or permit the use of the Premises in any manner that will
tend to create a waste or a nuisance or tend to disturb use of the adjacent
Premises. Lessor agrees to make any structural changes which may be required by
law after the Commencement Date, except that Lessee agrees to make all
alterations during the term hereof required because of Lessee's particular use
of the Premises and Lessee agrees t6 make all alterations required as a result
of grandfathering exemptions from certain requirements being removed because of
the installation of Tenant Improvements or other alterations made by Lessee.
8. CONDITION OF PREMISES - Except as otherwise provided in this
Lease, Lessee hereby accepts the Premises in their condition existing as of the
date of this Lease Agreement subject to all applicable zoning, municipal, county
and state laws, ordinances and regulations governing and regulating the use of
the Premises, and any covenants or restrictions of record, and accepts this
Lease subject thereto and to all matters disclosed thereby and by any exhibits
attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has
made any representation or warranty as to the present or future suitability of
the Premises for the conduct of Lessee's business.
Lessee acknowledges that Lessor has notified Lessee of the presence of
asbestos-containing material ("ACM") in the building. Lessee hereby covenants
and agrees that it will not permit any drilling, moving, boring or other
disturbance of the ACM by anyone other than qualified and appropriately trained
individuals.
9. MAINTENANCE, REPAIRS & ALTERATIONS - Lessee agrees that Lessee
shall maintain the Premises in good condition and repair (including but not
limited to parking and landscape areas, plumbing, HVAC Systems, electrical,
fixtures, interior walls, ceilings, windows, doors, plate glass and skylights on
the Premises and tenant signs located on the Premises). Lessor agrees to take
responsibility for structural repairs to the building's foundations and walls
and Lessee agrees to take responsibility for maintenance (e.g., painting,
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minor repairs) thereof. With respect to the roof, Lessee agrees to take
responsibility for maintenance and repair of the roof membrane and Lessor agrees
to take responsibility for the structural members of the roof, except where
Tenant Improvements or other activities by Lessee result in damage thereto, in
which case Lessee agrees to repair the damage.
Except for Tenant Improvements, which are discussed below in Section
10, and except for any individual nonstructural alterations costing Fifty
Thousand Dollars ($50,000.00) or less (an "Alteration"), the Premises shall not
be altered, repaired or changed without the written consent of Lessor, which
consent shall not be unreasonably withheld. Detailed descriptions or drawings of
proposed improvements which are not Alterations are to be supplied to Lessor ten
(10) business days prior to the start of work. The Lessor will respond in
writing within seven (7) business days and Lessor may post and record a Notice
of Non-responsibility prior to commencement of work.
10. TENANT IMPROVEMENT ALLOWANCE
(a) Lessor agrees to provide an allowance in the amount of $6,100,000
(the "Tenant Improvement Allowance") toward the total cost of constructing
improvements to the Premises including, without limitation, architectural
design, engineering, consulting, demolition, construction, labor, materials,
survey and testing expenses, construction management, city and other
governmental fees, charges and permits and also including the maintenance,
repair or replacement of the EWAC and processing equipment currently on the
Premises (the "Tenant Improvements"). The Tenant Improvement Allowance also
includes repair, maintenance and replacement of exterior and interior building
materials, including but not limited to roofing materials, ceiling tiles, floor
tile, carpet, partitions and the like and other portions of the Premises
required to bring the facility to operating use by Lessee. The architect,
disciplines, contractor, and all subcontractors working on the Premises must be
licensed to do business in California.
The Tenant Improvement Allowance is to be used solely for improvements
to the Premises (including floor-to-ceiling partitions similar to Durasan Wall
Panels, the parking lot and landscaping). All improvements, equipment,
partitions, etc. associated with same are for the beneficial upgrading of the
building and shall remain the property of Lessor although used by Lessee. Lessee
hereby covenants that Lessee will attach Harris Identification tags to all
potentially removable fixtures purchased with the Tenant Improvement Allowance
(e.g., the floor-to-ceiling partitions referenced above) and that Lessee will
not use funds provided for Tenant Improvements for personal property that can be
removed from the Premises.
Lessor and its agent shall review and approve for funding the contract
drawings and specifications. If the cost of the Tenant Improvements exceeds $6,
100,000, such additional cost shall be borne directly by Lessee.
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Lessee hereby acknowledges that such Tenant Improvement Allowance is
available to Lessee only to the extent of the actual cost of constructing the
Tenant Improvements and that Lessee shall not be entitled to any portion of the
Tenant Improvement Allowance which exceeds the actual cost of constructing the
Tenant Improvements. After execution of this Lease by Lessor and Lessee, Lessee
shall proceed to have final construction drawings and specifications prepared
for the Tenant Improvements (the "Final Plans") and shall submit such Final
Plans to Lessor for approval, which approval shall not be unreasonably withheld.
Lessor shall notify Lessee of Lessor's approval of such Final Plans or of the
reasons for Lessor's reasonable disapproval of such Final Plans within ten (10)
business days after Lessee's delivery of such Final Plans to Lessor. If further
revisions are necessitated to accommodate Lessor's concerns, Lessee and Lessor
shall work together to achieve mutual agreement, and the Final Plans shall be
revised accordingly. In all cases, Lessor shall notify Lessee of Lessor's
approval or reasons for disapproval of any revisions to the Final Plans within
ten (10) business days after Lessor's receipt of such revisions from Lessee.
Lessee and Lessor hereby acknowledge that Lessor is making the Tenant
Improvement Allowance available to Lessee for the purpose of constructing
improvements that will remain a part of the Premises upon the expiration or
earlier termination of this Lease.
During the construction phase, Lessor's agent shall have unrestricted
access to the Premises for the purpose of observing the quality and progress of
construction and ensuring that construction complies with the construction plans
and other documents.
(b) Lessor shall pay the Tenant Improvement Allowance to the general
contractor ("Contractor") as follows:
(i) On or about the 30th day of each month, Contractor shall
submit an application for payment to Lessor, which application shall have been
pre-approved by Lessee and supported by invoices and requests for payments from
Contractor, together with lien releases from any and all subcontractors,
material men and suppliers whose invoices or requests for payments are included
in the application. The payment amount so requested is hereinafter referred to
as the "Application Amount." At the same time, Contractor shall submit a full
copy of each such submission to Lessor's agent. Within 15 business days of
receipt by Lessor and its agent of Contractor's submission, Lessor and its agent
shall review and, if appropriate, approve the application for payment. Upon such
approval, Lessor shall pay directly to Contractor an amount equal to 90% of the
Application Amount. An amount equal to 10% of the Application Amount shall be
set aside by Lessor and is referred to hereinafter as the "Retention Amount."
Notwithstanding the foregoing, if a dispute exists among Lessor, Lessee and
Contractor regarding any progress payment or the work performed, Lessor may
withhold from payment an amount not exceeding 150% of the disputed amount (which
withheld amount is referred to hereinafter as the "Disputed Amount"). In no
event shall the total amount paid under this section exceed the Application
Amount.
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(ii) Within 15 business days of receipt of written notice by
Lessor and Lessee from Contractor that any work in dispute has been completed in
accordance with the terms of the contract, Lessor and Lessee must advise
Contractor of the acceptance or rejection of the disputed work. Within 15
business days of acceptance of the disputed work, Lessor must release the
applicable portion of the Disputed Amount.
(iii) The Retention Amount shall be paid within 45 days after
the date of completion of the Tenant Improvements or within fifteen (15)
business days after completion of the "punch list", whichever occurs last. For
these purposes, "date of completion" means any of the following:
(A) The date of completion indicated by a valid notice
of completion recorded pursuant to California Civil Code (S)3093;
(B) The "date of completion" as that term is defined in
California Civil Code (S)3086; or
(C) The date of issuance of a certificate of occupancy
covering the Tenant Improvements.
Notwithstanding the foregoing, if a dispute continues to exist among Lessor,
Lessee and Contractor, Lessor may withhold from final payment the Disputed
Amount, pending resolution of such dispute.
(c) Lessor shall, within fifteen (15) business days after receipt by
Lessor of Lessee's application for payment, reimburse Lessee out of the Tenant
Improvement Allowance for other Tenant Improvement costs incurred by Lessee
directly (and not through Contractor), such as any permit fees, survey costs,
architectural fees, and fees of contractors other than Contractor.
(d) Any additions, deletions or modifications to the work that are to
be paid out of the Tenant Improvement Allowance may be made only by written
change order signed by Lessor, Lessee and Contractor.
(e) Lessee shall obtain from Contractor a full written indemnity and
hold harmless contract holding Lessor, its agents and employees harmless from
and against claims, damages, losses, and expenses, including but not limited to
attorneys' fees, arising out of or resulting from the performance of the work,
provided that such claim, damage, loss or expense is attributable to bodily
injury, sickness, disease or death, or to injury to or destruction of tangible
property (other than the work itself) including the loss of use resulting
therefrom, but only to the extent caused in whole or in part by negligent acts
or admissions of Contractor, a subcontractor, anyone directly or indirectly
employed by them or anyone for whose acts they may be liable regardless of
whether or not such claim, damage, loss, or expense is caused in
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part by a party indemnified hereunder. Such obligation shall not be construed to
negate, abridge or reduce other rights or obligations of indemnity which would
otherwise exist as to a party or person described in this paragraph.
In claims against any person or entity indemnified under this
paragraph by an employee of Contractor, a subcontractor, anyone directly or
indirectly employed by them or anyone for whose acts they may be liable, this
indemnification obligation shall not be limited by a limitation on amount or
type of damages, compensation or benefits payable by or for Contractor or a
subcontractor under workers or workman's compensation acts, disability benefits
acts or other employee benefit acts.
(f) Lessee will procure or cause Contractor to procure before
commencement of any work, a broad form of builders risk insurance with course of
construction, vandalism and malicious mischief clauses attached. The insurance
shall be in a sum equal to the greater of the contract price or One Million
Dollars ($1,000,000) , with loss payable to Lessor. The insurance will name
Lessee, Contractor and subcontractors as additional insureds, and shall be
written to protect Lessor, Lessee, Contractor and subcontractors as their
interests may appear.
(g) In the event Lessee is able to complete construction of the
Tenant Improvements for less than $6,100,000, the additional rent contained in
Section 4 of this Lease shall be reduced to the amounts shown in the table
attached as Exhibit "X".
(h) As part of the Tenant Improvements, Lessee agrees to upgrade the
Premises to conform with UBC9l and the Americans with Disabilities Act of 1990.
(i) Title to all Tenant Improvements shall be with Lessor without
need for further documentation. All such alterations, improvements, and changes
shall remain upon and be surrendered with the Premises. All damage or injury
done to the Premises by Lessee, or by any person who may be in or upon the
Premises with the consent of Lessee, shall be paid for by Lessee. At Lessor's
option, within sixty (60) days of Lessees surrender of the Premises, Lessee, at
its cost and expense, shall remove any Alterations and non-Lessor-approved
improvements to the Premises and restore the Premises to their former state,
provided, however, that Lessee shall not be required to so remove the Tenant
Improvements or any other Lessor-approved improvements. Lessee shall keep the
Premises free and clear of all liens arising out of any work performed,
materials furnished or obligations incurred by Lessee. In the event any such
lien attaches to the Premises and Lessee does not cause the same to be released
within ten (10) days after the attachment thereof whether by payment, bonding or
otherwise, Lessor shall have the right, but not the obligation, to cause the
same to be released by such means as it deems proper and any sums expended by
Lessor in connection therewith shall be payable by Lessee on demand.
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Subject to the provisions of this section, Lessee may install and
maintain furnishings, equipment, movable partitions, business machines and other
trade fixtures in the Premises, provided that the trade fixtures do not become
an integral part of the Premises or the building. Lessee may alter or remove any
of its trade fixtures at any time during the term of this Lease or upon its
expiration or termination.
11. SURRENDER - On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris,
except that Lessee shall not be required to remove the Tenant Improvements or
any Lessor-approved improvements. Lessee shall repair any damage to the Premises
occasioned by the installation or removal of Lessee's Alterations, trade
fixtures, furnishings and equipment.
12. WARRANT - Lessee shall, simultaneous with the signing of this
Lease, execute and deliver to Lessor a Warrant in the form attached hereto as
Exhibit "B". The parties have agreed that any shares of Lessee's Common Stock
issued pursuant to the Warrant shall have certain registration rights, as set
forth in the Second Restated Investor Rights Agreement attached hereto as
Exhibit C (the "IR Agreement"). In the event that the IR Agreement is not
executed and delivered within thirty (30) days hereof, Lessor shall have the
option to declare this Lease null and void and Lessee shall reimburse Lessor for
any part of the Tenant Improvement Allowance which Lessor may have expended or
would otherwise be obligated to pay, together with any funds Lessor may have
expended or would otherwise be obligated to pay in connection with Lessee's
Phase I and Phase II due diligence assessments.
13. LIABILITY INSURANCE - Lessee shall provide sufficient bodily
injury and property damage liability insurance consistent with the following
paragraphs.
(a) Insuring Party: From and after the Possession Date, Lessee shall
at Lessee's expense obtain and keep in force during the term of this Lease a
commercial general liability insurance policy of combined single limit bodily
injury and property damage insurance insuring Lessor and Lessee against
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $2,000,000.00 per occurrence. The
policy shall name Harris Corporation as an additional insured. The policy shall
insure performance by Lessee of the indemnity provisions of this paragraph. The
limits of said insurance shall not however limit the liability of Lessee
hereunder. Lessee shall provide Lessor with a certificate reflecting said
insurance policies within fifteen (15) days of the Possession Date and upon
breach or renewal of the policies thereafter.
(b) Waiver of Subrogation Rights: Lessee and Lessor each hereby
release and relieve the other and waive their entire right of recovery against
the other for loss or damage arising out of or incident to all perils insured
against, which perils occur in, on or about the Premises whether due to the
negligence of Lessor or Lessee or their agents,
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employees, contractors or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers of the foregoing mutual waiver of subrogation.
(c) Indemnity: Lessee shall indemnify and hold Lessor harmless from
and against any claims arising from Lessee's use of the Premises or from the
conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any claims arising
from any breach or default in the performance of any obligation on Lessee's part
to be performed under the terms of this Lease, and Lessee hereby waives all
claims in respect thereof against Lessor. Lessor shall indemnify and hold Lessee
harmless from and against any claims arising from any willful misconduct or sole
negligence of Lessor or from any breach or default in the performance of any
obligation on Lessor's part to be performed under the terms of this Lease, and
Lessor hereby waives all claims in respect thereof against Lessee.
(d) Exemption of Lessor from Liability: Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers or any person there or about the
Premises nor shall Lessor be liable for injury to the person of Lessee, Lessee's
employees, agents or contractors 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, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures or from any other cause whether
the same damage or injury 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 inaccessible to Lessee, unless such
damage or injury results from the sole negligence or willful acts of Lessor,
Lessor's employees, agents or contractors.
Notwithstanding the above, Lessee shall be under no duty to indemnify
and hold Lessor harmless from any liability, claims, or damages arising because
of the sole negligence or any intentional or willful acts of Lessor or any
person who is an agent or employee of Lessor acting in the course and scope of
their agency or employment.
14. PROPERTY INSURANCE -
(a) Lessor, at Lessee's sole cost and expense (which cost shall not
exceed $100,000 per year), shall provide property damage insurance on the
building itself From and after the Possession Date, Lessor agrees at Lessee's
sole expense to maintain in full force during the Rill term of this Lease and
any extended term thereof, and Lessee agrees to reimburse Lessor for the cost
of, a policy of "all risk" extended coverage property damage insurance coverage
for the building, any and all improvements thereto, and any personal
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property of Lessor contained herein, in the amount of its full replacement
value, insuring against loss or damage resulting from fire, vandalism, malicious
mischief, earthquake, flood, and such other perils ordinarily included in
extended coverage casualty insurance policies. Lessor shall provide Lessee with
a copy of relevant portions of Lessor's insurance policy, including coverage and
exclusions from coverage. Lessee will maintain the fire alarm system, sprinkler
system and provide a fire alarm monitoring system to respond to fire emergencies
on the Premises to the extent required by Santa Clara. In the event that Harris'
property insurers are not willing to provide insurance for the Santa Clara
facility or require upgrades and/or improvements for loss prevention purposes
which Lessor is unable or unwilling to make, Lessee hereby agrees to
independently obtain adequate property insurance at Lessee's sole cost and
expense. Such insurance must be with a reputable insurance company and include
coverage for a building value of $10,000,000 with a maximum deductible of
$100,000. Lessee hereby agrees that such insurance coverage will be on an "all-
risk" property policy form and will include earthquake coverage.
"Full replacement cost" as used in this Section 14 shall mean the
actual cost of replacement for the building, personal property and other
improvements on the Premises as determined from time to time.
(b) Lessee, at Lessee's sole cost and expense, shall provide
appropriate property damage insurance on its personal property. From and after
the Possession Date, Lessee agrees at Lessee's sole expense to maintain in full
force during the full term of this Lease and any extended term thereof a policy
of "all risk" extended coverage property damage insurance coverage for any and
all personal property contained on the Premises, in the amount of its full
replacement value, insuring against loss or damage resulting from fire,
vandalism, malicious mischief, and such other perils ordinarily included in
extended coverage casualty insurance policies.
(c) Waiver of Subrogation Rights: Lessee and Lessor each hereby
release and relieve the other and waive their entire right of recovery against
the other for loss or damage arising out of or incident to all perils insured
against, which perils occur in, on or about the Premises whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors or
invitees. Lessee and Lessor shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers of the
foregoing mutual waiver of subrogation.
15. ENTRY AND INSPECTION - Lessee shall permit and shall cooperate
with Lessor or Lessor's agents to enter upon the Premises at other reasonable
times and upon reasonable notice, for the purpose of inspecting the same, and
will permit Lessor, at any time within one hundred eighty (180) days prior to
the expiration of this Lease, to place upon the Premises any usual "To Let",
"For Lease" or "For Sale" signs, and permit persons desiring to purchase or
lease the same to inspect the Premises thereafter upon reasonable notice to
Lessee,
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so long as they do not disrupt Lessee's business activities. This section shall
become null and void in the event of a default by Lessee under this Lease.
16. DESTRUCTION OF PREMISES -
(a) Duty to Repair or Restore: If any improvements, including
buildings and other structures, located on the Premises are damaged or destroyed
during the term of this Lease or any renewal or extension thereof, the damage
shall be repaired as follows:
(i) If the damage or destruction is caused by a peril against
which fire and extended coverage insurance is required to be carried by Section
14 of this Lease, except as provided in the following sentence, Lessee shall
repair that damage as soon as reasonably possible and restore the Premises and
improvements to substantially the same condition as existed just before the
damage or destruction, regardless of whether the insurance proceeds are
sufficient to cover the actual cost of repair and restoration. Lessor shall
promptly pay to Lessee any and all insurance proceeds under Section 14 in the
event that Lessee is required or undertakes to rebuild the Premises following
damage or destruction. If it will cost more than $250,000.00 in excess of the
insurance proceeds from the tire and extended coverage insurance required to be
carried by Section 14 of this Lease in order to restore the Premises, Lessee may
terminate this Lease by giving Lessor written notice of the termination within
thirty (30) days after occurrence of the damage or destruction.
(ii) If the damage or destruction is caused by a peril against
which insurance is not required to be carried by this Lease, subject to their
rights to terminate this Lease described in Section 16(b), Lessor shall repair
that damage to the building and Lessee shall repair that damage to its personal
property and any improvements to the Premises as soon as reasonably possible and
restore the Premises to substantially the same condition as existed just before
the damage or destruction.
(b) Termination of Lease for Certain Losses:
(i) Notwithstanding any other provision of this Lease, if any
improvements located on the Premises are damaged or destroyed to such an extent
it will cost more than $250,000.00 to repair or replace them, and the damage or
destruction is caused by a peril against which insurance is not required to be
carried by this Lease, Lessor may terminate this Lease by giving Lessee written
notice of its intention to terminate this Lease. The notice must be given within
thirty (30) days after occurrence of the damage or destruction. However, after
receipt of Lessor's notice, Lessee may elect to undertake the repair and
restoration of the Premises at Lessee's cost, by giving Lessor written notice of
such election within thirty (30) days of Lessee's receipt of Lessor's notice of
intention to terminate. If Lessee does so elect to repair and restore at
Lessee's cost, the Lease shall not be terminated and shall remain in fall force
and effect. Otherwise, the Lease shall be deemed terminated as provided in
subsection (iii) below.
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(ii) Lessee or Lessor shall have the right to terminate this
Lease under either of the following circumstances:
(A) If the Premises are damaged or destroyed from any
cause whatsoever, insured or uninsured, and the laws then in existence do not
permit the repair or restoration of the Premises provided for in this article;
or
(B) If the Premises are destroyed from any cause
whatsoever, insured or uninsured, during the last twelve (12) months of the term
of this Lease, or during the last twelve (12) months of the extended term, if
any, of this Lease.
(iii) Either party may terminate this Lease by giving written
notice of termination to the other not later than thirty (30) days after
occurrence of the event giving rise to the termination under subsection (ii),
and termination shall be effective as of the date of the notice of termination.
In the event of a termination under subsection (ii), Lessee shall not be
entitled to collect any insurance proceeds attributable to insurance policies
covering the Premises or improvements, except those proceeds attributable to
Lessee's personal property and trade fixtures.
(iv) If this Lease is terminated pursuant to either subsection
(i) or (ii) above, rent, taxes, assessments, and other sums payable by Lessee to
Lessor under this Lease shall be prorated as of the termination date. If any
taxes, assessments, or rent has been paid in advance by Lessee, Lessor shall
refund it to Lessee for the unexpired period for which the payment has been
made.
(c) Time for Construction of Repairs: Any and all repairs and
restoration of improvements required by this section shall be commenced by
Lessor or Lessee, as the case may be, within a reasonable time after occurrence
of the damage or destruction requiring the repairs or restoration; shall be
diligently pursued after being commenced; and shall be completed within a
reasonable time after the loss. If Lessor is required under this Lease to
perform the repairs and restoration, Lessor shall cause the repairs and
restoration to be completed not later than one hundred eighty (180) days after
occurrence of the event causing destruction or Lessee shall have the right to
terminate this Lease.
(d) Abatement of Rent: If Lessor elects to rebuild or restore the
Premises from any cause, Lessee's obligation to pay all base rent and additional
rent hereunder shall be abated to the extent of the damage in the event that the
damage or destruction renders the Premises either partially or completely
uninhabitable for the uses authorized by this Lease.
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17. CONDEMNATION -
(a) Total Condemnation Defined: The term "total condemnation" as used
in this section shall mean the taking by eminent domain ("condemnation") by a
public or quasi-public agency or entity having the power of eminent domain
("condemn or") of either:
(i) More than thirty-three percent (33%) of the square
footage of the building; or
(ii) Less than thirty-three percent (33%) of the square
footage of the building at a time when the remaining buildings or improvements
on the Premises cannot reasonably be restored to a condition suitable for
Lessee's occupancy for the uses permitted by this Lease within thirty (30)
normal eight-hour business days under all laws and regulations then applicable;
or
(iii) Less than thirty-three percent (33%) of the square
footage of the building in such a manner that Lessee is substantially prevented
from carrying on operations of a permitted use under this Lease on the remaining
portion of the Premises: or
(iv) More than thirty-three percent (33%) of the
production area in the building is rendered partially or totally unusable
(b) Partial Condemnation Defined: The term "partial condemnation" as
used in this section shall mean any condemnation of a portion of the Premises
that is not a total condemnation under Section 17(a) of this Lease.
(c) Termination for Total Condemnation: In the event of a total
condemnation of the Premises during the term of this Lease, this Lease shall
terminate without further notice as of 12:01 A.M. on the date actual physical
possession of the condemned property is taken by the condemnor. All rent payable
under this Lease shall be prorated as of 12:01 A.M. on the date and a prompt
refund or payment of rent for the unexpired period of this Lease shall be made
by Lessor to Lessee. On the making of that rent adjustment, both Lessor and
Lessee will be released and discharged from any and all further obligations
under this Lease.
(d) Effect of Partial Condemnation: In the event of a partial
condemnation of the Premises, this Lease shall terminate as to the portion of
the Premises taken on the date actual physical possession of that portion is
taken by the condemnor but shall remain in full force and effect as to the
remainder of the Premises; provided, however, that promptly after the taking of
actual physical possession by the condemnor of the portion taken by
condemnation, Lessor shall, to the extent reasonably practicable, restore, at
Lessor's own cost and expense, the improvements on the remainder of the Premises
to a condition making the Premises tenantable by Lessee for the uses permitted
by this Lease. Any rent payable under this Lease after the date actual physical
possession is taken by the condemnor of the portion of
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the Premises condemned shall be reduced by the percentage the square footage of
the portion taken by eminent domain bears to the total square footage of the
building area of the Premises on the date of this Lease. In addition, the rent
payable under this Lease shall be further abated during the time and to the
extent Lessee is prevented from occupying all of the remainder of the Premises
by the work of restoration required by this section to be performed by Lessor.
(e) Lessor's Power to Sell in Lieu of Condemnation: Lessor may,
without any obligation or liability to Lessee and without affecting the validity
or continuation of this Lease other than as expressly provided in this section,
agree to sell or convey to the condemnor, without first requiring that an action
or proceeding for condemnation be instituted or tried, the portion of the
Premises sought by the condemnor free from this Lease and the rights of Lessee
in the Premises other than as provided in this Section 17.
(f) Condemnation Award: All compensation and damages awarded or paid
for the condemnation of the Premises or any portion of the Premises, or for any
sale in lieu of condemnation as authorized by Section 17(e) above, shall, except
as otherwise expressly provided in this section, belong to and be the sole
property of Lessor. Lessee hereby assigns to Lessor any claim Lessee might have
except for this provision against Lessor, the leased Premises, or condemnor for
diminution in value of the leasehold estate created by this Lease or the value
of the unexpired term of this Lease; provided, however, that Lessee is entitled
to seek to recover from the condemnor, but not from Lessor:
(i) The cost of removing any trade fixtures, furniture,
or equipment from the portion of the Premises taken by condemnation:
(ii) The value of any improvements installed by Lessor
on the portion of the Premises taken by condemnation that Lessee has a right to
remove under this Lease but that Lessee elects not to remove;
(iii) The then amortized value of all improvements made by
Lessee on the portion of the Premises taken by condemnation that could not be
removed by Lessee on expiration of this Lease either because of provisions of
this Lease or because the value on removal from the Premises; and
(iv) Moving expenses, and the value of the leasehold
estate.
18. UTILITIES - From and after the Possession Date, Lessee shall pay
or cause to be paid, and hold Lessor and the property of Lessor including said
Premises free and harmless from, all charges for the furnishings of gas,
electricity, and other public utilities to said Premises during the term of this
Lease and for the removal of garbage and rubbish from said Premises during the
term of this Lease.
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19. ASSIGNMENT AND SUBLETTING - Lessee shall not assign this Lease,
or any interest therein, and shall not sublet the Premises, or any part thereof,
or any right or privilege appurtenant thereto, or suffer any other person (the
agents and servants of Lessee excepted) to occupy or use the Premises, or any
portion thereof, without the written consent of Lessor first had and obtained
which consent shall not be unreasonably withheld; and a consent to one
assignment, subletting, occupation or use by any other person, shall not be
deemed to be a consent to any subsequent assignment, subletting, occupation or
use by another person. Any such assignment or subletting without such consent
shall be void, and shall at the option of Lessor, terminate this Lease. This
Lease shall not, nor shall any interest therein, be assignable, as to the
interest of Lessee, by operation of law, without the written consent of Lessor.
Lessor's prior consent shall not be required for any assignment,
sublease or other transfer of Lessee's interest in the Premises or the Lease to
any corporation with which Lessee may merge or consolidate or become affiliated
as a parent, subsidiary, holding company or otherwise, or to an entity in which
Lessee has a controlling interest.
20. ESTOPPEL CERTIFICATE - Either party shall upon the other party's
written request, promptly execute and deliver to the requesting party, without
charge, a statement certifying that this Lease is in full force and effect in
its original form or is in full force and effect as modified, and if applicable,
the date to which the rent has been prep aid and any other information as may be
reasonably required by the requesting party.
21. SUBORDINATION - Lessee agrees promptly to execute and deliver to
Lessor, upon written request, without charge, in such form as may be reasonably
required by any prospective lender to Lessor, an instrument or instruments
whereby Lessee will agree to subordinate this Lease to the lien of said lender's
mortgage or deed of trust or other encumbrance, and in the case of foreclosure
will attorn to such mortgagee or holder acquiring title by foreclosure; provided
that the mortgagee or holder shall have delivered to Lessee a written non-
disturbance agreement for the benefit of Lessee to the effect that the Lease
shall not be terminated in the event of any default under any ground lease,
mortgage or deed of trust, or any foreclosure or sale pursuant to the terms of
any mortgage or deed of trust, so long as Lessee is not in default (after the
expiration of all applicable cure periods) under the terms of the Lease. As used
herein, the term "foreclosure" shall include both judicial proceedings and the
exercise of a power of sale under any mortgage or deed of trust without recourse
to judicial proceedings. Lessor shall deliver to Lessee, prior to the execution
of this Lease, a non-disturbance agreement in form and substance reasonably
satisfactory to Lessee, executed by any lender which currently holds a deed of
trust encumbering any portion of the Premises.
22. INSOLVENCY OR BANKRUPTCY - Either (a) the appointment of a
receiver to take possession of all or substantially all of the assets of Lessee,
or (b) a general assignment by Lessee for the benefit of creditors, or (c) any
action taken or suffered by Lessee under any insolvency or bankruptcy act shall
constitute a breach of this Lease by Lessee.
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23. REMEDIES OF OWNER ON DEFAULT -
(a) Events of Default: The occurrence of any of the following shall
constitute an "Event of Default" by Lessee:
(i) Lessee fails to make any payment of rent when due
and such failure is not cured within five (5) days after notice to Lessee
thereof
(ii) Lessee fails to timely make payments of rent when
due under this Lease three (3) or more times during any twelve (12) month period
during the term of this Lease.
(iii) Lessee fails to perform any other provision of this
Lease and such failure is not cured within thirty (30) days after written notice
to Lessee or, if such failure cannot be cured within such thirty (30) day
period, Lessee fails within such thirty (30) day period to commence, and
thereafter diligently proceed with, any actions necessary to cure such failure
as soon as reasonably possible
(iv) Lessee fails to deliver any estoppel certificate
required by Section 20 within twenty (20) days after receipt of a written
request from Lessor.
(v) Lessee ceases doing business as a going concern,
makes an assignment for the benefit of creditors, is adjudicated an insolvent,
files a petition (or files an answer admitting the material allegations of such
position) seeking for Lessee any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar arrangement under any state or
federal bankruptcy or other statute, law or regulation, or Lessee consents to or
acquiesces in the appointment, pursuant to any state or federal bankruptcy or
other statute, law or regulation, of a trustee, receiver or liquidator for the
Premises, for Lessee or for all or any substantial part of Lessee's assets.
(vi) Lessee fails within ninety (90) days after the
commencement of any proceedings against Lessee seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any state or federal bankruptcy or other statute, law or
regulation, to have such proceeding dismissed, or Lessee fails, within ninety
(90) days after an appointment pursuant to any state or federal bankruptcy or
other statute, law or regulation, without Lessee's consent or acquiescence, of
any trustee, receiver or liquidator for the Premises, for Lessee or for all or
any substantial part of Lessee's assets, to have such appointment vacated.
(b) Remedies: Upon the occurrence of an event of default Lessor shall
have the following remedies, which shall not be exclusive but shall be
cumulative and shall be in addition to any other remedies now or hereafter
allowed by law:
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(i) Lessor may terminate Lessee's right to possession of
the Premises at any time by written notice to Lessee. Lessee expressly
acknowledges that in the absence of such written notice from Lessor, no other
act of Lessor, including, but not limited to, its re-entry into the Premises,
its efforts to rent the Premises, its releasing of the Premises for Lessee's
account, its storage of Lessee's personal property and trade fixtures, its
acceptance of keys to the Premises from Lessee or its exercise of any other
rights and remedies under this Section, shall constitute an acceptance of
Lessee's surrender of the Premises or constitute a termination of this Lease or
of Lessee's right to possession of the Premises.
Upon such termination in writing of Lessee's right to possession
of the Premises, as herein provided, this Lease shall terminate and Lessor shall
be entitled to recover damages from Lessee for such breach, including but not
limited to the following:
(A) The reasonable cost of recovering the Premises; plus
(B) The reasonable cost of removing Lessee's Alterations, trade
fixtures and non-Lessor-approved improvements; plus
(C) All unpaid rent due or earned hereunder prior to the date of
termination, less the proceeds of any reletting or any rental received from
subtenants prior to the date of termination applied as provided in subsection
(ii) below, together with interest at the rate often percent (10%) per annum, on
such sums from the date such rent is due and payable until the date of the
reward of damages; plus
(D) The amount by which the rent which would be payable by
Lessee hereunder, including Lessee's share of increases in operating costs and
taxes, as reasonably estimated by Lessor, from the date of termination until the
date of the award of damages exceeds the amount of such rental loss as Lessee
proves could have been reasonably avoided together with interest at the rate of
ten percent (10%) per annum on such sums from the date such rent is due and
payable until the date of the award of damages; plus
(E) The amount by which the rent which would be payable by
Lessee hereunder, including Lessee's share of increases in operating costs and
taxes, as reasonably estimated by Lessor, for the remainder of the term,
including any extensions thereof, after the date of the award of damages exceeds
the amount of such rental loss as Lessee proves could have been reasonably
avoided, discounted at the discount rate published by the Federal Reserve Bank
of Atlanta for member banks at the time of the award plus one percent (1%); plus
(F) Such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.
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(ii) Lessor may continue this Lease in full force and
effect and may enforce all its rights and remedies under this Lease, including,
but not limited to, the right to recover rent as it becomes due. During the
continuance of an event of default, Lessor may enter the Premises without
terminating this Lease and sublet all or any part of the Premises for Lessee's
account to any person, for such term (which may be a period beyond the remaining
term of this Lease), at such rents and on such other terms and conditions as
Lessor deems advisable. In the event of any such subletting, rents received by
Lessor from such subletting shall be applied (A) first, to the payment of the
costs of maintaining, preserving, altering and preparing the Premises for
subletting and other costs of subletting, including but not limited to brokers'
commissions, attorneys' fees and expenses of removal of Lessee's personal
property, Alterations, trade fixtures and non-Lessor-approved improvements; (B)
second, to the payment of rent then due and payable; (C) third, to the payment
of future rent as the same may become due and payable hereunder; and ~) fourth,
the balance, if any, shall be paid to Lessee upon (but not before) expiration of
the term of this Lease. If the rents received by Lessor from such subletting,
after application as provided above, are insufficient in any month to pay the
rent due and payable hereunder for such month, Lessee shall pay such deficiency
to Lessor monthly upon demand. Notwithstanding any such subletting for Lessee 5
account without termination, Lessor may at any time thereafter, by written
notice to Lessee, elect to terminate this Lease by virtue of a previous event of
default.
Upon any event of default, for so long as Lessor does not
terminate Lessee's right to possession of the Premises and subject to Section 19
"Assignment and Subletting" above, Lessor shall not unreasonably withhold its
consent to an assignment or sublease of Lessee's interest in the Premises or in
this Lease.
(iii) During the continuance of an event of default,
Lessor may enter the Premises without terminating this Lease and remove all
Lessee's personal property, Alterations, trade fixtures and non-Lessor-approved
improvements from the Premises. If Lessor removes such property from the
Premises and stores it at Lessee's risk and expense, and if Lessee fails to pay
the cost of such removal and storage after written demand therefor and/or to pay
any rent then due, after the property has been stored for a period of thirty
(30) days or more, Lessor may sell such property at public or private sale, in
the manner and at such times and places as Lessor in its sole discretion deems
commercially reasonable following reasonable notice to Lessee of the time and
place of such sale. The proceeds of any such sale shall be applied first to the
payment of the expenses for removal and storage of the property, preparation for
and conducting such sale, and attorneys' fees and other legal expenses incurred
by Lessor in connection therewith, and the balance shall be applied as provided
in subsection (ii) above.
Lessee hereby waives all claims for damages that may be caused by
Lessor's reentering and taking possession of the Premises or removing and
storing Lessee's personal property pursuant to this section, and Lessee shall
hold Lessor harmless from and
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against any loss, cost or damage resulting from any such act. No reentry by
Lessor shall constitute or be construed as a forcible entry by Lessor.
(iv) Lessor may require Lessee to remove any and all
Alterations and non-Lessor-approved improvements from the Premises or, if Lessee
fails to do so within ten (10) days after Lessor's request, Lessor may do so at
Lessee's expense.
(v) Lessor may cure the event of default at Lessor's
expense. If Lessor pays any sum or incurs any expense in curing the event of
default, Lessee shall reimburse Lessor upon demand for the amount of such
payment or expense with interest at the rate often (10%) percent per annum from
the date the sum is paid or the expense is incurred until Lessor is reimbursed
by Lessee. Any amount due Lessor under this subsection shall constitute
additional rent.
24. HAZARDOUS MATERIALS
(a) Lessee's Representations. Lessee shall not use, generate,
manufacture, produce, store, release, discharge, or dispose of, on, under or
about the Premises, or transport to or from the Premises, any Hazardous
Materials or allow its employees, agents, contractors, invitees or any other
person or entity to do so except in full compliance with all Federal, state and
local laws, regulations and ordinances. Lessee covenants and agrees to provide
Lessor with a list of all Hazardous Materials and the quantities thereof which
Lessee uses, generates, stores or otherwise has present at the Premises during
the term of this Lease, updated throughout the term of this Lease at such times
as Lessee is required to update such list to the fire department, but in no case
less frequently than annually. The term "Hazardous Materials" shall include
without limitation:
(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or "solid
waste" under CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49
U.S.C. sections 1801, et seq., and in the regulations promulgated pursuant to
-------
said laws;
(ii) Those substances defined as "hazardous wastes" in
section 25117 of the California Health & Safety Code, or as "hazardous
substances" in Section 25316 of the California Health & Safety Code, and in the
regulations promulgated pursuant to said laws;
(iii) Those substances listed in the United States
Department of Transportation Table (49 CFR 172.101 and amendments thereto) or
designated by the Environmental Protection Agency (or any successor agency) as
hazardous substances (see e.g., 40 CFR Part 302 and amendments thereto);
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(iv) Such other substances, materials and wastes which
are or become regulated under applicable local, state or federal law, or the
United States government,
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or which are or become classified as hazardous or toxic under federal, state, or
local laws or regulations; and
(v) Any material, waste or substance which is (a)
petroleum (b) asbestos, (c) polychlorinated biphenyl's, (d) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act of 1977, 33
U.S.C. Sections 1251, et seq. (33 U.S.C. '1321) or listed pursuant to Section
307 of the Clean Water Act of 1977 (33 U.S.C. '1317); (e) flammable explosives,
or (f) radioactive materials.
In addition to the foregoing, Lessee further agrees that without Lessor's prior
written consent which may be given or withheld in Lessor's sole discretion, only
items approved by the appropriate governmental agencies is permitted to be put
into the drains of the Premises. UNDER NO CIRCUMSTANCES SHALL LESSEE EVER
DEPOSIT ANY ESTERS OR KETONES (USUALLY FOUND IN SOLVENTS USED TO CLEAN UP
PETROLEUM PRODUCTS) IN THE DRAINS AT THE PREMISES.
Regardless of whether Lessor approves of Lessee's use, storage or
disposal of Hazardous Materials, Lessee shall be liable to Lessor for and
indemnify and hold Lessor harmless against all damages (including attorney's
fees, investigation and remedial costs), liabilities and claims arising out of
Lessee's activities associated with Hazardous Materials, including all costs and
expenses incurred by Lessor in repairing or replacing, but not limited to, the
piping so damaged, to the extent such damages, liabilities and claims arise out
of Lessee's activities associated with Hazardous Substances. In the event
Lessee's activities with Hazardous Materials create a contamination problem on
or adjacent to the Premises, Lessee shall promptly commence investigation and
remedial activities to fully cleanup the problem. If appropriate or required by
law, these activities shall be conducted in conjunction with Federal, state and
local oversight and approvals.
Upon reasonable prior notice to Lessee, Lessor may survey the Premises
on a periodic basis for agency compliance, including a review of current
permits.
(b) Lessor has provided Lessee with copies of the following documents
(all of which are hereinafter referred to as the "Environmental Studies"):
. Dames & Moore Interim Report-Environmental Baseline
SurveyGE/Harris-Santa Clara, California, dated November 2, 1988.
. Dames & Moore Environmental Baseline Investigation-Results of
Task VGE/Harris-Santa Clara, California, dated January 31, 1989.
. Dames & Moore GE/Harris-Environmental Baseline Survey-Task
VIIFinal Summary Report- Santa Clara, California, dated October 12, 1990.
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. Sampling Report for Characterization Sampling of the Harris
Semiconductor Building, 3250 Scott Blvd., Santa Clara, California, prepared
by Peregren Environmental Group, dated December 19, 1991.
. Closure Report for Harris Semiconductor, Santa Clara, California,
prepared. by Peregren Environmental Group, dated July 17, 1995.
. Letter to Harris Semiconductor from the City of Santa Clara,
California, confirming partial closure of the 3250 Scott Blvd., Santa
Clara, California facility, dated December 16, 1993.
Lessor shall indemnify and hold Lessee harmless against all damages
(including attorney's fees, investigation and remedial costs), liabilities and
claims arising out of the presence of Hazardous Materials on the Premises which
are disclosed in the Environmental Studies or otherwise existing on the Premises
as of the execution of this Lease, or which become located on the Premises
(through the migration of plumes or otherwise) through no fault or act of Lessee
during the term of the Lease.
Lessee has contracted for Phase I and Phase II due diligence
assessments of the Premises. In the event that the results of such assessments
are not reasonably satisfactory to Lessee, Lessee shall have the right to
terminate this Agreement within fifteen (15) days of receipt thereof In the
event that Lessee so terminates this Agreement, Lessor's liability to pay the
Tenant Improvement Allowance is limited to no more than $250,000.
25. ATTORNEY'S FEES - In case suit should be brought for recovery of
the Premises, or for any sum due hereunder, for the enforcement or
interpretation of any of the terms or conditions of this Lease, or because of
any act which may arise out of the possession of the Premises, by either party,
the prevailing party shall be entitled to all costs incurred in connection with
such action, including a reasonable attorney's fee.
26. WAIVER - No failure of Lessor to enforce any terms hereof shall
be deemed to be a waiver.
27. HOLDING OVER - Any holding over after the expiration of this
Lease, with the consent of Lessor, shall be construed as a month-to-month
tenancy for no more than three (3) months at a monthly rent of $2.00 per square
foot. Lessee shall have no right to hold over beyond such three months and
Lessor shall have the right to bring an action for immediate eviction in the
event that Lessee attempts to hold over beyond that period.
28. SUCCESSORS AND ASSIGNS - The covenants and conditions herein
contained shall, subject to the provisions as to assignment, apply to and bind
the heirs, successors, executors, administrators and assigns of all of the
parties hereto; and all of the
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administrators and assigns of all of the parties hereto; and all of the parties
hereto shall be jointly and severally liable hereunder.
29. TIME - Time is of the essence of this Lease.
30. CAPTIONS - The captions of the sections of this Lease are for
convenience only and are not a part of this Lease and do not in any way limit or
amplify the terms and provisions of this Lease.
31. GOVERNING LAW - This Lease shall be governed by and construed in
accordance with the laws of the State of California.
32. ENTIRE AGREEMENT - This Lease contains all of the terms,
covenants and conditions agreed to by Lessor and Lessee and it may not be
modified orally or in any manner other than by an agreement in writing signed by
all of the parties to this Lease or their respective successors in interest.
33. PARTIAL INVALIDITY - The unenforceability, invalidity or
illegality of any provision(s) of this Lease shall not render the other
provisions unenforceable, invalid or illegal.
34. SIGNS - Lessee may install suitable signage on the Premises
provided such signage meets all appropriate signage codes. At end of this Lease
and any extensions hereof, Lessee shall remove all site and exterior building
signs, as Lessor may request.
35. BROKERAGE COMMISSION - Lessor shall pay commission in the amount
of $234,514.00 to its broker, Wayne Mascia Associates, pursuant to the terms and
conditions of its Exclusive Listing Agreement. Lessee's broker, BT Commercial
Real Estate, shall look to Wayne Mascia Associates for its commission payment.
36. BUILDING SECURITY - No building security will be supplied by
Lessor.
37. ABANDONMENT OF PREMISES - Lessee shall not abandon the Premises
at any time during the term hereof, and if Lessee shall abandon the Premises, or
be dispossessed by process of law, or otherwise, any personal property belonging
to Lessee left upon the Premises shall be deemed to be abandoned, at the option
of Lessor.
38. LESSOR'S LIABILITY - The term "Lessor," as used in this section,
shall mean only the owner of the real property or a Lessee's interest in a
ground lease of the Premises. In the event of any transfer of such title or
interest, Lessor named herein (or the grantor in case of any subsequent
transfers) shall be relieved of all liability related to Lessor's obligations to
be performed after such transfer, provided, however, that any of Lessee's funds
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in the hands of Lessor or Grantor at the time of such transfer shall be
delivered to Grantee and that Grantee shall have assumed in writing all of
Lessor's obligations under the Lease. Lessor's aforesaid obligations shall be
binding upon Lessor's successors and assigns only during their respective
periods of ownership.
39. NOTICES - Any notice, demand, request, consent, approval or
communication that either party desires or is required to give to the other
party under this Lease shall be in writing and shall be served personally,
delivered by independent messenger or nationally recognized overnight courier
service, or sent by U.S. certified mail, return receipt requested, postage
prepaid, addressed to the other party at the address set forth below:
Prior to Commencement Date
To Lessee: Synergy Semiconductor Corporation
Point of Contact: 3450 Central Expressway
Santa Clara, CA 95051
Attn: Mr. Olin Nichols
After Commencement Date
To Lessee: Synergy Semiconductor Corporation
Point of Contact: 3250 Scott Boulevard
Santa Clara, CA 95051
Attn: Mr. Olin Nichols
To Lessor: Director of Facilities Management
Harris Corporation
1025 W. NASA Blvd.
Melbourne, FL 32919
Notice shall be deemed given on the date of personal delivery, the next day
after being sent via nationally recognized overnight courier, and three (3) days
after being sent via certified mail, return receipt requested.
40. OPTION TO EXTEND.
(a) Extended Term. In consideration of Lessee entering into the
Lease, and provided that Lessee is not then in default, Lessor hereby grants to
Lessee the option to extend the term of the Lease for one (1) additional term of
five (5) years (the "Extended Term"). Lessee shall give written notice to Lessor
of Lessee's intent to exercise such option to extend at least one hundred eighty
(180) days prior to the expiration of the term of this Lease. The Extended Term
shall be upon the same covenants, agreements, terms, provisions and conditions
as are contained in the Lease, except that the rent payable shall be as provided
in Section 40 (b) below. If Lessee has exercised this option to extend, the
phrase "Lease Term" as used in the Lease shall mean the original term of the
Lease and the Extended Term.
24
<PAGE>
(b) Rent for Extended Term. The Base Rent for each year of the
Extended Term shall be at 95% of the then prevailing market rental rate, but in
no case shall the Base Rent be less than the base rent for the rental period
just prior. Base Rent during the Extended Term shall increase annually at each
anniversary date of this Lease by two and one-half percentage points (21/2%).
There shall be no additional rent for the Extended Term. The prevailing market
rental value shall be determined as follows:
(i) Lessor shall deliver to Lessee written notice of
Lessor's determination of prevailing market rental value within fifteen (15)
business days after Lessor receives notice from Lessee that Lessee has exercised
its option to extend.
(ii) If Lessee disputes Lessor's determination of the
prevailing market rental value as contained in Lessor's notice, Lessee shall
notify Lessor in writing within fifteen (15) business days of its receipt of
Lessor's determination, which notice shall set forth Lessee's determination of
the prevailing market rental value. Should Lessee timely notify Lessor as
aforesaid, Lessor and Lessee shall attempt to resolve their differences within
fifteen (15) business days following Lessor's receipt of Lessee's notice.
(iii) If Lessor and Lessee cannot agree on the prevailing
market rental value during such fifteen (15) business day period, Lessor and
Lessee shall each appoint as an appraiser a real estate broker experienced in
leasing office and manufacturing space in the county in which the Premises are
located and give notice of such appointment to the other within fifteen (15)
business days after the foregoing fifteen (15) business day period. If either
Lessor or Lessee shall fail timely to appoint an appraiser, then the single
appraiser appointed by one party shall proceed to make the determination of
prevailing market rental value. Such appraisers shall, within fifteen (15)
business days after the appointment of the last of them to be appointed,
complete their written determinations of prevailing market rental value and
furnish the same to Lessor and Lessee. Each party shall pay the fees and costs
of the appraiser appointed by it. The prevailing market rental value shall be
the average of the two valuations.
(iv) For purposes of this Section 40, the prevailing
market rental value of the Premises shall mean the rental rate that an unrelated
party negotiating at arm's length would pay for leasing the Premises for the
period of the Extended Term, taking into account all then current market
factors, including without limitation rent for like properties over the past six
(6) months, the availability of like space on the then-current market, the
quality, design, and location of the Building and the Premises within the
Building, the terms and conditions of the Lease (including the permitted use
provided in the Lease) and the value of the existing tenant improvements to such
party (but excluding the value of any improvements installed at Lessee's
expense) and also excluding any premium based on the size of the Premises.
25
<PAGE>
(v) Upon determination of the prevailing market rental
value of the Premises (and the calculation of Base Rent pursuant to subsection
(i) above) for the Extended Term, Lessee shall have the right to withdraw its
exercise of its option to extend by giving Lessor notice of withdrawal within
five (5) days of Lessee's receipt of notice of the determination. In the event
Lessee does withdraw its option exercise, Lessee shall pay all appraisal fees
incurred by Lessor and Lessee in determining the prevailing market rental value.
In the event Lessee does not withdraw its option exercise, then upon
determination of the Base Rent for the extension period as described above, the
parties shall execute a certificate specifying the Base Rent for such extension
period.
41. COVENANT OF QUIET ENJOYMENT - So long as Lessee pays all rentals
required hereunder and observes and performs all of the covenants, conditions
and provisions on Lessee's part to be observed and performed hereunder, Lessee
shall have quiet possession of the Premises for the entire Lease Term, subject
to all the provisions of the Lease. Nonetheless, Lessor shall not be barred from
bringing any valid action under this Lease. Any lawsuit brought by Lessor to
enforce the terms of this Lease or seeking a declaration of Lessor's rights
pursuant to this Lease shall not be deemed a violation of this section.
42. MEMORANDUM OF LEASE - Lessee may record a short form memorandum
of the Lease, subject to the prior written consent of Lessor as to form and
content, which consent shall not be unreasonably withheld.
43. SURVIVAL OF CERTAIN OBLIGATIONS - Sections 13, 14 and 24 of this
Lease shall survive the termination or expiration of this Lease.
44. AUTHORITY - Lessee and Lessor warrant and represent that their
respective representatives executing this Lease each have the full power and
authority to execute this Lease on behalf of Lessee and Lessor, respectively,
and that this Lease, once executed by the signatory of Lessee or Lessor, as the
case may be, shall constitute a legal and binding obligation of that party and
is fully enforceable in accordance with its terms.
45. MODIFICATION - This Lease may not be modified or amended except
by a written instrument executed by both parties.
26
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this agreement on
the date first above written.
WITNESSES LESSOR:
HARRIS CORPORATION
________________________________
________________________________ By ____________________________________
Robert W. W. Fay
V.P. - Controller
WITNESSES: LESSEE:
SYNERGY SEMICONDUCTOR CORPORATION
________________________________
________________________________ By ____________________________________
T. Olin Nichols
Chief financial Officer
27
<PAGE>
EXHIBIT X
ADJUSTED ADDITIONAL RENT BASED ON TENANT IMPROVEMENT ALLOWANCE SPENT
<TABLE>
<CAPTION>
Tenant Improvement Rent Dollars/Sq. Ft.IMontn
Allowance Months
Amount Spent ($M) 1-24 2548 49-72 73-96 97-120
- ----------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5.90 6.10 0.95 0.96 0.97 0.98 1.00
5.70 5.90 0.92 0.93 0.94 0.95 0.97
5.50 5.70 0.89 0.90 0.91 0.92 0.94
5.30 5.50 0.86 0.87 0.88 0.89 0.91
5.10 5.30 0.83 0.84 0.85 0.86 0.87
4.90 5.10 0.80 0.81 0.82 0.82 0.84
4.70 4.90 0.77 0.78 0.78 0.79 0.81
4.50 4.70 0.74 0.74 0.75 0.76 0.78
4.30 4.50 0.70 0.71 0.72 0.73 0.74
4.10 4.30 0.67 0.68 0.69 0.69 0.71
3.90 4.10 0.64 0.65 0.66 0.66 0.68
3.70 3.90 0.61 0.62 0.62 0.63 0.64
3.50 3.70 0.58 0.59 0.59 0.60 0.61
3.30 3.50 0.55 0.55 0.56 0.57 0.58
3.10 3.30 0.52 0.52 0.53 0.53 0.55
0.00 3.10 0.49 0.49 0.50 0.50 0.51
</TABLE>
<PAGE>
3250 SCOTT BLVD.
[MAP APPEARS HERE]
OWNED PROPERTY
EXHIBIT A
<PAGE>
LEGAL DESCRIPTION
________________________________________________________________________________
All that certain real property situated in the City of Santa Clara, County of
Santa Clara, State of California, described as follows:
All of PARCEL B as shown on Parcel Map filed for record on March 17, 1983 in
Book 510 of Maps at page 11, Santa Clara County Records, said PARCEL B being
more particularly described as follows:
Beginning at the southerly most common corner between said PARCEL B and PARCEL A
as shown on said Parcel Map;
Thence. from said Point of Beginning, along the boundaries of PARCEL B as shown
on said Parcel Map, North 1 degree 00' 47 East, 416.75 feet;
Thence, North 44 degree o4' 11: West, 70.61 feet;
Thence North, 89 degree 09' 07: West, 65.00 feet to the southeasterly corner of
Parcel S as shown on Parcel Map filed in Book 331 of Maps at page 10, Santa
Clara County Records;
Thence, along the easterly boundary of said Parcel S, North 1 degree 00' 47:
East, 262.00 feet to the southerly boundary line of Scott Boulevard as shown on
first said Parcel Map;
Thence, along said southerly boundary line, South 76 degree 30; 56: East, 457.54
feet to the westerly boundary of Parcel 1 as shown on Parcel Map filed in Book
463 of Maps at page 42, Santa Clara County Records;
Thence, along last said boundary and leaving said southerly boundary line, South
1 degree 00; 47" West, 640.0 feet to the northerly boundary of PARCEL C as shown
on Parcel Map filed in Book 338 of Maps at page 40, Santa Clara County Records;
Thence, along last said boundary, North 87 degree 07; 22: West, 331.92 feet to
the Point of Beginning and containing 5.802 acres, more or less.
Together with that certain Private Ingress-Egress Easement as shown on first
said Parcel Map to benefit PARCEL 3 thereon.
Also together with that certain Exclusive Private Ingress-Egress and Utility
Easement as shown on first and said Parcel Map and filed at Book G043, Official
Records, at page 137, Santa Clara County Records
________________________________________________________________________________
<PAGE>
EXHIBIT 10.7
SCHEDULE OF EXCEPTIONS
TO THE LOAN AND SECURITY AGREEMENT
The following are exceptions to the representations and warranties of
Synergy Semiconductor Corporation (the "Company") and any other provisions
contained in the Loan and Security Agreement between the Company and CoastFed
Business Credit Corporation ("CoastFed") and all related agreements thereto
dated June 29, 1993 (collectively, the "Agreements"), and should be Considered
an integral part of the Agreements. The section numbers in this Schedule of
Exceptions correspond to the section numbers in the Agreements; however, any
information disclosed herein under any section number or in any schedule or
exhibit to the Agreements provided by the Company shall be deemed disclosed
and incorporated into any other section, exhibit or schedule under the
Agreements where such disclosure would be appropriate. Any terms defined in
the Agreements shall have the same meaning when used in this Schedule of
Exceptions as when used in the Agreements
3.2 Authority. Prior to granting a security interest in its
---------
property and incurring indebtedness pursuant to the Agreements, the Company is
contractually obligated to receive the prior written consent of Digital
Equipment Finance Corporation, Storage Technology Corporation and StorageTek
Computer Research Corporation (collectively, "Storage") - The Company
anticipates that its loan agreement with Digital Equipment Finance Corporation
will terminate as soon as practicable after the closing and has requested
Storage to subordinate its interest to CoastFed
3.3 Name.- Trade Name and Style. The Company was previously known
---------------------------
as Solid State Technologies, Inc. and changed its name to Synergy
Semiconductor Corporation on September 24. 1987. The Company acquired certain
equipment and fab improvements through the purchase of all of the outstanding
stock of Zoran Wafer Fabrication Corporation in December 1987, which is now a
wholly-owned subsidiary of the Company named Synergy Wafer Fabrication
Corporation. Synergy Wafer Fabrication Corporation owns assets worth
approximately $0 in book value. The Company has an interest in Halbleiter
Elecktronik Frankfurt (Oder) GmbH pursuant to a joint venture with
Treunhandstalt but does not own any other assets in Germany.
3.5 Title to Collateral: Liens.
--------------------------
(a) Without limiting the terms of Section 3.5 of the Agreement,
"Permitted Liens" shall include the liens, charges, security interests,
encumbrances and/or adverse claims represented by the financing statements
referred to in the UCC search dated May 7, 1993 and previously provided to
CoastFed with the understanding that those security interests held by Digital
Equipment Finance Corporation will be terminated as soon as practicable after
closing.
<PAGE>
(b) The Company leases its facility at 3450 Central Expressway,
Santa Clara, California from Sobrato Interests.
3.11 Litigation. The Company is currently in default under the
----------
terms of Secured Subordinated Notes issued on August 30, 1992 to certain of
its existing investors and will be seeking waivers from such parties as soon
as practicable after the execution of the Agreements.
<PAGE>
COAST
SECURED PROMISSORY NOTE
$1,400,000. LOS ANGELES, CALIFORNIA JUNE 29,1993
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the order
of COASTFED BUSINESS CREDIT CORPORATION ("CoastFed"), at 12121 Wilshire
Boulevard, Suite 1111, Los Angeles, California, or at such other address as the
holder of this Note shall direct, the principal sum of ONE MILLION FOUR HUNDRED
THOUSAND DOLLARS ($1,400,000.), payable $55,000 principal per month, plus
interest as hereinafter provided, commencing on JULY 31, 1993 and continuing on
the last day of each succeeding month. The entire remaining unpaid principal
balance of this Note, plus any and all accrued and unpaid interest, shall be due
and payable on the earlier of: (i) July 31, 1995, or (ii) the date that the Loan
and Security Agreement between the Borrower and CoastFed dated June 29, 1993
(the "Loan Agreement") terminates by its terms or is terminated by either party
in accordance with its terms.
This Note shall bear interest on the unpaid principal balance hereof from
time to time out-standing at a rate equal to the "Prime Rate" (as hereinafter
defined) plus 3% per annum, but in no event shall the interest rate in any month
be less than 8% per annum. Interest shall be calculated on the basis of a 360-
day year for the actual number of days elapsed. As used herein, the term "Prime
Rate" shall mean the actual "Reference Rate" or the substitute therefor of the
Bank of America N-I- & SA whether or not that rate is the lowest interest rate
charged by said bank. The interest rate applicable to this Note shall be
adjusted monthly, as of the first day of each month, and the interest rate
charged during each month shall be based on the highest Prime Rate in effect
during said month. If the Prime Rate is unavailable, "Prime Rate" shall mean the
highest of the prime rates published in the Wall Street Journal on the first
business day of the month, as the base rate of corporate loans at large U.S.
money center banks. Accrued interest shall be payable monthly, in addition to
the principal payments provided above, commencing on JUNE 30, 1993, and
continuing on the last day of each succeeding month.
Principal of, and interest on, this Note shall be payable in lawful money of
the United States of America. If a payment hereunder becomes due and payable on
a Saturday, Sunday or legal holiday, the due date thereof shall be extended to
the next succeeding business day, and interest shall be payable thereon during
such extension.
In the event any payment of principal or interest on this Note is not paid in
full when due, or if any other default or event of default occurs under the Loan
Agreement or any other present or future instrument, document, or agreement
between Borrower and CoastFed, CoastFed may, at its option, at any time
thereafter, declare the entire unpaid principal balance of this Note plus all
accrued interest to be immediately due and payable, without notice or demand.
Without limiting the foregoing, and without limiting CoastFed's other rights and
remedies, in the event any installment of principal or interest is not paid in
full on or before the date due, Borrower agrees that it would be impracticable
or extremely difficult to fix the actual damages resulting therefrom to
CoastFed, and therefore the Borrower agrees immediately to pay to CoastFed an
amount equal to 5% of the installment (or portion thereof) not paid, as
liquidated damages, to compensate CoastFed for the internal administrative
expenses in administering the default. The acceptance of any installment of
principal or interest by CoastFed after the time when it becomes due, as herein
specified, shall not be held to establish a custom, or to waive any rights of
-1-
<PAGE>
Coast Business Credit Secured Promissory Note
________________________________________________________________________________
CoastFed to enforce payment when due of any further installments or any other
rights, nor shall any failure or delay to exercise any rights be held to waive
the same.
All payments hereunder are to be applied first to costs and fees referred to
hereunder, second to the payment of accrued interest and the remaining balance
to the payment of principal. Any principal prepayment hereunder shall be applied
against principal payments in the inverse order of maturity. CoastFed shall have
the continuing and exclusive right to apply or reverse and reapply any and all
payments hereunder in its sole discretion.
Borrower agrees to pay all costs and expenses (including without limitation
attorney's fees) incurred by CoastFed in connection with or related to this
Note, or its enforcement, whether or not suit be brought. Borrower hereby
further waives presentment, demand for payment, notice of dishonor, notice of
nonpayment, protest, notice of protest, and any and all other notices and
demands in connection with the delivery, acceptance, performance, default, or
enforcement of this Note, and Borrower hereby waives the benefits of any statute
of limitations with respect to any action to enforce, or otherwise related to
this Note.
This Note is secured by the Loan Agreement and all other present and future
security agreements between Borrower and CoastFed. Nothing herein shall be
deemed to limit any of the terms or provisions of the Loan Agreement or any
other present or future document, instrument or agreement, between Borrower and
CoastFed, and all of CoastFed's rights and remedies hereunder and thereunder are
cumulative.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this Note
shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of CoastFed, and then only to the extent therein specifically
set forth. If more than one person executes this Note, their obligations
hereunder shall be joint and several.
COASTFED AND BORROWER EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS
NOTE; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
COASTFED AND BORROWER; OR (iii) ANY CONDUCT, ACTS OR OMISSIONS OF COASTFED OR
BORROWER OR ANY OF -I-HEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH COASTFED OR BORROWER.
This Note is payable in, and shall be governed by the internal laws of, the
State of California.
Synergy Semiconductor Corporation,
By________________________________
President or Vice President
By________________________________
Secretary or Ass't Secretary
-2-
<PAGE>
March 31, 1995
Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, California 95051
Re: Amending Letter Agreement
-------------------------
Gentlemen:
CoastFed Business Credit Corporation ("CoastFed") makes reference to the
following agreements and instruments by Synergy Semiconductor Corporation
("Borrower") with or in favor of CoastFed, as the same may have from time
to time been amended: (i) Loan and Security Agreement ("Loan Agreement')
dated June 29, 1993, (ii) Equipment Collateral Security Agreement
("Equipment Agreement") dated June 29, 1993, (iii) Secured Promissory Note
dated September 28, 1994 in the principal amount of $1,680,000 (the
"$1,680,000 Note"), and (iv) Amending Letter Agreement dated September 28,
1994. The foregoing agreements and instruments, along with the other
"Collateral Agreements" (as defined in the Loan Agreement), shall be
collectively referred to as the "Loan Documents."
By their signatures below, the parties agree that the Loan Documents
are amended and supplemented as follows:
1. Maximum Credit. The last sentence of Paragraph 1.1 of the Loan
--------------
Agreement is hereby amended to read in its entirety as follows:
Notwithstanding anything herein or in any Collateral Agreement to the
contrary, in no event shall the Borrower permit the total balance of
all Loans and all other Obligations outstanding at any one time to
exceed $5,000,000; and, if for any reason they do, Borrower shall
immediately pay the amount of such excess to CoastFed in immediately
available funds.
2. Term Loan. Provided no "Event of Default" (as defined in the Loan
---------
Agreement) has occurred and Borrower has complied with the terms of
Paragraph 3 below, CoastFed shall make a Loan ("New Equipment Loan") to
Borrower in an amount equal to the difference between $2,000,000 and the
outstanding principal of the $1,680,000 Note (the "Existing Equipment
Loan"). The New Equipment Loan shall be made by CoastFed on May 1, 1995.
Effective upon the making of the New Equipment Loan, the New Equipment Loan
and the Existing Equipment Loan shall be aggregated into a single
$2,000,000 Loan which shall (a) bear interest at the same rate as under the
$1,680,000 Note, payable monthly, and (b) require principal payments of (i)
$85,000 each month beginning on May 31, 1995 and continuing on the last day
of each month thereafter through and including October 31, 1995 and (ii)
$75,000 each month beginning on November 30, 1995 and continuing on the
last day of each month thereafter until all principal is paid in full;
according to the terms of a Secured Promissory Note to be executed and
delivered by Borrower to CoastFed in form acceptable to CoastFed (the
"$2,000,000 Note"). The $1,680,000
-1-
<PAGE>
Note shall be replaced and amended in its entirety by the $2,000,000 Note. Any
accrued but unpaid interest or costs due under the $1,680,000 Note at the time
it is replaced and amended by the $2,000,000 Note, shall become due and
payable under the $2,000,000 Note. The Borrower acknowledges that the Loan
represented by the $1,680,000 Note is made pursuant to paragraph 2 of the
Equipment Agreement and is subject to the terms of the Equipment Agreement.
3. Conditions. Notwithstanding any execution and delivery of this
----------
Agreement or the $2,000,000 Note by CoastFed and/or Borrower, the provisions
of Paragraphs 1 and 2 above shall not be deemed effective unless and until the
following conditions have been satisfied, provided that CoastFed may waive, in
writing, such conditions:
a. Borrower shall have provided CoastFed with (i) a Landlord's
Waiver, executed by the landlord of Borrower's premises located at 3450
Central Expressway, Santa Clara, California, in form reasonably acceptable to
CoastFed, and in form suitable for recording, (ii) a Fixture Filing with
respect to Borrower, in a form reasonably acceptable to CoastFed, and in form
suitable for recording, and (iii) a Termination Statement signed by the
secured party under that certain Financing Statement filed with the California
Secretary of State's Office on July 23, 1990, as File Number 90-186225,
against Borrower, originally in favor of Digital Equipment Finance Corp. and
assigned to Chase Manhattan Leasing Corp., in a form suitable for filing with
the California Secretary of State's Office to terminate said Financing
Statement.
4. Extension. The "initial renewal date,' as defined in Paragraph 8 of
---------
the Loan Agreement, is hereby amended to be "June 30, 1996."
5. Miscellaneous. This Agreement and the Loan Documents set forth in
-------------
full all of the representations and agreements of the parties with respect to
the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with
respect to the subject hereof. This Agreement may not be modified or amended,
nor may any rights hereunder be waived, except in a writing signed by the
parties hereto. Except as herein expressly modified or amended, all the terms
and provisions of the Loan Agreement and the other Loan Documents shall
continue in full force and effect and the same are hereby ratified and
confirmed.
This Agreement is one of the Collateral Agreements referred to in the Loan
Agreement. This Agreement is being entered into, and shall be governed by
the laws of, the State of California.
SYNERGY SEMICONDUCTOR COASTFED BUSINESS CREDIT
CORPORATION CORPORATION
By: _____________________________ By: _________________________________
Name: _________________ President Title: ______________________________
By: _____________________________
Name: _________________ Secretary
-2-
<PAGE>
August 22, 1995
Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, California 95051
Re: Amending Letter Agreement
-------------------------
Gentlemen:
CoastFed Business Credit Corporation ("CoastFed") makes reference to the
following agreements and instruments by Synergy Semiconductor Corporation
("Borrower") with or in favor of CoastFed, as the same may have from time to
time been amended: (i) Loan and Security Agreement ("Loan Agreement") dated
June 29, 1993, (ii) Amending Letter Agreement dated September 28, 1994, and
(iii) Amending Letter Agreement dated March 31, 1995. The foregoing agreements
and instruments, along with the other 'Collateral Agreements" (as defined in
the Loan Agreement), shall be collectively referred to as the "Loan
Documents."
By their signatures below, the parties agree that the Loan Documents are
amended and supplemented as follows:
1. Maximum Credit. The last sentence of Paragraph 1.1 of the Loan
--------------
Agreement is amended, effective as of June 29, 1995, to read in its entirety
as follows:
Notwithstanding anything herein or in any Collateral Agreement to the
contrary, in no event shall the Borrower permit the total balance of
all Loans and all other Obligations outstanding at any one time to
exceed $5,500,000; and, if for any reason they do, Borrower shall
immediately pay the amount of such excess to CoastFed in immediately
available funds.
2. Miscellaneous. This Agreement and the Loan Documents set forth in
full all of the representations and agreements of the parties with respect to
the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with
respect to the subject hereof. This Agreement may not be modified or amended,
nor may any rights hereunder be waived, except in a writing signed by the
parties hereto. Except as herein expressly modified or amended, all the terms
and provisions of the Loan Agreement and the other Loan Documents shall
continue in full force and effect and the same are hereby ratified and
confirmed. This Agreement is one of the Collateral Agreements referred to in
the Loan
-1-
<PAGE>
Agreement. This Agreement is being entered into, and shall be governed by the
laws of, the State of California.
SYNERGY SEMICONDUCTOR COASTFED BUSINESS CREDIT
CORPORATION CORPORATION
By: _____________________________ By: _________________________________
Name: _________________ President Title: ______________________________
By: _____________________________
Name: _________________ Secretary
-2-
<PAGE>
COAST
AMENDMENT TO LOAN DOCUMENTS
BORROWER: SYNERGY SEMICONDUCTOR CORPORATION
ADDRESS: 3450 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
DATE: MARCH 25, 1996
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between Coast Business
Credit, a division of Southern Pacific Thrift & Loan Association (successor by
merger to CoastFed Business Credit Corporation) ("Coast"), whose address is
12121 Wilshire Blvd., Suite 1111, Los Angeles, California and the borrower named
above (the "Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated June 29, 1993 (as amended, the "Loan Agreement"), and that certain
Accounts Collateral Security Agreement between them, dated June 29, 1993 (the
"Accounts Agreement"), as follows. (This Amendment, the Loan Agreement, the
Accounts Agreement, all prior written amendments to said agreements signed by
Coast and the Borrower, and all other written documents and agreements between
Coast and the Borrower are referred to herein collectively as the "Loan
Documents". Capitalized terms used but not defined in this Amendment, shall have
the meanings set forth in the Loan Agreement.)
1. CHANGE IN INTEREST RATE. Effective May 1, 1996, Section 1.2 of the
Loan Agreement is amended in its entirety to read as follows:
"1.2 INTEREST. All Loans (including without limitation the Loans evidenced
by the Secured Promissory Note dated May 1, 1995 in the original principal
amount of $2,000,000) shall bear interest at a rate equal to the "Prime
Rate" (as hereinafter defined), plus I .5% per annum; provided that in the
event the Borrower's net worth (determined in accordance with generally
accepted accounting principles) as of the end of any month after December
1995 is less than 90% of Borrower's net worth as of December 31, 1995,
then all Loans shall bear interest at a rate equal to the "Prime Rate" (as
hereinafter defined), plus 2.0% per annum. Any such change in the interest
rate as a result of such a decline in Borrower's net worth as of the end
of a month shall be effective on the first day of the following month.
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed. The interest rate applicable to all Loans shall be
adjusted monthly as of the first day of each month, and the interest to be
charged for that month shall be based on the highest "Prime Rate" IN
effect during said month, but in no event shall the rate of interest
charged on any Loans in any month be less than 8% per annum. "Prime Rate"
is defined as the actual "Reference Rate" or the
-1-
<PAGE>
Coast Business Credit Amendment to Loan Documents
_______________________________________________________________________________
substitute therefor of the Bank of America NT & SA ("B of A") whether or
not that rate is the lowest interest rate charged by B of A. If the Prime
Rate, as defined, is unavailable, "Prime Rate" shall mean the highest of
the prime rates published in the Wall Street Journal on the first business
day of the month, as the base rate on corporate loans at large U.S. money
center commercial banks."
2. EXTENSION. Effective on the date hereof, the date "June 30, 1996" in
Section 8 of the Loan Agreement is hereby amended by replacing that date with
the date "December 31, 1996".
3. COLLECTIONS. Effective on May 1, 1996, Section 4 of the Accounts
Agreement is amended. to read as follows, and the following new Sections 4A and
4B are added to the Accounts Agreement:
"4. Collection of Accounts. Borrower shall collect the Accounts,
at Borrower's sole cost and expense, and Borrower may utilize the proceeds
of the Accounts in its business, provided that if Borrower's net worth
(determined in accordance with generally accepted accounting principles)
as of the end of any month after December 1995 is less than 90% of
Borrower's net worth as of December 31, 1995, then immediately thereafter
the following provisions shall apply:
"(a) Borrower shall hold all proceeds of the Accounts in trust for
CoastFed.
"(b) All monies, checks, notes, drafts, money orders, acceptances
and other things of value and items of payment, together with any and all
related vouchers, identifications, communications and other data,
documents and instruments, collected or received by Borrower (or by any
receiver, trustee, custodian or successor in interest of Borrower, or by
any person acting on behalf of Borrower) in payment of, or in reference
to, the Accounts shall belong to CoastFed, and, not later than two (2)
days after receipt thereof by Borrower, Borrower shall deliver the same to
CoastFed, at CoastFed's office' (or, if so directed by CoastFed, Borrower
shall deposit the same in CoastFed's account in a bank designated by
CoastFed) in the original form in which the same are received, together
with any necessary indorsements, including, without limitation, the
indorsement of Borrower, all of which indorsements shall be with recourse.
"(c) Borrower shall not commingle any of the proceeds of any of
the collections of the Accounts with Borrower's own funds and Borrower
agrees not to use, divert or withhold any such proceeds. Borrower hereby
divests itself of all dominion over the Accounts and the proceeds thereof
and collections received thereon.
"4A. Accounts-Further Provisions. This provisions of this Section
4A shall apply regardless of Borrower's net worth. Borrower shall make
entries on its books and records in form satisfactory to CoastFed
disclosing the absolute and unconditional assignment of all Accounts to
CoastFed and CoastFed's security
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Coast Business Credit Amendment to Loan Documents
_______________________________________________________________________________
interest therein and shall keep a separate account on its record books of
all collections received thereon. Borrower's privilege of collecting the
Accounts may be revoked by CoastFed at any time after the occurrence of an
Event of Default or if CoastFed believes, in good faith, that Borrower is
not remitting the proceeds of the Accounts to CoastFed when required by
this Agreement or that collection of any of the Accounts or other
Collateral is in jeopardy. Borrower agrees that it will, upon request by
CoastFed and in such form and at such times as CoastFed shall request,
give notice to the Account Debtors of the assignment of and the grant of a
security interest in the Accounts td CoastFed and that CoastFed may itself
give such notice at any time and from time to time in CoastFed's or
Borrower's name, without notice to Borrower. CoastFed may charge to
Borrower's account all costs and expenses incurred by CoastFed in
collecting Accounts, including, without limitation, postage, telephone and
telegraph charges, salaries of CoastFed personnel, and attorneys' fees.
"4B. Reports. During the period Borrower is entitled to retain the
proceeds of Accounts under Section 4 above, Borrower shall provide to
CoastFed, no less frequently than weekly, reports of Borrower's sales,
collections and credit memos, in such form and with such detail as
CoastFed shall specify."
4. REPRESENTATIONS True. Borrower represents and warrants to Coast that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, and the other
Loan Documents set forth in full all of the representations and agreements of
the parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement and the other Loan Documents
shall continue in full force and effect and the same are hereby ratified and
confirmed.
Synergy Semiconductor Corporation Coast Business Credit, a division of
Southern Pacific Thrift & Loan
Association
By____________________________ By____________________________
President or Vice President
Title___________________________
By____________________________
Secretary or Ass't Secretary
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[LOGO OF COAST]
Loan and Security Agreement
Borrower: Synergy Semiconductor Corporation
Address: 3450 Central Expressway
Santa Clara, California 95051
Date: June 29, 1993
THIS LOAN AND SECURITY AGREEMENT ("Loan Agreement"), dated the above date, is
entered into at Los Angeles, California, between COASTFED BUSINESS CREDIT
CORPORATION ("CoastFed"), a California corporation, with offices at 12121
Wilshire Boulevard, Suite 1111, Los Angeles, California 90025, and the borrower
named above ("Borrower"), whose chief executive office is located at the above
address ("Borrower's Address").
1. LOANS.
1.1 Loans, Collateral Agreements. Borrower has requested and may hereafter
request that CoastFed advance funds or otherwise extend credit to or for the
benefit of Borrower ("Loan(s)") in accordance with the terms and provisions of
this Loan Agreement and other written agreements ("Collateral Agreement(s)"),
including, but not limited to, any one or more of the following described
security agreements now or hereafter entered into between Borrower and
CoastFed: (a) Accounts Collateral Security Agreement; (b) Inventory Collateral
Security Agreement; (c) Equipment Collateral Security Agreement; and (d) any
promissory notes or guaranties. The amount and terms of payment of any Loans by
CoastFed to Borrower shall be determined in accordance with the terms and
provisions of this Loan Agreement and of any executed Collateral Agreements.
Notwithstanding anything herein or in any Collateral Agreement to the contrary,
in no event shall the Borrower permit the total balance of all Loans and all
other Obligations outstanding at any one time to exceed $3,400,000; and, if for
any reason they do, Borrower shall immediately pay the amount of such excess to
CoastFed in immediately available funds.
1.2 Interest. Unless specifically provided to the contrary in any Collateral
Agreement, all Loans shall bear interest at a rate equal to the "Prime Rate" (as
hereinafter defined), plus 3% per annum, calculated on the basis of a 360-day
year for the actual number of days elapsed. The interest rate applicable to all
Loans shall be adjusted monthly as of the first day of each month, and the
interest to be charged for that month shall be based on the highest "Prime Rate"
in effect during said month, but in no event shall the rate of interest charged
on any Loans in any month be less than 8% per annum. "Prime Rate" is defined as
the actual "Reference Rate" or the substitute therefor of the Bank of America NT
& SA ("B of A") whether or not that rate is the lowest interest rate charged by
B of A. If the Prime Rate, as defined, is unavailable, "Prime Rate" shall mean
the highest of the prime rates published in the Wall Street Journal on the first
business day of the month, as the base rate on corporate loans at large U.S.
money center commercial banks.
1.3 Fees. Borrower shall pay to CoastFed a loan origination fee in the amount
of $51,000* and an annual loan fee of -n/a- on each anniversary of the date
hereof during the term of this Loan Agreement. Said fees are in addition to all
other sums payable to CoastFed, are not refundable for any reason,and shall bear
interest from the date due to the date paid at the highest interest rate
applicable to any of the Obligations.
*on the first disbursement of Loans hereunder
2. DEFINITIONS OF OBLIGATIONS AND COLLATERAL; GRANT OF SECURITY INTEREST.
2.1 Obligations. The term "Obligations" as used in this Loan Agreement, and
any and all Collateral Agreements, shall mean and include each and all of the
following: the obligation to pay all Loans and all interest thereon when due
and to pay and perform when due all other indebtedness, liabilities,
obligations, guarantees, covenants, agreements, warranties and representations
of Borrower to CoastFed, whether heretofore, now or hereafter existing, owing or
arising; whether primary, secondary, direct, acquired from a third party,
absolute, contingent, fixed, secured or unsecured; joint or several, written or
oral, monetary or non-monetary; and whether created pursuant to, or caused by
Borrower's breach of, this Loan Agreement, a Collateral Agreement or any other
present or future agreement or instrument, or created by operation of law or
otherwise.
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Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
2.2 Collateral. As security and collateral for all Obligations, Borrower
hereby grants to CoastFed a continuing security interest in, and assigns to
CoastFed, all of Borrower's interest in the types of property described below,
whether now owned or hereafter acquired and wherever located, together with all
proceeds (including insurance proceeds), substitutions, accessions and products
thereof (collectively referred to as "Collateral"):
2.2(a) Accounts. All accounts, contract rights, chattel paper, and
instruments, and all other obligations now or hereafter owing to Borrower
(hereinafter sometimes collectively referred to as "Accounts"), including, but
not limited to, those described in any Accounts Collateral Security Agreement
executed by Borrower, and all right, title and interest of Borrower in, and all
of Borrower's rights and remedies with respect to, all goods, the sale of other
disposition of which gives rise to any Account, including, without limitation,
all returned, reclaimed and repossessed goods and all rights of stoppage
in transit, replevin, reclamation, and all rights as an unpaid vendor, and
2.2(b) Inventory. All inventory, goods, merchandise, materials, raw
materials, work in process, finished goods, advertising, packaging and shipping
materials, supplies, and all other tangible personal property which is held for
sale or lease or furnished under contracts of service or consumed in Borrower's
business, including, without limitation, any and all of the foregoing which are
returned, repossessed, reclaimed or stopped in transit, and including, but not
limited to, those described in any Inventory Collateral Security Agreement
executed by Borrower, and all warehouse receipts and other documents or
instruments now or hereafter issued with respect to any of the foregoing, and
2.2(c) Equipment. All equipment, goods (other than inventory), machinery,
fixtures, trade fixtures, vehicles, furnishings, furniture, supplies, materials,
tools, machine tools, office equipment, appliances, apparatus, parts, dies,
jigs, and chattels, including, but not limited to, those described in any
Equipment Collateral Security Agreement executed by Borrower, and
2.2(d) Intangibles. All deposit accounts and general intangibles
(including, but not limited to, tax refunds, goodwill, name, drawings,
trademarks, blueprints, trade names, trade secrets, customer lists, patents,
patent applications, copyrights, security deposits, loan commitment fees,
royalties, licenses, processes, and all other rights, privileges and
franchises); and
All personal property of Borrower which comes into CoastFed's possession,
custody or control; and all tangible and intangible personal property in which
CoastFed now has or hereafter acquires a security interest to secure any or all
of the Obligations; and all substitutions, additions and accessions to any or
all of the foregoing items of Collateral; and all guaranties of and security for
any and all of the foregoing; and all books and records relating to any and all
of the foregoing and the equipment containing said books and records. Payment
and performance of the Obligations are collateralized by the Collateral and by
any security interest created in any other agreement now or hereafter existing
between CoastFed and Borrower unless such other agreement is a deed of trust or
other security instrument having real property or rents from real property as
its subject matter and expressly provides to the contrary.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
To induce CoastFed to enter into this Loan Agreement and now and hereafter
to enter into any Collateral Agreement, Borrower represents and warrants that
each of the following representations and warranties now is and hereafter will
continue to be true correct in all respects and Borrower has and will timely
perform each of the following covenants:
3.1 Corporate Existence and Power. Borrower, if a corporation, is and
will continue to be duly authorized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which the nature of the business transacted by it, or the ownership or leasing
of its property, makes such qualification or licensing necessary, and Borrower
has and will continue to have all requisite power and authority to carry on its
business as it is now,or may hereafter be, conducted.
3.2 Authority. Borrower is, and will continue to be, authorized to enter
into, to grant security interests in its property pursuant to, and to perform
its obligations under this Loan Agreement, any Collateral Agreement and all
other instruments and transactions contemplated herein. The execution delivery
and performance by Borrower of this Loan Agreement, any Collateral Agreement and
all other instruments and transactions contemplated herein have been validly
authorized, are enforceable against the Borrower in accordance with their terms,
and do not violate any law or any provision of, and are not grounds for
acceleration under, any agreement indenture, note or instrument which is binding
upon Borrower, or any of its property, including, without limitation, Borrower's
Articles of Incorporation, By-Laws and any Shareholder Agreements.
3.3 Name; Trade Names and Styles. Borrower has set forth above its
correct name. Listed on the Schedule hereto are all prior names of Borrower and
each fictitious name, trade name and trade style by which Borrower has been, or
is now, known. Borrower shall provide CoastFed with fifteen (15) days' advance
written notice prior to doing business under any other name, fictitious name,
trade name or trade style. Borrower has complied, and will hereafter comply,
with all laws relating to the conduct of business under, the ownership of
property in, and the renewal or continuation of the right to use, a corporate,
fictitious or trade name or trade style.
3.4 Place of Business; Location of Collateral. Borrower's sole place of
business or, if Borrower has more than one place of business, Borrower's chief
executive office; or if Borrower is an individual and does not have a separate
place of business. Borrower's residence is, and will
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Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
continue to be, located at Borrower's Address and all of Borrower's books and
records, including, but not limited to, the books and records relating to
Borrower's Accounts, are and will be maintained at Borrower's Address unless and
until CoastFed shall otherwise consent in writing. In addition to Borrower's
Address, Borrower has places of business and Collateral is located only at the
locations shown on the Schedule hereto. Borrower will provide CoastFed with
advance written notice if Borrower moves any of the Collateral*, or obtains any
additional sites for the conduct of Borrower's business or the location of any
Collateral.
*(other than (i) in connection with sales or other dispositions of Inventory in
the ordinary course of business, (ii) disposal in the ordinary course of
business of items of equipment which have become worn out or obsolete or which
are promptly being replaced, (iii) disposal of equipment and intangibles outside
the ordinary course of business not exceeding in the aggregate of $50,000 in any
fiscal year, and (iv) any and all mobile goods which are of a type normally used
in more than one jurisdiction).
3.5 Title to Collateral; Liens. Borrower is now, and will at all times
hereafter be, the lawful and sole owner of all the Collateral. With the
exception of the security interest granted CoastFed, the Collateral now is and
will remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims*. Without limiting any of CoastFed's other
rights and remedies, if Borrower grants any third party a lien or encumbrance on
or security interest in any of the Collateral**, CoastFed, in its sole
discretion, shall have the right to treat such action as a notice of termination
by Borrower to CoastFed under Paragraph 8(d) hereof, as of any date subsequent
to such grant selected by CoastFed, in its sole discretion, and to charge
Borrower the termination fee therein provided. CoastFed now has, and will have,
a perfected and enforceable first priority security interest in all of the
Collateral***, and Borrower will at all times defend CoastFed and the Collateral
against all claims of others. None of the Collateral now is or will be affixed
to any real property in such a manner, or with such intent, as to constitute a
fixture thereto****. Borrower is not and will not become a lessee under any real
property lease pursuant to which the lessor may obtain any rights in any of the
Collateral and no such lease now prohibits, restrains, impairs or will prohibit,
restrain or impair Borrower's right, to remove any Collateral from the leased
premises+. Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed of
trust, lien or otherwise). Borrower shall, whenever requested by CoastFed, use
its best efforts to cause such third party to execute and deliver to CoastFed,
in form acceptable to CoastFed, whatever waivers and subordinations that
CoastFed specifies, so as to ensure that CoastFed's rights in the Collateral
are, and will continue to be, superior to the rights of any such third party.
Borrower will keep in full force and effect, and will comply with all the terms
of, any lease of real property where any of the Collateral now or in the future
may be located.
*("Liens"), other than Permitted Liens. As used herein, "Permitted Liens"
means (i) any Liens existing as of the date hereof and disclosed in the
Schedule; (ii) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by appropriate
proceedings, provided the same have no priority over any of CoastFed's security
interests; (iii) Liens of materialmen, mechanics, warehousemen, or carriers, or
other like possessory Liens arising in the ordinary course of business and
securing obligations either not delinquent or being contested in good faith by
appropriate proceedings; (iv) any judgment, or attachment lien, execution on
which has been effectively stayed and which has been fully bonded against within
20 days after the entry thereof; (v) easements, rights of way, servitudes or
zoning or building restrictions and other minor encumbrances on real property
and irregularities in the title to such property which do not in the aggregate
materially impair the use or value of such property or risk the loss or
forfeiture of title thereto; (vi) Liens (A) upon or in any equipment acquired or
held by the Borrower or any of its subsidiaries to secure the purchase price of
such equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (B) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the equipment so
--------
acquired and improvements thereon; (vii) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (i) and (vi) above, provided that any extension,
--------
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
**(other than a Permitted Lien)
***(subject to Permitted Liens)
****(unless such Collateral is covered by a fixture filing duly executed
and delivered by the Borrower in favor of CoastFed)
+, except to the extent provided under leases existing as of the date
hereof and disclosed in the Schedule.
3.6 Maintenance of Collateral. Borrower has maintained and will maintain
the Collateral and all of its assets in good working condition, at Borrower's
expense. Borrower will not use the Collateral or any of its other properties for
any unlawful purpose and will not secrete or abandon the Collateral. Borrower
will immediately advise CoastFed in writing of any material loss or
* of the Collateral.
*significant decline in the value
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Coast Business Credit Loan and Security Agreement
________________________________________________________________________________
3.7 Books and Records. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records comprising an
accounting system in accordance with generally accepted accounting principles.
Borrower has not and will not in the future enter into any agreement with any
accounting firm, service bureau or third party to prepare or store Borrower's
books and records at any location other than Borrower's Address, without first
obtaining CoastFed's written consent, which may be conditioned upon such
accounting firm, service bureau or other third party agreeing to give CoastFed
the same rights with respect to access to books and records and related rights
as CoastFed has under Paragraph 4.3 of this Loan Agreement.
3.8 Financial Condition and Statements. All financial statements now or
hereafter delivered to CoastFed have been, and will be, prepared in conformity
with generally accepted accounting principles and now and hereafter will
completely and accurately reflect the financial condition of Borrower, at the
times and for the periods therein stated. Since the last date covered by any
such statement, there has been no material adverse change in the financial
condition, operations or any other status of the Borrower. Borrower will deliver
to CoastFed a copy of all financial statements prepared with respect to Borrower
no later than five (5) days after the **** thereof by Borrower. Borrower will
cause to be prepared, and will provide CoastFed (i) within * days following the
end of each fiscal quarter, **, and (ii) within *** days following the end of
Borrower's fiscal year, complete annual financial statements, certified by
independent certified public accountants acceptable to CoastFed.
*forty-five (45)
**an unaudited balance sheet as of the end of such fiscal quarter and an
unaudited income statement for such fiscal quarter accompanied by an instrument
in form reasonably acceptable to CoastFed and executed by the Chief Financial
Officer certifying that such financial statements (excluding footnotes) were
prepared in accordance with generally accepted accounting principles.
***120
****filing or sending
3.9 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state or local law. Borrower has timely paid, and will timely pay, all
foreign, federal, state and local taxes, assessments, deposits and
contributions now or hereafter owed by Borrower. Borrower may defer payment of
any contested taxes provided that Borrower (i) in good faith contests Borrower's
obligation to pay such taxes by appropriate proceedings promptly and diligently
instituted and conducted, (ii) notifies CoastFed in writing of the commencement
of and any material development in such proceedings, and (iii) posts bonds or
takes any other steps required to keep such contested taxes from becoming a lien
against or charge upon any of the Collateral or other properties of Borrower.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
Borrower is unaware of any claims or adjustments proposed for any of Borrower's
prior tax years which could result in additional taxes becoming due and payable
by Borrower. Borrower has paid, and shall continue to pay all amounts necessary
to fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any * liability of Borrower, including, without limitation, any liability to
the Pension Benefit Guaranty Corporation or its successors or any other
governmental agency. When requested, Borrower will furnish CoastFed with proof
satisfactory to CoastFed of Borrower's making the payment or deposit of all such
taxes and contributions, such proof to be delivered within five (5) days after
the due date established by law for each such payment or deposit. If Borrower
fails or is unable to pay or deposit such taxes or contributions, CoastFed may,
but is not obligated to, pay the same and treat all such advances as additional
Obligations of Borrower. Such advances shall bear interest at the highest
interest rate applicable to any of the Obligations.
*material
3.10 Compliance with Law. Borrower has * complied, and will * comply, with
all provisions of all foreign, federal, state and local laws and regulations
relating to Borrower, including, but not limited to, those relating to
Borrower's ownership of real or personal property, conduct and licensing of
Borrower's business and employment of Borrower's personnel.
*in all material respects
3.11 Litigation. There is no claim, suit, litigation, proceeding or
investigation pending or threatened by or against or affecting Borrower in any
court or before any regulatory commission, board or other governmental agency
(or any basis therefor known to Borrower) which * result, either separately or
in the aggregate, in any ** adverse change in the business or condition of
Borrower to carry on its business in substantially the same manner as it is now
being conducted. Borrower will immediately inform CoastFed in writing of any
claim, proceeding, litigation or investigation hereafter threatened or
instituted by or against Borrower***.
*may reasonably **material
***involving in excess of $250,000
3.12 Use of Proceeds. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of
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Coast Business Credit Loan and Security Agreement
________________________________________________________________________________
the Board of Governors of the Federal Reserve System) and no part of the
proceeds of any Loan will be used to purchase or carry any "margin stock" or to
extend credit to others for the purpose of purchasing or carrying any "margin
stock." All proceeds of all Loans shall be used solely for lawful business
purposes.
3.13 Continuing Effect. All representations, warranties and covenants of
Borrower contained in this Loan Agreement and any Collateral Agreement and any
other agreement with CoastFed shall be true and correct at the time of the
effective date of each such agreement and shall be deemed continuing and shall
remain true, correct and in full force and effect until payment and satisfaction
in full of all of the Obligations, and Borrower acknowledges that CoastFed is
and will be expressly relying on such representations, warranties and covenants
in making Loans to Borrower.
4. ADDITIONAL DUTIES OF BORROWER.
4.1 Insurance. Borrower shall, at all times, at Borrower's expense,
insure all of the Collateral * and carry such other business insurance ** with
insurers acceptable to CoastFed, in such form and amounts as CoastFed may ***
require. All such insurance policies shall name CoastFed as an additional loss
payee, shall provide that proceeds payable thereunder be payable directly to
CoastFed unless written authority to the contrary is obtained, and shall also
provide that no act or default of Borrower or any other person shall affect the
right of CoastFed to recover thereunder and shall contain a lenders loss payee
endorsement in form acceptable to CoastFed. Upon receipt of the proceeds of any
such insurance, CoastFed shall apply such proceeds in reduction of the
Obligations as CoastFed shall determine in its sole and absolute discretion. If
Borrower fails to provide or pay for any such insurance, CoastFed may, but is
not obligated to, procure the same at Borrower's expense. Borrower agrees to
deliver to CoastFed, promptly as rendered, copies of all reports made to all
insurance companies****.
*(other than Accounts)
**covering such property and risks as is customarily carried by companies
engaged in similar businesses and owning similar properties in the localities
where the Borrower operates, and
***reasonably
****involving a claim of over $100,000
4.2 Reports. At its expense, Borrower shall report, in form satisfactory
to CoastFed, such information as CoastFed may from time to time specify
regarding Borrower or the Collateral; such reports shall be rendered with such
frequency as CoastFed may * specify. All reports furnished CoastFed shall be
complete and accurate in all ** respects.
*reasonably **material
4.3 Access to Collateral, Books and Records. At any time CoastFed, or
its agents, shall have immediate access to the Collateral and any other property
of Borrower, wherever located. CoastFed shall have the right to audit and copy
Borrower's books and records and accounts including accountants' reports
wherever located * (hereinafter collectively the "Records"). Borrower hereby
irrevocably authorizes and directs any of the officers, agents, accountants and
attorneys having possession or control of any of the Records (including computer
records) to physically deliver or make same available to CoastFed upon
CoastFed's request. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery of any of the Records. ** CoastFed shall have the right
to possession of, or to move to the premises of CoastFed or any agent of
CoastFed, for so long as CoastFed may desire, all or any part of the Records.
*but excluding communications to or by Borrower's attorneys
**Upon the occurrence and during the continuation of an Event of Default
4.4 Prohibited Transactions. Borrower shall not without CoastFed's prior
written consent++: merge*, consolidate, dissolve, acquire any other
corporation; enter into any transaction not in its usual course of business;
guarantee or otherwise become in any way liable with respect to the
obligations of another party or entity (except by endorsements of instruments
or items of payment for deposit to the general account of Borrower or which are
transmitted or turned over to CoastFed on account of the Obligations**); pay or
declare any dividends upon Borrower's stock; redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Borrower's stock***, make any
change in Borrower's name, identity, corporate or capital structure; sell or
transfer any Collateral, except for the sale of finished inventory in the
ordinary course of Borrower's business****; lend or distribute any of Borrower's
property or assets, or incur any debts, outside of the ordinary course of
Borrower's business+.
*(provided that Borrower may merge into another corporation for purposes of
effecting a reincorporation into another state after CoastFed has indicated to
Borrower that all steps necessary to protect the validity and perfection of
CoastFed's first-priority security interest in the Collateral, subject to
Permitted Liens, have been taken)
**and except for obligations pursuant to Borrower's bylaws or in
indemnification agreements, to indemnify officers, directors and employees of
the Borrower, and guarantees of the obligations of the Borrower's subsidiaries,
***,except for the repurchase by the Borrower of its capital stock from
current or former employees for a purchase price not to exceed $50,000 in the
aggregate in any fiscal year
****, and except for sales or other dispositions of equipment in the
ordinary course of business which has become worn out or obsolete or which are
promptly being replaced, and sales or dispositions of equipment,
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Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
trademarks and other intangibles outside the ordinary course of business not
exceeding in the aggregate $100,000 in any fiscal year (provided no Event of
Default and no event which, with notice or passage of time or both, would
constitute an Event of Default, has occurred)
+ except for indebtedness for borrowed money not in excess of $500,000 in
any fiscal year or with respect to capital leases not in excess of $500,000 in
any fiscal year
++ which shall be a matter of CoastFed's reasonable discretion
4.5 Notification of Changes. Borrower will promptly notify CoastFed in
writing of any change of its * officers, directors, any purchase ** out of the
regular course of Borrower's business and any adverse or material change in the
business or financial affairs of Borrower.
* executive
** of assets or property with an aggregate value exceeding $1,000,000 in any
fiscal year
4.6 Charges. Borrower shall pay all * charges assessed by CoastFed, in
accordance with CoastFed's schedule of charges in effect from time to time, and
such charges shall be part of the Obligations and shall be payable on demand.
* reasonable
4.7 Litigation Cooperation. Should any suit or proceeding be instituted by
or against CoastFed with respect to any Collateral or for the collection or
enforcement of any Account, or in any manner relating to Borrower, Borrower
shall, without expense to CoastFed, and wherever and whenever designated by
CoastFed, make available Borrower and its officers, employees and agents and
Borrower's Records to the extent that CoastFed may * deem necessary in order to
prosecute or defend any such suit or proceeding**.
* reasonably
** subject to the preservation of attorney-client privileges
4.8 Remittance of Proceeds. All proceeds arising from the disposition of
the Collateral shall be delivered, in kind, by Borrower to CoastFed in the
original form in which received by Borrower not later than the following
business day after receipt by Borrower. Borrower agrees that it will not
commingle proceeds of Collateral with any of Borrower's other funds or property,
but will hold such proceeds separate and apart from such other funds and
property and in an express trust for CoastFed. CoastFed may from time to time
verify directly with the respective account debtors the validity, amount and any
other matters relating to the Accounts by means of mail, telephone or otherwise,
either in the name of Borrower or CoastFed or such other name as CoastFed may
choose.
4.9 Execute Additional Documentation. Borrower agrees, at its expense, on
demand by CoastFed, to execute all documents in form satisfactory to CoastFed,
as CoastFed, in its * sole discretion, may deem necessary or useful in order to
perfect and maintain CoastFed's perfected first-priority or any other security
interest in the Collateral, and in order to fully consummate all of the
transactions contemplated under this Loan Agreement and under any Collateral
Agreement.
* reasonable
5. APPLICATION OF PAYMENTS.
All forms of payments delivered to CoastFed on account of the Obligations
constitute conditional payment only until such items are actually paid in cash
to CoastFed: solely for the purpose of computing interest earned by CoastFed,
credit therefor and for bank wire transfers shall be given as of the * business
day after receipt by CoastFed in order to allow for clearance, bookkeeping and
computer entries. All payments made by Borrower may be applied, and in
CoastFed's sole discretion reversed and re-applied, in whole or in part to any
of the Obligations, in such order and manner as CoastFed shall determine in its
sole discretion.
* third
6. EVENTS OF DEFAULT AND REMEDIES.
6.1 Events of Default. If any of the following events shall occur, such an
occurrence shall constitute an "Event of Default" and Borrower shall provide
CoastFed with immediate written notice thereof: (a) Any warranty,
representation, statement, report or certificate made or delivered to CoastFed
by Borrower or any of Borrower's officers, employees or agents now or hereafter
shall be incorrect, false, untrue or misleading in any material respect; or (b)
Borrower shall fail to repay ++++ due part or all of any Loan or to pay any
interest thereon ++++ due; or (c) Borrower shall fail to perform when due any
term or condition contained in this Loan Agreement or in any Collateral
Agreement, or any other agreement between CoastFed and Borrower, or (d) Borrower
shall fail to pay or perform any other Obligation when due; or (e) Any loss,
theft, or substantial damage to, or destruction of, any or all of the Collateral
(unless within five (5) days after the occurrence of any such event. Borrower
furnishes CoastFed with evidence satisfactory to CoastFed that the amount of any
such loss, theft, damage to or destruction of the Collateral is fully insured
under policies designating CoastFed as the additional named insured); or (f) A
material impairment of the prospect of payment or performance of the Obligations
or a material impairment of the value of the Collateral or any impairment in the
priority of CoastFed's security interest; or (g) Any event shall arise which
actually results in the acceleration of the maturity of the indebtedness of
Borrower to others under any loan or other agreement or undertaking**; or (h)
Any levy, assessment, attachment, seizure, lien or encumbrance for any cause or
reason whatsoever, upon all or any part of the Collateral or any other asset of
Borrower *** (unless discharges by payment, release or fully bonded against not
more than **** days after such event has occurred); or (i) Dissolution,
termination of existence, insolvency or business failure of Borrower; or
appointment
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Coast Business Credit Loan and Security Agreement
________________________________________________________________________________
of a receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by or against. Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or hereafter in effect +; or
entry of a court or governmental order which enjoins, restrains or in any way
prevents Borrower from conducting all or any ++ part of its business; or failure
to pay any foreign, federal, state or local tax or other debt of Borrower
unless, with respect to any such tax, Borrower complies with the provisions of
Paragraphs 3.9(i), (ii), and (iii); or (j) A notice of lien, levy or assessment
is filed of record with respect to any of Borrower's assets by the United States
or any department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, or if any taxes or debts now or
hereafter owing to any one or more of them becomes a lien upon all or any of the
Collateral or any other assets of Borrower (other than alien for real property
taxes which are not yet due and payable); or (k) Death, insolvency or
incompetency of any guarantor of the Obligations: appointment of a conservator
or guardian of the person of any such guarantor; appointment of a conservator,
guardian, trustee, custodian or receiver of all or any part of the assets,
property or estate of, any such guarantor; revocation or termination of, or
limitation of liability upon, any guaranty of the Obligations; or commencement
of proceedings by or against any guarantor or surety for Borrower under any
bankruptcy or insolvency law; or (l) Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the Obligations
+++ or if any person who has subordinated such indebtedness or obligations
terminates or in any way limits his subordination agreement; or (m) Borrower
shall generally not pay its debts as they become due or shall enter into any
agreement (whether written or oral), or offer to enter into any such agreement,
with all or a significant number of its creditors regarding any moratorium or
other indulgence with respect to its debts or the participation of such
creditors or their representatives in the supervision, management or control of
the business of Borrower; or Borrower shall conceal, remove or transfer any part
of its property, with intent to hinder, delay or defraud its creditors, or make
or suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law, or shall make any transfer of
its property to or for the benefits of any creditor at a time when other
creditors similarly situated have not been paid.
**involving more than $100,000
***(other than a Permitted Lien)
****twenty (20)
+ , provided that the filing of an involuntary bankruptcy petition against
the Borrower shall not be deemed to be an Event of Default hereunder if it is
cured by being dismissed within sixty (60) days after the date instituted
(although CoastFed shall have no obligation to make Loans during such 60-day
cure period)
++material
+++other than in compliance with a subordination agreement executed by
CoastFed or approved in writing by CoastFed
++++within three days after the date
6.2 Remedies. Upon the occurrence of any Event of Default, and at any time
thereafter, CoastFed, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (a) Cease advancing money or extending credit to or for the
benefit of Borrower under this Loan Agreement, any Collateral Agreement, and any
other document or agreement; (b) Accelerate and declare all or any part of the
Obligations to be immediately due, payable, and performable notwithstanding any
deferred or installment payments allowed by any instrument evidencing or
relating to any Obligation; (c) Take possession of any or all of the Collateral
wherever it may be found, and for that purpose Borrower hereby authorizes
CoastFed without judicial process to enter onto any of the Borrower's premises
without hindrance to search for, take possession of, keep, store, or remove any
of the Collateral and remain on such premises or cause a custodian to remain
thereon in exclusive control thereof without charge for so long as CoastFed
deems necessary in order to complete the enforcement of its rights under this
Loan Agreement or any Collateral Agreement, or any other agreement; provided,
however, that should CoastFed seek to take possession of any or all of the
Collateral by Court process, Borrower hereby irrevocably waives: (i) any bond
and any surety or security relating thereto required by any statute, court rule
or otherwise as an incident to such possession; (ii) any demand for possession
prior to the commencement of any suit or action to recover possession thereof;
and (iii) any requirement that CoastFed retain possession of and not dispose of
any such Collateral until after trial or final judgment; (d) Require Borrower to
assemble any or all of the Collateral and make it available to CoastFed at a
place or places to be designated by CoastFed which are reasonably convenient to
CoastFed and Borrower, and to remove the Collateral to such locations as
CoastFed may deem advisable; (e) Complete processing, manufacturing or repair of
all or any portion of the Collateral prior to a disposition thereof and, for
such purpose and for the purpose of removal, CoastFed shall have the right to
use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all
other property without charge. Without limiting any security interest granted
CoastFed in other provisions of this Loan Agreement or in any Collateral
Agreement or other agreement, for the purpose of
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Coast Business Credit Loan and Security Agreement
________________________________________________________________________________
completing manufacturing, processing or repair of Collateral and the disposition
thereof, CoastFed is hereby granted a security interest in, and CoastFed and any
purchaser from CoastFed may use without charge, all of the Borrower's plant
machinery, equipment, labels, licenses, processes, patents, patent applications,
copyrights, names, trade names, trademarks, trade secrets, logos, advertising
material and all other assets, and may also utilize all of Borrower's rights
under any license or franchise agreement: (f) Sell, ship, reclaim, lease or
otherwise dispose of all or any portion of the Collateral in its condition at
the time CoastFed obtains possession or after further manufacturing, processing
or repair, at any one or more public and/or private sales (including execution
sales), in lots or bulk for cash, exchange or other property or on credit and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. CoastFed shall have the right to
conduct such disposition on Borrower's premises without charge for such time or
times as CoastFed deems fit or on CoastFed's premises, or elsewhere and the
Collateral need not be located at the place of disposition. CoastFed may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale:
(g) Demand payment of and collect any Accounts and general intangibles
comprising part or all of the Collateral and, in connection therewith, Borrower
irrevocably authorizes CoastFed to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in CoastFed's
sole discretion, to grant extensions of time to pay, compromise claims and
settle Accounts and the like for less than face value; (h) Demand and receive
possession of any of Borrower's federal and state income tax returns and the
Records utilized in the preparation thereof or referring thereto. All
attorneys' fees, expenses, costs, liabilities and obligations incurred by
CoastFed with respect at a rate equal to the highest interest rate applicable to
any of the Obligations.
6.3 Standards for Determining Commercial Reasonableness. Borrower and
CoastFed agree that the following conduct by CoastFed with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by CoastFed, including, but not limited to CoastFed's use in
its sole discretion of other or different times, places and manners of noticing
and conducting any disposition of Collateral shall not be deemed unreasonable):
Any public or private disposition as to which on no later than the fifth
calendar day prior thereto written notice thereof is mailed or personally
delivered to Borrower and with respect to any public disposition, on no later
than the fifth calendar day prior thereto notice thereof describing in general
non-specific terms, the Collateral to be disposed of is published once in a
newspaper of general circulation in the county where the sale is to be
conducted, at any place designated by CoastFed with or without the Collateral
being present, and which commences at any time between 8:00 a.m. and 5:00 p.m.
Without limiting the generality of the foregoing, Borrower expressly agrees
that, with respect to any disposition of Accounts, instruments and general
intangibles (collectively "Receivables"), it shall be commercially reasonable
for CoastFed to direct any prospective acquirer thereof to ascertain directly
from Borrower any and all information (and CoastFed shall not be required to
maintain records of, or answer any inquiries) concerning the Receivables offered
for disposition, including, but not limited to, the terms of payment, aging and
delinquency, if any, of the Receivables, the financial condition of any obligor
or account debtor thereon or guarantor thereof, any collateral therefor and the
condition and location of the goods, if any, that are the subject of any of the
Receivables.
6.4 Application of Proceeds. All proceeds realized as the result of any
disposition of the Collateral shall be applied by CoastFed first to the costs,
expenses, liabilities, obligations and * attorneys' fees incurred by CoastFed in
the exercise of its rights under this Loan Agreement and any Collateral
Agreement second to the interest due upon any of the Obligations and third to
the principal of the Obligations in any order determined by CoastFed in its sole
discretion. The surplus, if any, shall be paid to Borrower, if any deficiency
shall arise, Borrower shall remain liable to CoastFed therefor. If, as a result
of the disposition of any of the Collateral, CoastFed directly or indirectly
enters into a credit transaction with any third party, CoastFed shall have the
option, exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of such credit transaction or deferring the
reduction thereof until the actual receipt by CoastFed of cash therefor from
such third party.
*reasonable
6.5 Remedies Cumulative. In addition to the rights and remedies set forth
in this Loan Agreement and any Collateral Agreement CoastFed shall have all the
other rights and remedies accorded a secured party under the California Uniform
Commercial Code and under any and all other applicable laws and in any other
instrument or agreement now or hereafter entered into between CoastFed and
Borrower and all of such rights and remedies are cumulative and none is
exclusive. Exercise or partial exercise by CoastFed of one or more of its
rights or remedies shall not be deemed an election, nor bar CoastFed from
subsequent exercise or partial exercise of any other rights or remedies. The
failure or delay of CoastFed to exercise any rights or remedies shall not
operate as a waiver thereof, but all rights and remedies shall continue in full
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Coast Business Credit Loan and Security Agreement
________________________________________________________________________________
force and effect until all of the Obligations have been fully paid and
performed.
7. POWER OF ATTORNEY.
*Borrower grants to CoastFed an irrevocable power of attorney coupled with
an interest, authorizing and permitting CoastFed (acting through any of its
employees, attorneys or agents) at any time, at its opinion, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise; (a) Execute on
behalf of Borrower any documents that CoastFed may, in its sole and absolute
discreption, deem advisable in order to perfect, maintain or improve CoastFed's
security interest in the Collateral or other real or personal property intended
to constitute Collateral, or in order to exercise a right of Borrower or
CoastFed, or in order to fully consummate all the transactions contemplated
under this Loan Agreement, any Collateral Agreement and all other present and
future agreements; (b) At any time after the occurrence of any Event of Default,
to execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or to lease (as
lessor or lessee) any real or personal property which is part of CoastFed's
Collateral or in which CoastFed has an interest; (c) Execute on behalf of
Borrower, any invoices relating to any Account, any draft against any Account
debtor and any notice to any Account debtor, any proof of claim in bankruptcy,
any Notice of Lien, claim of mechanic's, materialman's or other lien, or
assignment or satisfaction of mechanic's, materialman's or other lien; (d) Take
control in any manner of any cash or non-cash items of payment or proceeds of
Collateral; endorse the name of Borrower upon any instruments, or documents,
evidence of payment or Collateral that may come into CoastFed's possession; (e)
Upon the occurrence of any Event of Default, to receive and open all mail
addressed to Borrower, and to notify the Post Office authorities to change the
address for the delivery of mail addressed to Borrower to such other address as
CoastFed may designate, including, but not limited to, CoastFed's own address;
CoastFed shall turn over to Borrower all of such mail not relating to the
Collateral; (f) Endorse all checks and other forms of remittances received by
CoastFed "Pay to the Order of CoastFed Business Credit Corporation," or in such
other manner as CoastFed may designate; (g) **Pay, contest or settle any lien,
charge, encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (h) ** Grant extensions of time to pay,
compromise claims and settle Accounts and the like for less than face value and
execute all releases and other documents in connection therewith; (i) Pay any
sums required on account of Borrower's taxes or to secure the release of any
liens therefor, or both; (j) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (k) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give CoastFed the same rights
of access and other rights with respect thereto as CoastFed has under Paragraph
4.3 of this Loan Agreement; and (l) Take any action or pay any sum required of
Borrower pursuant to this Loan Agreement, any Collateral Agreement and any other
present or future agreements. Any and all sums paid any and all costs, expenses,
liabilities, obligations and attorneys' fees incurred by CoastFed with respect
to the foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. In no event shall CoastFed's
rights under the foregoing power of attorney or any of CoastFed's other rights
under this Loan Agreement or any Collateral Agreement be deemed to indicate that
CoastFed is in control of the business, management or properties of Borrower.
*Provided CoastFed acts in a commercially reasonable manner
**Upon the occurrence of an Event of Default
8. TERMINATION.
This Loan Agreement and all Collateral Agreement(s) shall continue in
effect until June 30, 1994 (the "initial renewal date") and shall therefor
automatically and continuously renew for successive additional terms of one
year(s) each unless terminated as to future transactions as hereinafter
provided. (The initial renewal date and each subsequent date on which the terms
of this Loan Agreement and the Collateral Agreement(s) automatically renew are
hereinafter referred to as "renewal dates.") This Loan Agreement and any
Collateral Agreement may be terminated, as to future transactions only, as
follows: (a) By written notice from either CoastFed or Borrower to the other,
not less than sixty (60) days prior to the next renewal date, in which event
termination shall be effective on the next renewal date; or (b) By CoastFed at
any time after the occurrence of an Event of Default, without notice, in which
event termination shall be effective immediately; or (c) By sixty (60) days'
prior written notice from Borrower to CoastFed, in which event, termination
shall be effective on the sixtieth day after such notice is given; or (d) By the
grant by Borrower to any third party of a lien or encumbrance on, or security
interest in, any of the Collateral*, as provided in Paragraph 3.5, in which
event termination shall be effective on the date selected by CoastFed pursuant
to Paragraph 3.5. On the effective date of termination, Borrower shall pay and
perform in full all Obligations, whether evidenced by installment notes or
otherwise, and whether or not all or any part of such Obligations are otherwise
then due and payable. If Borrower attempts to terminate this Loan Agreement
under subparagraph (a) or (c) above, but does not pay and perform all
Obligations in full on the effective date of termination, then this Loan
Agreement and all Collateral Agreement(s) shall not be terminated and shall
continue in full force and effect until the next renewal date and shall
automatically renew thereafter as provided above. If termination occurs under
subparagraph (b), (c) or (d) above, Borrower shall pay to CoastFed a termination
fee in an amount equal to $7,500 for each month
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Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
(or portion thereof) from the effective date of termination to the date which
would have been the next renewal date had this Loan Agreement not been
terminated. Said termination fee shall be included in the Obligations, shall be
payable on the effective date of termination, and shall bear interest at a rate
equal to the highest interest rate applicable to any of the Obligations.
Notwithstanding any termination of this Loan Agreement or any Collateral
Agreement, all of CoastFed's security interest in all of the Collateral and
all of the terms and provisions of this Loan Agreement and all Collateral
Agreement(s) shall continue in full force and effect until all Obligations have
been paid and performed in full, and no termination shall in any way affect or
impair any right or remedy of CoastFed, nor shall any such termination relieve
Borrower of any Obligation to CoastFed until all of the Obligations have been
paid and performed in full. Without limiting the fact that all Loans are
discretionary on the part of CoastFed, CoastFed may, in its sole discretion,
refuse to make any further Loans after termination. Upon payment and performance
in full of all the Obligations, CoastFed shall promptly deliver to Borrower
termination statements, request for reconveyances and such other documents as
may be required to fully terminate any of CoastFed's security interests.
*other than a Permitted Lien
9. NOTICES.
All notices to be given hereunder shall be in writing and shall be served
either personally or by depositing the same in the United States mail, postage
prepaid, by regular first-class mail, or by certified mail, return receipts
requested, addressed to CoastFed or Borrower at the addresses shown above, or at
any other address as shall be designated by one party in a written notice to the
other party. Any such notice shall be deemed to have been given upon delivery in
the case of notices personally delivered to Borrower or to an officer of
CoastFed, or at the expiration of two (2) business days following the deposit
thereof in the United States mail, with postage prepaid (except that any notice
of disposition referred to in Paragraph 6.3 hereof that is mailed shall be
deemed given at the time of deposit thereof in the United States mail, with
postage prepaid). If there is more than one Borrower, notice to any Borrower
shall constitute notice to all; if Borrower is a corporation, the service upon
any member of the Board of Directors, officer, employee or agent shall
constitute service upon the corporation.
10. GENERAL WAIVERS.
The failure of CoastFed at any time or times hereafter to require Borrower
to strictly comply with any of the provisions of this Loan Agreement or any
Collateral Agreement or any other present or future agreement between Borrower
and CoastFed shall not waive or diminish any right of CoastFed thereafter to
demand and receive strict compliance therewith. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent
thereto. None of the provisions of this Loan Agreement or any Collateral
Agreement or other agreement now or hereafter executed by Borrower and delivered
to CoastFed shall be deemed to have been waived by any act or knowledge of
CoastFed or its agents or employees, but only by a specific written waiver
signed by an officer of CoastFed and delivered to Borrower. Borrower waives the
benefit of all statute(s) of limitations in any action or proceeding based upon
or arising out of this Loan Agreement or any Collateral Agreement or any other
present or future instrument or agreement between CoastFed and Borrower.
Borrower waives any and all notices or demands which Borrower might be entitled
to receive with respect to this Loan Agreement, any Collateral Agreement, or any
other agreement by virtue of any applicable law. Borrower hereby waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, Account, general intangible, document or guaranty
at any time held by CoastFed on which Borrower is or may in way be liable, and
notice of any action taken by CoastFed unless expressly required by this Loan
Agreement or any Collateral Agreement. Borrower hereby ratifies and confirms
whatever CoastFed may do pursuant to this Loan Agreement and any Collateral
Agreement and agrees that CoastFed shall be liable for (a) the safekeeping of
the Collateral or any loss or damage thereto, or diminution in value thereof,
from any cause whatsoever, or (b) any act or omission of any carrier,
warehouseman, bailee, forwarding agent or other person, or (c) any act of
commission or any omission by CoastFed or its officers, employees, agents, or
attorneys, or any of its or their errors of judgment or mistakes of fact or law.
11. ATTACHMENT WAIVERS.
To the extent that CoastFed, in its sole and absolute discretion,
determines, prior to the disposition of all of the Collateral, that the amount
to be realized by CoastFed from the disposition of all of the Collateral may be
less than the amount of the Obligations, and to the full extent of any such
anticipated deficiency. Borrower waives the benefit of Section 483.010 (b) of
the California Code of Civil Procedure and of any and all other statutes
requiring CoastFed to first resort to and exhaust all of the Collateral before
seeking or obtaining any attachment remedy against Borrower, and Borrower
expressly agrees that, to the extent of such anticipated deficiency, CoastFed
shall have all of the rights of an unsecured creditor, including, but not
limited to, the right of CoastFed, prior to the disposition of all of the
Collateral, to obtain a temporary protective order and writ of attachment or
other available remedy. CoastFed shall have no liability to Borrow if the actual
deficiency realized by CoastFed is less than the anticipated deficiency on the
basis of which CoastFed obtained a temporary protective order or writ of
attachment. In the event CoastFed should seek a temporary protective order, or
writ of attachment, or both, Borrower hereby irrevocably waives any bond and any
surety or security relating thereto required by any statute, court rule or
otherwise as an incident or condition precedent to the issuance of any temporary
protective order or writ of attachment.
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12. ATTORNEYS' FEES AND COSTS.
Borrower shall forthwith pay to CoastFed the amount of all * attorneys'
fees and all filing, recording, publication, search and other costs incurred by
CoastFed pursuant to this Loan Agreement, any Collateral Agreement or any other
present or future agreement or in connection with any transaction contemplated
hereby, or with respect to the Collateral or the defense or enforcement of its
interests (whether or not CoastFed files a lawsuit against Borrower). Without
limiting the generality of the foregoing, Borrower shall, with respect to each
and all of the foregoing, pay all * attorneys' fees and costs CoastFed incurs
in order to: obtain legal advice; enforce, or seek to enforce, any of its
rights; prosecute actions against, or defend actions by, Account debtors;
commence, intervene in, respond to, or defend any action or proceeding; initiate
any complaint to be relieved of the effect of the automatic stay in bankruptcy
in order to commence or continue any foreclosure or other disposition of the
Collateral or to commence, defend or continue any action or other proceeding in
or out of bankruptcy against Borrower or relating to the Collateral; file or
prosecute a claim or right in any action or proceeding, including, but not
limited to, any probate claim, bankruptcy claim, third-party claim, secured
creditor claim or reclamation complaint; examine, audit, count, test, copy, or
otherwise inspect any of the Collateral or any of Borrower's books and records;
or protect, obtain possession of, lease, dispose of, or otherwise enforce any
security interest in or lien on, the Collateral or represent CoastFed in any
litigation with respect to Borrower's affairs. Without limiting the generality
of the foregoing, Borrower shall reimburse CoastFed for its out of pocket costs
in connection with CoastFed's regular quarterly audits of Borrower and shall
Borrower shall pay CoastFed an audit fee of $1,250 for each such quarterly
audit**. If either CoastFed or Borrower files any lawsuit against the other
predicated on a breach of this Loan Agreement or any Collateral Agreement, the
prevailing party in such action shall be entitled to recover its costs and
attorneys' fees, including, but not limited to, attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. All attorneys' fees and costs to which CoastFed may be
entitled pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
*reasonable.
**such audit fees and out of pocket costs shall not exceed $5,000 per
"Contract Year" (which shall mean any twelve month period ending on June 30 in
any year).
13. DESTRUCTION OF BORROWER'S DOCUMENTS; LIMITATION OF ACTIONS.
Any documents, schedules, invoices or other papers delivered to CoastFed
may be destroyed or otherwise disposed of by CoastFed six (6) months after they
are delivered to CoastFed unless Borrower makes written request therefor and
pays all expenses attendant to their return, in which event, CoastFed shall
return same when CoastFed's actual or anticipated need therefor has terminated.
Borrower agrees that any claim or cause of action by Borrower against CoastFed,
its directors, officers, employees, agents, accountants or attorneys, based
upon, arising from, or relating to this Loan Agreement, or any Collateral
Agreement, or any other present or future agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by CoastFed, its directors, officers, employees, agents, accountants or
attorneys, relating in any way to Borrower, shall be barred unless asserted by
Borrower by the commencement of an action or proceeding in a court of competent
jurisdiction by the filing of a complaint within six (6) months after * such
claim or cause of action, and the service of a summons and complaint on an
officer of CoastFed, or on any other person authorized to accept service on
behalf of CoastFed, within thirty (30) days thereafter. Borrower agrees that
such six-month period of time is a reasonable and sufficient time for Borrower
to investigate and act upon any such claim or cause of action. The six-month
period provided herein shall not be waived, tolled, or extended except by the
written consent of CoastFed in its sole and absolute discretion. This provision
shall survive any termination, however arising, of this Loan Agreement, any
Collateral Agreement, and any other present or future agreement.
*Borrower discovers or in the exercise of reasonable diligence should
discover
14. GENERAL PROVISIONS.
14.1 Severability. Should any provision, clause or condition of this Loan
Agreement or any Collateral Agreement be held by any court of competent
jurisdiction to be void or unenforceable, such defect shall not affect the
remainder of this Loan Agreement or any Collateral Agreement.
14.2 Integration. This Loan Agreement and any Collateral Agreements and
such other agreements, documents and instruments as may be executed in
connection herewith shall be construed as the entire and complete agreement
between Borrower and CoastFed and shall supersede all prior negotiations, all
of which are merged and integrated herein.
14.3 Amendment. The terms and provisions of this Loan Agreement and any
Collateral Agreement may not be waived or amended except in a writing executed
by Borrower and a duly authorized officer of CoastFed.
14.4 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Loan Agreement and any
Collateral Agreement.
14.5 Benefit of Agreement. The provisions of this Loan Agreement and any
Collateral Agreement shall be
-11-
<PAGE>
Coast Business Credit Loan and Security Agreement
________________________________________________________________________________
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of the parties hereto; provided,
however, that Borrower may not assign or transfer any of its rights under this
Loan Agreement or any Collateral Agreement without the prior shall be void. No
consent by CoastFed to any assignment shall relieve Borrower or any guarantor
from its liability for the Obligations.
14.6 Joint and Several Liability. The liability of each Borrower shall be
joint and several and the compromise of any claim with, or the release of, any
Borrower shall not constitute a compromise with, or a release of, any other
Borrower.
14.7 Paragraph Headings; Construction. Paragraph headings are used herein
for convenience only. Borrower acknowledges that the same may not describe
completely the subject matter of the applicable paragraph, and the same shall
not be used in any manner to construe, limit, define or interpret any term or
provision hereof. This Loan Agreement and the Collateral Agreements have been
fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Loan Agreement or any Collateral
Agreement shall be construed strictly against CoastFed or Borrower under any
rule of construction or otherwise.
14.8 Governing Law; Jurisdiction; Venue. This Loan Agreement and any
Collateral Agreement and all acts and transactions hereunder and all rights and
obligations of CoastFed and Borrower shall be governed by and in accordance with
the laws of the State of California. Any undefined term used in this Loan
Agreement or in any Collateral Agreement that is defined in the California
Uniform Commercial Code shall have the meaning therin assigned to that term. As
a material part of the consideration to CoastFed to enter into this Agreement,
Borrower (i) agrees that all actions and proceedings relating directly or
indirectly hereto shall, as CoastFed's option, be litigated in courts located
within California, and that the exclusive venue therefor shall be Los Angeles
County; (ii) consents to the jurisdiction and venue of any such court and
consents to service of process in any such action or proceeding by personal
delivery or any other method permitted by law; and (iii) waives any and all
rights Borrower may have to object to the jurisdiction of any such court, or to
transfer or change the venue of any such action or proceeding.
14.9 Execution by CoastFed. This Loan Agreement and any Collateral
Agreement which has been executed and delivered by Borrower to CoastFed shall
not become effective unless and until executed by a duly authorized officer of
CoastFed.*
*14.9A Confidentiality. CoastFed covenants and agrees, on a continuing
basis, to maintain the confidentiality of and not to disclose to any person
other than its officers, directors, attorneys and accountants and affiliates,
and such other persons to whom CoastFed shall at any time be required to make
such disclosure in accordance with applicable law, any and all proprietary,
trade secret or confidential information provided to or received by CoastFed
from or on account of Borrower or any affiliate of Borrower, including business
plans and forecasts, non-public financial information, confidential or secret
processes, formulae, devices or contractual information, customer lists,
employee relation matters, and any other information the disclosure of which
could reasonably be expected to have a material adverse impact on the business
finances or operations of Borrower or its affiliates. Any person acquiring some
or all CoastFed's interest in this Loan Agreement or in the Obligations shall be
deemed to be bound by the provisions of this Section 14.9A.
14.10 Mutual Waiver of Jury Trial. BORROWER AND COASTFED EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON ARISING
OUT OF, OR IN ANY WAY RELATING TO, THIS LOAN AGREEMENT OR ANY COLLATERAL
AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
COASTFED AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF COASTFED OR BORROWER
ANY OF THEIR DIRECTORS OFFICERS, EMPLOYEES, AGENTS ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH COASTFED OR BORROWER.
Borrower:
SYNERGY SEMICONDUCTOR
CORPORATION
By /s/ T. Olin Nichols
_____________________________
President or Vice President
By /s/ Edward M. Leonard
_____________________________
Secretary or Asst. Secretary
CoastFed:
COASTFED BUSINESS CREDIT
CORPORATION
By /s/ Bay Fetner
_____________________________
Title Senior Vice President
__________________________
-12-
<PAGE>
Coast Business Credit Loan and Security Agreement
________________________________________________________________________________
Schedule to Loan and Security Agreement
Prior Names (Section 3.3):
None
Fictitious Names, Trade Names, Trade Styles (Section 3.3):
None
Other Addresses (Section 3.4):
None
-13-
<PAGE>
SCHEDULE OF EXCEPTIONS
TO THE LOAN AND SECURITY AGREEMENT
The following are exceptions to the representations and warranties of
Synergy Semiconductor Corporation (the "Company") and any other provisions
contained in the Loan and Security Agreement between the Company and CoastFed
Business Credit Corporation ("CoastFed") and all related agreements thereto
dated June 29, 1993 (collectively, the "Agreements"), and should be considered
an integral part of the Agreements. The section numbers in this Schedule of
Exceptions correspond to the section numbers in the Agreements; however, any
information disclosed herein under any section number or in any schedule or
exhibit to the Agreements provided by the Company shall be deemed disclosed
and incorporated into any other section, exhibit or schedule under the
Agreements where such disclosure would be appropriate. Any terms defined in
the Agreements shall have the same meaning when used in this Schedule of
Exceptions as when used in the Agreements.
3.2 Authority. Prior to granting a security interest in its
---------
property and incurring indebtedness pursuant to the Agreements, the Company is
contractually obligated to receive the prior written consent of Digital
Equipment Finance Corporation, Storage Technology Corporation and StorageTek
Computer Research Corporation (collectively, "Storage"). The Company
anticipates that its loan agreement with Digital Equipment Finance Corporation
will terminate as soon as practicable after the closing and has requested
Storage to subordinate its interest to CoastFed.
3.3 Name; Trade Name and Style. The Company was previously known
---------------------------
as Solid State Technologies, Inc. and changed its name to Synergy
Semiconductor Corporation on September 24, 1987. The Company acquired certain
equipment and fab improvements through the purchase of all of the outstanding
stock of Zoran Wafer Fabrication Corporation in December 1987, which is now a
wholly-owned subsidiary of the Company named Synergy Wafer Fabrication
Corporation. Synergy Wafer Fabrication Corporation owns assets worth
approximately $0 in book value. The Company has an interest in Halbleiter
Elecktronik Frankfurt (Oder) GmbH pursuant to a joint venture with
Treunhandstalt but does not own any other assets in Germany.
3.5 Title to Collateral; Liens.
--------------------------
(a) Without limiting the terms of Section 3.5 of the Agreement,
"Permitted Liens" shall include the liens, charges, security interests,
encumbrances and/or adverse claims represented by the financing statements
referred to in the UCC search dated May 7, 1993 and previously provided to
CoastFed with
<PAGE>
the understanding that those security interests held by Digital Equipment
Finance Corporation will be terminated as soon as practicable after closing.
(b) The Company leases its facility at 3450 Central Expressway,
Santa Clara, California from Sobrato Interests.
3.11 Litigation. The Company is currently in default under the
----------
terms of Secured Subordinated Notes issued on August 30, 1992 to certain of
its existing investors and will be seeking waivers from such parties as soon
as practicable after the execution of the Agreements.
<PAGE>
[LOGO OF COAST]
SECURED PROMISSORY NOTE
$1,400,000. LOS ANGELES, CALIFORNIA JUNE 29, 1993
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the order
of COASTFED BUSINESS CREDIT CORPORATION ("CoastFed"), at 12121 Wilshire
Boulevard, Suite 1111, Los Angeles, California, or at such other address as the
holder of this Note shall direct, the principal sum of ONE MILLION FOUR HUNDRED
THOUSAND DOLLARS ($1,400,000.), payable $55,000 principal per month, plus
interest as hereinafter provided, commencing on JULY 31, 1993 and continuing on
the last day of each succeeding month. The entire remaining unpaid principal
balance of this Note, plus any and all accrued and unpaid interest, shall be due
and payable on the earlier of: (i) July 31, 1995, or (ii) the date that the Loan
and Security Agreement between the Borrower and CoastFed dated June 29, 1993
(the "Loan Agreement") terminates by its terms or is terminated by either party
in accordance with its terms.
This Note shall bear interest on the unpaid principal balance hereof from
time to time outstanding at a rate equal to the "Prime Rate" (as hereinafter
defined) plus 3% per annum, but in no event shall the interest rate in any month
be less than 8% per annum. Interest shall be calculated on the basis of a 360-
day year for the actual number of days elapsed. As used herein, the term "Prime
Rate" shall mean the actual "Reference Rate" or the substitute therefor of the
Bank of America N-T & SA whether or not that rate is the lowest interest rate
charged by said bank. The interest rate applicable to this Note shall be
adjusted monthly, as of the first day of each month, and the interest rate
charged during each month shall be based on the highest Prime Rate in effect
during said month. If the Prime Rate is unavailable, "Prime Rate" shall mean the
highest of the prime rates published in the Wall Street Journal on the first
business day of the month, as the base rate of corporate loans at large U.S.
money center banks. Accrued interest shall be payable monthly, in addition to
the principal payments provided above, commencing on JUNE 30, 1993, and
continuing on the last day of each succeeding month.
Principal of, and interest on, this Note shall be payable in lawful money of
the United States of America. If a payment hereunder becomes due and payable on
a Saturday, Sunday or legal holiday, the due date thereof shall be extended to
the next succeeding business day, and interest shall be payable thereon during
such extension.
In the event any payment of principal or interest on this Note is not paid in
full when due, or if any other default or event of default occurs under the Loan
Agreement or any other present or future instrument, document, or agreement
between Borrower and CoastFed, CoastFed may, at its option, at any time
thereafter, declare the entire unpaid principal balance of this Note plus all
accrued interest to be immediately due and payable, without notice or demand.
Without limiting the foregoing, and without limiting CoastFed's other rights and
remedies, in the event any installment of principal or interest is not paid in
full on or before the date due, Borrower agrees that it would be impracticable
or extremely difficult to fix the actual damages resulting therefrom to
CoastFed, and therefore the Borrower agrees immediately to pay to CoastFed an
amount equal to 5% of the installment (or portion thereof) not paid, as
liquidated damages, to compensate CoastFed for the internal administrative
expenses in administering the default. The acceptance of any installment of
principal or interest by CoastFed after the time when it becomes due, as herein
specified, shall not be held to establish a custom, or to waive any rights of
CoastFed to enforce payment when due of any further installments or any other
rights, nor shall any failure or delay to exercise any rights be held to waive
the same.
-1-
<PAGE>
Coast Business Credit Secured Promissory Note
______________________________________________________________________________
All payments hereunder are to be applied first to costs and fees referred to
hereunder, second to the payment of accrued interest and the remaining balance
to the payment of principal. Any principal prepayment hereunder shall be applied
against principal payments in the inverse order of maturity. CoastFed shall have
the continuing and exclusive right to apply or reverse and reapply any and all
payments hereunder in its sole discretion.
Borrower agrees to pay all costs and expenses (including without limitation
attorney's fees) incurred by CoastFed in connection with or related to this
Note, or its enforcement, whether or not suit be brought. Borrower hereby
further waives presentment, demand for payment, notice of dishonor, notice of
nonpayment, protest, notice of protest, and any and all other notices and
demands in connection with the delivery, acceptance, performance, default, or
enforcement of this Note, and Borrower hereby waives the benefits of any statute
of limitations with respect to any action to enforce, or otherwise related to
this Note.
This Note is secured by the Loan Agreement and all other present and future
security agreements between Borrower and CoastFed. Nothing herein shall be
deemed to limit any of the terms or provisions of the Loan Agreement or any
other present or future document, instrument or agreement, between Borrower and
CoastFed, and all of CoastFed's rights and remedies hereunder and thereunder are
cumulative.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this Note
shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of CoastFed, and then only to the extent therein specifically
set forth. If more than one person executes this Note, their obligations
hereunder shall be joint and several.
COASTFED AND BORROWER EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (i)
THIS NOTE; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
COASTFED AND BORROWER; OR (iii) ANY CONDUCT, ACTS OR OMISSIONS OF COASTFED OR
BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH COASTFED OR BORROWER.
This Note is payable in, and shall be governed by the internal laws of, the
State of California.
Synergy Semiconductor Corporation,
By /s/ T. Olin Nichols
-------------------------------------
President or Vice President
By /s/ Edward M. Leonard
-------------------------------------
Secretary or Ass't Secretary
-2-
<PAGE>
________________________________________________________________________________
[LOGO OF COAST]
ACCOUNTS COLLATERAL SECURITY
AGREEMENT
BORROWER: SYNERGY SEMICONDUCTOR CORPORATION
ADDRESS: 3450 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
DATE: JUNE 29, 1993
THIS ACCOUNTS COLLATERAL SECURITY AGREEMENT ("Accounts Agreement"), dated the
above date, is entered into between COASTFED BUSINESS CREDIT CORPORATION
("CoastFed") and the borrower named above ("Borrower"), and is one of the
Collateral Agreements referred to in that certain Loan and Security Agreement
("Loan Agreement") between CoastFed and Borrower dated the above date. This
Accounts Agreement is an integral part of the Loan Agreement, and all of the
terms and provisions of the Loan Agreement are incorporated herein by this
reference.
1. GRANT OF SECURITY INTEREST. As collateral and security for the
payment and performance of all Obligations (as defined in the Loan Agreement),
Borrower hereby grants CoastFed an immediately effective, continuing security
interest in, and assigns to CoastFed, all of Borrower's interest in the
following types of property, whether now owned or held or hereafter acquired and
wherever located: all accounts, contract rights, instruments, chattel paper and
all other obligations now or hereafter owing to Borrower (collectively
"Accounts"); and all right, title and interest of Borrower in, and all of
Borrower's rights and remedies with respect to, all goods, the sale or other
disposition of which gives rise to any Account, including, without limitation,
all returned, rejected, rerouted, reclaimed and repossessed goods and all rights
of stoppage in transit, replevin, reclamation, and all rights as an unpaid
vendor; and all collections and proceeds of any of the foregoing; and all
guarantees of, security for, and insurance proceeds attributable to any of the
foregoing; and all books and records relating to any of the foregoing; and all
equipment containing said books and records. The term "Collateral" as used in
the Loan Agreement shall for all purposes be deemed to include, without
limitation, the Accounts and the other property described above. The term
"Account Debtor" as used in this Accounts Agreement shall mean each account
debtor, obligor, guarantor and other person in any way liable or obligated on or
in connection with any Account.
2. LOANS
2.1 AMOUNT OF LOANS. Provided no Event of Default has occurred,
CoastFed agrees to make Loans to Borrower, repayable on * in amounts up to 80%
of the Net Amount of each**. The term "Net Amount" of an Account, as used
herein, shall mean the gross amount of the Account, minus all applicable sales,
use, excise and other similar taxes and minus all discounts, credits and
allowances of any nature at any time issued, owing, granted, outstanding,
available or claimed.
*TERMINATION OF THE LOAN AGREEMENT
** "ELIGIBLE ACCOUNT" (AS DEFINED ON EXHIBIT A HERETO); PROVIDED THAT
TWO RESERVES (COLLECTIVELY, THE "RESERVES") SHALL BE WITHHELD FROM LOANS
OTHERWISE AVAILABLE HEREUNDER IN THE AMOUNTS SET FORTH IN THE LETTER AGREEMENT
BETWEEN THE BORROWER AND COASTFED OF EVEN DATE (THE "LETTER AGREEMENT").
2.2 BORROWER'S ACCOUNTS LOAN BALANCE. The aggregate amount of
Borrower's outstanding indebtedness to CoastFed on account of Loans made
pursuant to Paragraph 2.1 of this Accounts Agreement shall be referred to herein
as "Borrower's Accounts Loan Balance." If Borrower's Accounts Loan Balance
shall at any time exceed the percentage set forth in Paragraph 2.1, CoastFed, in
its sole and absolute discretion, may require Borrower to repay such excess to
CoastFed upon demand, or require Borrower to immediately deliver such additional
security to CoastFed as may be satisfactory to CoastFed.
2.3 INTEREST. Until Borrower's Accounts Loan Balance is paid in full
and this Agreement has terminated, Borrower shall pay interest on Borrower's
Accounts Loan
<PAGE>
Coast Business Credit Accounts Collateral Security Agreement
________________________________________________________________________________
Balance monthly at the rate provided in Paragraph 1.2 of the Loan Agreement,
provided that, regardless of the amount of Borrower's Accounts Loan Balance, if
any, that may be outstanding from time to time. Borrower shall pay minimum
interest during the term of this Accounts Agreement **, which minimum interest
shall be in addition to any other interest payable to CoastFed by Borrower under
* any promissory notes or other Collateral Agreements, or otherwise. The
amount of interest payable hereunder shall be computed as of the close of
business on the last day of each calendar month, and shall be added to
Borrower's Accounts Loan Balance, and shall thereafter bear like interest as the
Loans.
*THE SECURED PROMISSORY NOTE OF EVEN DATE OR
**(THE "MINIMUM INTEREST") IN THE AMOUNT SET FORTH IN THE LETTER
AGREEMENT
2.4 STATEMENT OF ACCOUNT. Each month, CoastFed shall send Borrower
an extract or statement of Borrower's Accounts Loan Balance prepared from
CoastFed's records, which will conclusively be deemed to be correct and accepted
by Borrower unless Borrower delivers to CoastFed a written statement of
exceptions within thirty (30) days after delivery of such extract or statement.
3. SCHEDULES. Borrower shall deliver to CoastFed schedules and
assignments of all Accounts on CoastFed's standard form; provided, however, that
Borrower's failure to execute and deliver the same shall not affect or limit
CoastFed's security interest and other rights in all of Borrower's Accounts, nor
shall CoastFed's failure to advance or lend against a specific Account affect or
limit CoastFed's security interest and other rights therein. Together with each
such schedule and assignment, or later if requested by CoastFed, Borrower shall
furnish CoastFed with copies (or, at CoastFed's request, originals) of all
contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Accounts, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to CoastFed an aged accounts receivable trial
balance in such form and as often as CoastFed requests, and Borrower agrees that
CoastFed may from time to time verify directly with the respective Account
Debtors the validity, amount and any other matters relating to the Accounts by
means of mail, telephone or otherwise, either in the name of Borrower or
CoastFed or such other name as CoastFed may choose. In addition, Borrower shall
deliver to CoastFed the originals of all instruments, chattel paper, security
agreement, guarantees and other documents and property evidencing or securing
any Accounts, immediately upon receipt thereof and in the same form as received,
with all necessary indorsements all of which shall be with recourse.
4. COLLECTION OF ACCOUNTS. Borrower shall have the privilege of
collecting the Accounts in trust for CoastFed, at Borrower's sole cost and
expense, which privilege may be revoked by CoastFed at any time*. All monies,
checks, notes, drafts, money orders, acceptances and other things of value and
items of payment, together with any and all related vouchers, identifications,
communications and other data, documents and instruments, collected or received
by Borrower (or by any receiver, trustee, custodian or successor in interest of
Borrower, or by any person acting on behalf of Borrower) in payment of, or in
reference to, the Accounts shall belong to CoastFed, and, not later than **
after receipt thereof by Borrower. Borrower shall deliver the same to CoastFed,
at CoastFed's office (or, if so directed by CoastFed, Borrower shall deposit the
same in CoastFed's account in a bank designated by CoastFed) in the original
form in which the same are received, together with any necessary indorsements,
including, without limitation, the indorsement of Borrower, all of which
indorsements shall be with recourse. Borrower shall have no right, and agrees
not to commingle any of the proceeds of any of the collections of the Accounts
with Borrower's own funds and Borrower agrees not to use, divert or withhold any
such proceeds. Borrower hereby divests itself of all dominion over the Accounts
and the proceeds thereof and collections received thereon. Borrower shall make
entries on its books and records in form satisfactory to CoastFed disclosing the
absolute and unconditional assignment of all Accounts to CoastFed and CoastFed's
security interest therein and shall keep a separate account on its record books
of all collections received thereon. Borrower agrees that it will, upon request
by CoastFed and in such form and at such times as CoastFed shall request, give
notice to the Account Debtors of the assignment of and the grant of a security
interest in the Accounts to CoastFed and that CoastFed may itself give such
notice at any time and from time to time in CoastFed's or Borrower's name,
without notice to Borrower, requiring such Account Debtors to pay the Accounts
directly to CoastFed, and in any such event, Borrower's privilege of collecting
the Accounts shall automatically be revoked. CoastFed may also revoke Borrower's
privilege of collecting the Accounts at any time by giving notice thereof to
Borrower (orally or in writing). CoastFed may charge to Borrower's account all
costs and expenses incurred by CoastFed in collecting Accounts, including,
without limitation, postage, telephone and telegraph charges, salaries of
CoastFed personnel, and attorneys' fees.
*AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT OR IF COAST BELIEVES, IN
GOOD FAITH, THAT BORROWER IS NOT REMITTING THE PROCEEDS OF THE ACCOUNTS TO
COASTFED AS REQUIRED BY THIS AGREEMENT OR THAT COLLECTION OF ANY OF THE ACCOUNTS
OR OTHER COLLATERAL IS IN JEOPARDY.
**TWO (2) DAYS
5. RETURNED GOODS. *Goods which are returned by an Account Debtor or
otherwise recovered by or for the benefit of Borrower shall be physically
segregated, posted with written notice that they are subject to CoastFed's
security interest, and held in trust for CoastFed for such disposition as
CoastFed shall direct. Borrower shall promptly notify CoastFed of all such
returns and recoveries**. After an Event of Default has occurred, no return of
merchandise shall be accepted by Borrower and no
-2-
<PAGE>
Coast Business Credit Accounts Collateral Security Agreement
________________________________________________________________________________
sale of returned goods shall be made by Borrower without CoastFed's prior
written consent. * CoastFed shall have the right acting alone to accept the
return of any goods directly from an Account Debtor, without notice to or
consent by Borrower, and neither the delivery by Borrower of returned or
recovered goods to CoastFed, nor the acceptance by CoastFed of returns directly
from an Account Debtor shall in any way affect Borrower's liability to CoastFed
on account of the Obligations.
*AFTER AN EVENT OF DEFAULT HAS OCCURRED
**ON THE REGULAR REPORTS PROVIDED TO COASTFED, EXCEPT THAT BORROWER
SHALL NOTIFY COASTFED IMMEDIATELY OF A RETURN OF INVENTORY WITH A SALES PRICE OF
MORE THAN $50,000
6. DISPUTED ACCOUNTS. Borrower shall promptly notify CoastFed of all
disputes and claims with respect to the Accounts*. Borrower shall not, without
CoastFed's prior written consent, compromise, adjust, or grant any discount,
credit, allowance, or extension of time for payment to any Account Debtor.
CoastFed shall have the right, in its sole and absolute discretion, ** to
settle, accept reduced amounts and adjust disputes and claims directly with, and
give releases on behalf of Borrower to Account Debtors for cash, credit or
otherwise, upon terms which CoastFed in its sole and absolute discretion,
considers advisable, and in such case, CoastFed will credit Borrower's account
with only the net amounts of cash received by CoastFed in payment of the
Accounts, less all costs and expenses (including, without limitation, attorneys'
fees) incurred by CoastFed in connection with the settlement or adjustment of
such disputes and the collection of such Accounts.
*SINGLY OR IN THE AGGREGATE INVOLVING AMOUNTS IN EXCESS OF $50,000
**AFTER AN EVENT OF DEFAULT
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER. Borrower
represents, warrants and covenants that now and throughout the term of this
Accounts Agreement:
7.1 STATUS OF ACCOUNTS. Each and every Account with respect to which
Loans are made shall, on the date each Loan is made and thereafter, comply with
all of the following representations, warranties and covenants; each Account
represents an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business; the
Account Debtor on each Account has not and will not assert any defense, offset,
counterclaim, right of return or cancellation, or other right or claim; each
Account will be paid in full at maturity; no petition in bankruptcy or other
application for relief under the Bankruptcy Code or any other insolvency law has
been or will be filed by or against the Account Debtor on any Account, and no
Account Debtor has made or will make an assignment for the benefit of creditors,
become insolvent, fail or go out of business, nor does Borrower have notice that
any of the foregoing is threatened, or is or may be about to occur, no Account
is or will be impaired or reduced in value; no Account Debtor on any Account is
a shareholder, director, partner or agent of Borrower, or is a person or entity
controlling, controlled by or under common control with Borrower, no Account is
owed by an Account Debtor to whom Borrower is or may become liable in connection
with goods sold or services rendered by the Account Debtor to Borrower or any
other transaction or dealing between the Account Debtor to Borrower or any other
transaction or dealing between the Account Debtor and Borrower. * Immediately
upon discovery by Borrower that any of the foregoing representations,
warranties, or covenants are or have become untrue with respect to any Account,
Borrower shall immediately give written notice thereof to CoastFed.
*THE FOREGOING REPRESENTATIONS AND WARRANTIES IN THIS SECTION 7.1
SHALL NOT BE DEEMED BREACHED IF AN ACCOUNT DEBTOR ON AN ACCOUNT ASSERTS A
DEFENSE, OFFSET, COUNTERCLAIM, RIGHT OF RETURN OR CANCELLATION, OR OTHER RIGHT
OR CLAIM, OR AN ACCOUNT IS NOT PAID IN FULL AT MATURITY, OR A PETITION IN
BANKRUPTCY OR OTHER APPLICATION FOR RELIEF UNDER THE BANKRUPTCY CODE OR ANY
OTHER INSOLVENCY LAW IS FILED BY OR AGAINST THE ACCOUNT DEBTOR ON ANY ACCOUNT,
OR AN ACCOUNT DEBTOR MAKES AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS, BECOMES
INSOLVENT, FAILS OR GOES OUT OF BUSINESS, OR AN ACCOUNT IS IMPAIRED OR REDUCED
IN VALUE, PROVIDED THAT: (i) NONE OF THE FOREGOING EVENTS HAD OCCURRED WITH
RESPECT TO THE ACCOUNT AT THE TIME IT WAS LISTED ON A SCHEDULE SUBMITTED BY THE
DEBTOR TO COASTFED, OR AT THE TIME THE DEBTOR REQUESTED LOANS WITH RESPECT TO
THE ACCOUNT; AND (ii) THE DEBTOR IMMEDIATELY NOTIFIES COASTFED UPON BECOMING
AWARE THAT ANY OF THE FOREGOING EVENTS HAVE OCCURRED; AND (iii) DEBTOR'S
ACCOUNTS LOAN BALANCE REMAINS WITHIN THE LIMITS SET FORTH IN SECTION 2.1 ABOVE.
7.2 DOCUMENTS GENUINE; LEGAL COMPLIANCE. All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Accounts are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be and all signatories
and indorsers have full capacity to contract. All sales and other transactions
underlying or giving rise to each Account shall fully comply with all applicable
laws and governmental rules and regulations**. All signatures and indorsements
on all documents, instruments, and agreements relating to all Accounts are and
shall be genuine, and all such documents, instruments and agreements are and
shall be legally enforceable in accordance with their terms.*
*ALL OF THE FOREGOING REPRESENTATIONS AND WARRANTIES SHALL BE TRUE AND
CORRECT WITH RESPECT TO EACH ACCOUNT ON THE DATE ANY LOAN IS MADE WITH RESPECT
TO SUCH ACCOUNT. IN THE EVENT ANY OF THE FOREGOING REPRESENTATIONS OR
WARRANTIES BECOMES UNTRUE WITH RESPECT TO ANY ACCOUNT, BECAUSE OF EVENTS
OCCURRING AFTER THE DATE A LOAN IS MADE WITH RESPECT TO SUCH ACCOUNT, SUCH
ACCOUNT SHALL AUTOMATICALLY BE DEEMED TO BE 'INELIGIBLE' FOR BORROWING UNDER
SECTION 2.1 ABOVE (WITHOUT LIMITING THE FACT THAT THE DETERMINATION OF
-3-
<PAGE>
Coast Business Credit Accounts Collateral Security Agreement
________________________________________________________________________________
which Accounts are eligible for borrowing is a matter of CoastFed's discretion).
**in all material respects
7.3 Disposition of Accounts. Borrower has not and shall not hereafter
sell, assign, pledge, encumber, forgive (completely or partially), settle for
less than payment in full, or transfer or dispose of any Account or agree to do
any of the foregoing.
8. No Liability. CoastFed shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to or loss or
destruction of, any goods, the sale or other disposition of which gives rise to
an Account, or for any error, act, omission, or delay of any kind occurring in
the settlement failure to settle, collection or failure to collect any Account
(including, without limitation, any of the same which result in the loss of
rights against others), or for settling any Account for less than the full
amount thereof, nor shall CoastFed be deemed by any provision herein or any act,
omission, or event to be responsible for or to have assumed any of Borrower's
obligations under any contract or agreement giving rise to an Account.
9. Relationship to Loss Agreement. CoastFed's remedies under this
Accounts Agreement and the Loan Agreement are cumulative. If any provision of
this Accounts Agreement modifies or conflicts with any provision of the Loan
Agreement, that provision in either agreement that gives greater rights and
remedies to CoastFed shall control. All capitalized terms used herein, which
are not defined herein, shall have the meanings ascribed to them in the Loan
Agreement.
10. Effective Date. This Accounts Agreement when executed by Borrower and
accepted by a duly authorized officer of CoastFed, shall be effective on the
date first above written.
Borrower:
SYNERGY SEMICONDUCTOR
CORPORATION
By /s/ T. Olin Nichols
_____________________________
President or Vice President
By /s/ Edward M. Leonard
_____________________________
Secretary or Asst. Secretary
CoastFed:
Accepted at Los Angeles, California:
COASTFED BUSINESS CREDIT
CORPORATION
By /s/ Bay Fetner
_____________________________
Title Senior Vice President
__________________________
-4-
<PAGE>
Coast Business Credit Accounts Collateral Security Agreement
________________________________________________________________________________
Exhibit A
As used herein, "Eligible Accounts" shall mean Accounts which (i) arise out
of sales in the ordinary course of Borrower's business to a person who is not an
affiliate of Borrower, or otherwise directly or indirectly controlled by
Borrower, or by a director, officer or employee of Borrower, (ii) are on terms
which require payment in full within 30 days from the date of invoice and are
not unpaid more than 90 days from the date of the original invoice applicable
thereto, (iii) are not in dispute, and (iv) do not violate any representation or
warranty set forth in this Agreement or in the Loan Agreement. Notwithstanding
the foregoing an Account shall not be an Eligible Account if: (i) there is
filed by or against the Account Debtor or any affiliate of the Account Debtor a
petition in bankruptcy or for reorganization, or if the Account Debtor or any
affiliate of the Account Debtor has made an assignment for the benefit of
creditors, or if the Account Debtor or any affiliate of the Account Debtor has
failed, suspended business operations, become insolvent, or had or suffered a
receiver or a trustee to be appointed for all or a significant portion of its
assets or affairs, or if CoastFed or Borrower has notice or believes that any of
the foregoing events is about to occur; (ii) the Account Debtor is also a
supplier to or a creditor of the Borrower or has asserted a counterclaim or
right of setoff against the Borrower, (iv) the Account is owed by an Account
Debtor with respect to which 25% or more of the Accounts owed by that Account
Debtor or its affiliates are ineligible for any reason; (v) Accounts owing from
one Account Debtor or a group of affiliated Account Debtors to the extent they
exceed 25% of the total Eligible Accounts outstanding; (v) the Account Debtor
is the United States of America or any department, agency or instrumentality
thereof, unless such Borrower has assigned its right to payment thereof to
CoastFed pursuant to the Assignment of Claims Act of 1940, as amended, by
documentation acceptable to CoastFed; (vi) CoastFed does not have a
first-priority, valid, perfected security interest in the Account; (vii) the
Account Debtor's obligation to pay is subject to any repurchase obligation or
return right or other Borrower exceeds a credit limit determined by CoastFed in
its sole discretion; (x) CoastFed, in its sole credit judgment exercised in its
good faith discretion, believes that the collection of such Account is insecure,
or that such Account may not be paid by reason of the Account Debtor's financial
inability to pay, or deems such Account to be ineligible based on such other
credit and/or collateral considerations as CoastFed in its sole discretion deems
appropriate."
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<PAGE>
[Logo of Coast]
Equipment Collateral Security
Agreement
Borrower: Synergy Semiconductor Corporation
Address: 3450 Central Expressway
Santa Clara, California 95051
Date: June 29, 1993
THIS EQUIPMENT COLLATERAL SECURITY AGREEMENT ("Equipment Agreement"), dated the
above date, is entered into between COASTED BUSINESS CREDIT CORPORATION
("CoastFed") and the borrower named above ("Borrower"), and is one of the
Collateral Agreements referred to in that certain Loan and Security Agreement
("Loan Agreement") between CoastFed and Borrower, dated the above date. This
Equipment Agreement is an integral part of the Loan Agreement, and all of the
terms and provisions of the Loan Agreement are incorporated herein by this
reference.
1. Grant of Security Interest. As collateral and security for the
payment and performance of all Obligations (as defined in the Loan Agreement),
Borrower hereby grants CoastFed an immediately effective, continuing security
interest in, and assigns to CoastFed, all of Borrower's interest in the
following types of property, whether now owned or held or hereafter acquired and
wherever located; all equipment, goods (other than inventory), machinery,
fixtures, trade fixtures, vehicles, furnishings, furniture, supplies, materials,
tools, machine tools, office equipment, appliances, apparatus, parts, dics,
jigs, and chattels, together with all attachments, replacements, substitutions,
accessions, additions and improvement to any of the foregoing (collectively
"Equipment"), whether or not the same be in the constructive or actual
possession or custody or Borrower, CoastFed or any third party; and all products
proceeds and insurance proceeds thereof, including, without limitation, all
accounts, instruments, documents and chattel paper which may arise from the sale
or disposition of the Equipment; and all books and records pertaining to any or
all of the foregoing. The term "Collateral" as used in the Loan Agreement shall
for all purposes be deemed to include, without limitation, the Equipment and all
of the other property described above. The Equipment includes, without
limitation, all Equipment identified in any one or more Schedules of Equipment
which may be attached hereto, but no failure to attach any Schedule of Equipment
shall affect or limit CoastFed's security interest in all of the Equipment and
all of the other property described above. Borrower has no authority or right
to, and shall not exchange, trade in, sell, lease or otherwise dispose of any
Equipment without CoastFed's prior written consent.
2. Loans. CoastFed has made, or is concurrently making, a Loan to
Borrower in the original principal amount of $1,400,000, which Loan is evidenced
by that certain promissory note made by Borrower to the order of CoastFed dated
June 29, 1993. If at any time, CoastFed, in its sole discretion, determines
that the Equipment then owned by Borrower is worth less than its value as
represented by Borrower, or that any Loan pursuant to this Paragraph 2 is not
adequately secured by Borrower's Equipment (without regard to any other
Collateral that may be held by CoastFed). Borrower will promptly upon demand
repay to CoastFed such portion of the Loan as will, in CoastFed's sole judgment,
place CoastFed in an adequately secured position.
3. Representations, Warranties and Covenants of Borrower. Borrower
represents, warrants, and covenants that now and throughout the term of
this Equipment Agreement:
3.1 Conditions of Equipment. The Equipment is, and will continue to
be at Borrower's sole expense, in good and operational condition, free from
latent and patent defects, and not obsolete.
3.2 Use of Equipment. Borrower shall not permit or cause the
Equipment to be misused, used for any purpose other than for which it was
designed, altered or utilized in any illegal or negligent manner. Borrower shall
use the Equipment only in the ordinary course of its
-1-
<PAGE>
Coast Business Credit Equipment Collateral Security Agreement
________________________________________________________________________________
business as heretofore conducted, in a legal manner, and in a manner not
inconsistent with the terms of any insurance policy relating thereto.
3.3 Records and Schedules. Borrower has kept and shall hereafter keep
accurate and complete records regarding the Equipment, including, without
limitation, records describing in full the dates of acquisition, acquisition
costs, and serial numbers thereof, all of which records shall be continuously
available to CoastFed for inspection and copying. Borrower shall, from time to
time, upon request by CoastFed, provide CoastFed with updated and complete
schedules identifying each item of Equipment, and setting forth the serial
numbers thereof and all such other information as CoastFed shall specify, and
Borrower shall immediately give CoastFed written notice of all Equipment which
it hereafter purchases, leases, or otherwise acquires; provided that no failure
to provide such schedules or give such notice shall affect or limit CoastFed's
security interest in all of the Equipment.
3.4 Certificates of Title. Upon request by CoastFed, Borrower shall
immediately deliver to CoastFed the originals of all certificates of title,
certificates of ownership, evidences of ownership, and applications therefor,
and all other similar documents and instruments, relating to any or all of the
Equipment.
4. Statement of Account. If CoastFed shall send Borrower an extract or
statement prepared from CoastFed's records regarding any Loan made pursuant to
Paragraph 2, the same shall conclusively be deemed correct and accepted by
Borrower unless Borrower delivers to CoastFed a written statement of exceptions
within thirty (30) days after delivery of such extract or statement.
5. Relationship to Loan Agreement. CoastFed's remedies under this
Equipment Agreement and the Loan Agreement are cumulative. If any provision of
this Equipment Agreement modifies or conflicts with any provision of the Loan
Agreement, those provisions in either agreement that give greater rights and
remedies to CoastFed shall govern. All capitalized terms used herein, which are
not defined herein, shall have the meanings ascribed to them in the Loan
Agreement.
6. Effective Date. This Equipment Agreement, when executed by Borrower
and accepted by a duly authorized officer of CoastFed, shall be effective on the
date first above written.
Borrower:
SYNERGY SEMICONDUCTOR
CORPORATION
By /s/ T. Olin Nichols
_____________________________
President or Vice President
By /s/ Edward M. Leonard
_____________________________
Secretary or Asst. Secretary
CoastFed:
Accepted at Los Angeles, California:
COASTFED BUSINESS CREDIT
CORPORATION
By /s/ Bay Fetner
_____________________________
Title Senior Vice President
-2-
<PAGE>
September 28, 1994
Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, California 95051
Re: Amending Letter Agreement
-------------------------
Gentlemen:
CoastFed Business Credit Corporation ("CoastFed") makes reference to the
following agreements and instruments by Synergy Semiconductor Corporation
("Borrower") with or in favor of CoastFed, as the same may have from time to
time been amended: (i) Loan and Security Agreement ("Loan Agreement") dated
June 29, 1993, (ii) Equipment Collateral Security Agreement ("Equipment
Agreement") dated June 29, 1993, and (iii) Secured Promissory Note dated June
29, 1993 in the principal amount of $1,400,000 (the "$1,400,000 Note"). The
foregoing agreements and instruments, along with the other "Collateral
Agreements" (as defined in the Loan Agreement), shall be collectively referred
to as the "Loan Documents."
By their signatures below, the parties agree that the Loan Documents are
amended and supplemented as follows:
1. Maximum Credit. The last sentence of Paragraph 1.1 of the Loan
--------------
Agreement is hereby amended to read in its entirety as follows:
Notwithstanding anything herein or in any Collateral Agreement to the
contrary, in no event shall the Borrower permit the total balance of
all Loans and all other Obligations outstanding at any one time to
exceed $4,500,000; and, if for any reason they do, Borrower shall
immediately pay the amount of such excess to CoastFed in immediately
available funds.
2. Term Loan. Provided no "Event of Default" (as defined in the Loan
---------
Agreement) has occurred and Borrower has complied with the terms of Paragraph 3
below, CoastFed shall make a Loan ("New Equipment Loan") to Borrower in an
amount equal to the difference between $1,680,000 and the outstanding principal
of the $1,400,000 Note (the "Existing Equipment Loan"). The New Equipment Loan
and the Existing Equipment Loan shall be aggregated into a single $1,680,000
Loan which shall (a) bear interest at the same rate as under the $1,400,000
Note, payable monthly, and (b) require principal payments of (i) $55,000 on
September 30, 1994, (ii) monthly installments of $70,000 beginning on October
31, 1994, and (iii) a final payment of all remaining principal on August 31,
1996; according to the terms of a Secured Promissory Note to be executed and
delivered by Borrower to CoastFed in form acceptable to
<PAGE>
CoastFed (the "$1,680,000 Note"). The $1,400,000 Note shall be replaced and
amended in its entirety by the $1,680,000 Note effective on the date the New
Equipment Loan is made, provided that if the New Equipment Loan is not made
until after Borrower has made the $55,000 principal payment due on September 30,
1994 under the $1,400,000 Note, then the $55,000 principal payment due on
September 30, 1994 under the $1,680,000 Note shall be deemed to have been made.
The Borrower acknowledges that the Loan represented by the $1,680,000 Note is
made pursuant to paragraph 2 of the Equipment Agreement and is subject to the
terms of the Equipment Agreement.
3. Release of Lien of Storage Technology Corporation. Borrower shall
-------------------------------------------------
provide CoastFed with terminations signed by Storage Technology Corporation and
StorageTek Computer Research Corporation, terminating any and all liens and
security interests of said companies in the assets of Borrower, on or before
October 15, 1994.
4. Miscellaneous. This Agreement sets forth in full all of the
-------------
representations and agreements of the parties with respect to the subject matter
hereof and supersedes all prior discussions, representations, agreements and
understandings between the parties with respect to the subject hereof. This
Agreement may not be modified or amended, nor may any rights hereunder be
waived, except in a writing signed by the parties hereto. Except as herein
expressly modified or amended, all the terms and provisions of the Loan
Agreement and theother Loan Documents shall continue in full force and effect
and the same are hereby ratified and confirmed. This Agreement is one of the
Collateral Agreements referred to in the Loan Agreement. This Agreement is
being entered into, and shall be governed by the laws of, the State of
California.
COASTFED BUSINESS CREDIT CORPORATION
By /s/ Edit Kondorosi
-----------------------------------
Title Vice President
--------------------------------
SYNERGY SEMICONDUCTOR CORPORATION
By /s/ E. Marshall Wilder
-----------------------------------
Name E. Marshall Wilder Vice President
By /s/ T. Olin Nichols
-----------------------------------
Name Asst. Secretary
---------------------------------
-2-
<PAGE>
March 31, 1995
Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, California 95051
Re: Amending Letter Agreement
-------------------------
Gentlemen:
CoastFed Business Credit Corporation ("CoastFed") makes reference to
the following agreements and instruments by Synergy Semiconductor
Corporation ("Borrower") with or in favor of CoastFed, as the same may have
from time to time been amended: (i) Loan and Security Agreement ("Loan
Agreement") dated June 29, 1993, (ii) Equipment Collateral Security
Agreement ("Equipment Agreement") dated June 29, 1993, (iii) Secured
Promissory Note dated September 28, 1994 in the principal amount of
$1,680,000 (the "$1,680,000 Note"), and (iv) Amending Letter Agreement
dated September 28, 1994. The foregoing agreements and instruments, along
with the other "Collateral Agreements" (as defined in the Loan Agreement),
shall be collectively referred to as the "Loan Documents."
By their signatures below, the parties agree that the Loan Documents
are amended and supplemented as follows:
1. Maximum Credit. The last sentence of Paragraph 1.1 of the Loan
--------------
Agreement is hereby amended to read in its entirety as follows:
Notwithstanding anything herein or in any Collateral Agreement to the
contrary, in no event shall the Borrower permit the total balance of
all Loans and all other Obligations outstanding at any one time to
exceed $5,000,000; and, if for any reason they do, Borrower shall
immediately pay the amount of such excess to CoastFed in immediately
available funds.
2. Term Loan. Provided no "Event of Default" (as defined in the Loan
---------
Agreement) has occurred and Borrower has complied with the terms of
Paragraph 3 below, CoastFed shall make a Loan ("New Equipment Loan") to
Borrower in an amount equal to the difference between $2,000,000 and the
outstanding principal of the $1,680,000 Note (the "Existing Equipment
Loan"). The New Equipment Loan shall be made by CoastFed on May 1, 1995.
Effective upon the making of the New Equipment Loan, the New Equipment Loan
and the Existing Equipment Loan shall be aggregated into a single
$2,000,000 Loan which shall (a) bear interest at the same rate as under the
$1,680,000 Note, payable monthly, and (b) require principal payments of (i)
$85,000 each month beginning on May 31, 1995 and continuing on the last day
of each month thereafter through and including October 31, 1995 and (ii)
$75,000 each month
<PAGE>
beginning on November 30, 1995 and continuing on the last day of each month
thereafter until all principal is paid in full; according to the terms of a
Secured Promissory Note to be executed and delivered by Borrower to CoastFed
in form acceptable to CoastFed (the "$2,000,000 Note"). The $1,680,000 Note
shall be replaced and amended in its entirety by the $2,000,000 Note. Any
accrued but unpaid interest or costs due under the $1,680,000 Note at the time
it is replaced and amended by the $2,000,000 Note, shall become due and
payable under the $2,000,000 Note. The Borrower acknowledges that the Loan
represented by the $1,680,000 Note is made pursuant to paragraph 2 of the
Equipment Agreement and is subject to the terms of the Equipment Agreement.
3. Conditions. Notwithstanding any execution and delivery of this
----------
Agreement or the $2,000,000 Note by CoastFed and/or Borrower, the provisions
of Paragraphs 1 and 2 above shall not be deemed effective unless and until the
following conditions have been satisfied, provided that CoastFed may waive, in
writing, such conditions:
a. Borrower shall have provided CoastFed with (i) a Landlord's
Waiver, executed by the landlord of Borrower's premises located at 3450
Central Expressway, Santa Clara, California, in form reasonably acceptable to
CoastFed, and in form suitable for recording, (ii) a Fixture Filing with
respect to Borrower, in a form reasonably acceptable to CoastFed, and in form
suitable for recording, and (iii) a Termination Statement signed by the
secured party under that certain Financing Statement filed with the California
Secretary of State's Office on July 23, 1990, as File Number 90-186225,
against Borrower, originally in favor of Digital Equipment Finance Corp. and
assigned to Chase Manhattan Leasing Corp., in a form suitable for filing with
the California Secretary of State's Office to terminate said Financing
Statement.
4. Extension. The "initial renewal date," as defined in Paragraph 8 of
---------
the Loan Agreement, is hereby amended to be "June 30, 1996."
5. Miscellaneous. This Agreement and the Loan Documents set forth in
-------------
full all of the representations and agreements of the parties with respect to
the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with
respect to the subject hereof. This Agreement may not be modified or amended,
nor may any rights hereunder be waived, except in a writing signed by the
parties hereto. Except as herein expressly modified or amended, all the terms
and provisions of the Loan Agreement and the other Loan Documents shall
continue in full force and effect and the same are hereby ratified and
confirmed.
-2-
<PAGE>
This Agreement is one of the Collateral Agreements referred to in the Loan
Agreement. This Agreement is being entered into, and shall be governed by the
laws of, the State of California.
SYNERGY SEMICONDUCTOR COASTFED BUSINESS CREDIT
CORPORATION CORPORATION
By: /s/ Thomas D. Mino By: /s/ Bay Fetner
------------------------------ -------------------------------------
Name: Thomas D. Mino, President Title: Vice President
--------------- ---------------------------------
By: /s/ Edward M. Leonard
-----------------------------
Name: Edward M. Leonard, Secretary
------------------
-3-
<PAGE>
August 22, 1995
Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, California 95051
Re: Amending Letter Agreement
-------------------------
Gentlemen:
CoastFed Business Credit Corporation ("CoastFed") makes reference to the
following agreements and instruments by Synergy Semiconductor Corporation
("Borrower") with or in favor of CoastFed, as the same may have from time to
time been amended: (i) Loan and Security Agreement ("Loan Agreement") dated
June 29, 1993, (ii) Amending Letter Agreement dated September 28, 1994, and
(iii) Amending Letter Agreement dated March 31, 1995. The foregoing agreements
and instruments, along with the other "Collateral Agreements" (as defined in
the Loan Agreement), shall be collectively referred to as the "Loan
Documents."
By their signatures below, the parties agree that the Loan Documents are
amended and supplemented as follows:
1. Maximum Credit. The last sentence of Paragraph 1.1 of the Loan
--------------
Agreement is amended, effective as of June 29, 1995, to read in its entirety
as follows:
Notwithstanding anything herein or in any Collateral Agreement to the
contrary, in no event shall the Borrower permit the total balance of
all Loans and all other Obligations outstanding at any one time to
exceed $5,500,000; and, if for any reason they do, Borrower shall
immediately pay the amount of such excess to CoastFed in immediately
available funds.
2. Miscellaneous. This Agreement and the Loan Documents set forth in
-------------
full all of the representations and agreements of the parties with respect to
the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with
respect to the subject hereof. This Agreement may not be modified or amended,
nor may any rights hereunder be waived, except in a writing signed by the
parties hereto. Except as herein expressly modified or amended, all the terms
and provisions of the Loan Agreement and the other Loan Documents shall
continue in full force and effect and the same are hereby ratified and
confirmed.
<PAGE>
This Agreement is one of the Collateral Agreements referred to in the Loan
Agreement. This Agreement is being entered into, and shall be governed by the
laws of, the State of California.
SYNERGY SEMICONDUCTOR COASTFED BUSINESS CREDIT
CORPORATION CORPORATION
By: By: /s/ Bay Fetner
------------------------------ -------------------------------
Name: , President Title: Senior Vice President
---------------------------- ------------------------
By: /s/ T. Olin Nichols
------------------------------
Name: T. Olin Nichols, Secretary (asst)
-2-
<PAGE>
COAST
AMENDMENT TO LOAN DOCUMENTS
BORROWER: SYNERGY SEMICONDUCTOR CORPORATION
ADDRESS: 3450 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
DATE: MARCH 25, 1996
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between Coast Business
Credit, a division of Southern Pacific Thrift & Loan Association (successor by
merger to CoastFed Business Credit Corporation) ("Coast"), whose address is
12121 Wilshire Blvd., Suite 1111, Los Angeles, California and the borrower named
above (the "Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated June 29, 1993 (as amended, the "Loan Agreement"), and that certain
Accounts Collateral Security Agreement between them, dated June 29, 1993 (the
"Accounts Agreement"), as follows. (This Amendment, the Loan Agreement, the
Accounts Agreement, all prior written amendments to said agreements signed by
Coast and the Borrower, and all other written documents and agreements between
Coast and the Borrower are referred to herein collectively as the "Loan
Documents". Capitalized terms used but not defined in this Amendment, shall have
the meanings set forth in the Loan Agreement.)
1. CHANGE IN INTEREST RATE. Effective May 1, 1996, Section 1.2 of the
Loan Agreement is amended in its entirety to read as follows:
"1.2 INTEREST. All Loans (including without limitation the Loans evidenced
by the Secured Promissory Note dated May 1, 1995 in the original principal
amount of $2,000,000) shall bear interest at a rate equal to the "Prime
Rate" (as hereinafter defined), plus 1.5% per annum; provided that in the
event the Borrower's net worth (determined in accordance with generally
accepted accounting principles) as of the end of any month after December
1995 is less than 90% of Borrower's net worth as of December 31, 1995,
then all Loans shall bear interest at a rate equal to the "Prime Rate" (as
hereinafter defined), plus 2.0% per annum. Any such change in the interest
rate as a result of such a decline in Borrower's net worth as of the end
of a month shall be effective on the first day of the following month.
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed. The interest rate applicable to all Loans shall be
adjusted monthly as of the first day of each month, and the interest to be
charged for that month shall be based on the highest
-1-
<PAGE>
Coast Business Credit Amendment to Loan Documents
_______________________________________________________________________________
"Prime Rate" in effect during said month, but in no event shall the rate
of interest charged on any Loans in any month be less than 8% per annum.
"Prime Rate" is defined as the actual "Reference Rate" or the substitute
therefor of the Bank of America NT & SA ("B of A") whether or not that
rate is the lowest interest rate charged by B of A. If the Prime Rate, as
defined, is unavailable, "Prime Rate" shall mean the highest of the prime
rates published in the Wall Street Journal on the first business day of
the month, as the base rate on corporate loans at large U.S. money center
commercial banks."
2. EXTENSION. Effective on the date hereof, the date "June 30, 1996" in
Section 8 of the Loan Agreement is hereby amended by replacing that date with
the date "December 31, 1996".
3. COLLECTIONS. Effective on May 1, 1996, Section 4 of the Accounts
Agreement is amended to read as follows, and the following new Sections 4A and
4B are added to the Accounts Agreement:
"4. Collection of Accounts. Borrower shall collect the Accounts,
at Borrower's sole cost and expense, and Borrower may utilize the proceeds
of the Accounts in its business, provided that if Borrower's net worth
(determined in accordance with generally accepted accounting principles)
as of the end of any month after December 1995 is less than 90% of
Borrower's net worth as of December 31, 1995, then immediately thereafter
the following provisions shall apply:
"(a) Borrower shall hold all proceeds of the Accounts in trust for
CoastFed.
"(b) All monies, checks, notes, drafts, money orders, acceptances
and other things of value and items of payment, together with any and all
related vouchers, identifications, communications and other data,
documents and instruments, collected or received by Borrower (or by any
receiver, trustee, custodian or successor in interest of Borrower, or by
any person acting on behalf of Borrower) in payment of, or in reference
to, the Accounts shall belong to CoastFed, and, not later than two (2)
days after receipt thereof by Borrower, Borrower shall deliver the same to
CoastFed, at CoastFed's office (or, if so directed by CoastFed, Borrower
shall deposit the same in CoastFed's account in a bank designated by
CoastFed) in the original form in which the same are received, together
with any necessary indorsements, including, without limitation, the
indorsement of Borrower, all of which indorsements shall be with recourse.
"(c) Borrower shall not commingle any of the proceeds of any of
the collections of the Accounts with Borrower's own funds and Borrower
agrees not to use, divert or withhold any such proceeds. Borrower hereby
divests itself of all dominion over the Accounts and the proceeds thereof
and collections received thereon.
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Coast Business Credit Amendment to Loan Documents
_______________________________________________________________________________
"4A. Accounts-Further Provisions. This provisions of this Section
4A shall apply regardless of Borrower's net worth. Borrower shall make
entries on its books and records in form satisfactory to CoastFed
disclosing the absolute and unconditional assignment of all Accounts to
CoastFed and CoastFed's security interest therein and shall keep a
separate account on its record books of all collections received thereon.
Borrower's privilege of collecting the Accounts may be revoked by CoastFed
at any time after the occurrence of an Event of Default or if CoastFed
believes, in good faith, that Borrower is not remitting the proceeds of
the Accounts to CoastFed when required by this Agreement or that
collection of any of the Accounts or other Collateral is in jeopardy.
Borrower agrees that it will, upon request by CoastFed and in such form
and at such times as CoastFed shall request, give notice to the Account
Debtors of the assignment of and the grant of a security interest in the
Accounts to CoastFed and that CoastFed may itself give such notice at any
time and from time to time in CoastFed's or Borrower's name, without
notice to Borrower. CoastFed may charge to Borrower's account all costs
and expenses incurred by CoastFed in collecting Accounts, including,
without limitation, postage, telephone and telegraph charges, salaries of
CoastFed personnel, and attorneys' fees.
"4B. Reports. During the period Borrower is entitled to retain the
proceeds of Accounts under Section 4 above, Borrower shall provide to
CoastFed, no less frequently than weekly, reports of Borrower's sales,
collections and credit memos, in such form and with such detail as
CoastFed shall specify."
4. REPRESENTATIONS True. Borrower represents and warrants to Coast that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, and the other
Loan Documents set forth in full all of the representations and agreements of
the parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement and the other Loan Documents
shall continue in full force and effect and the same are hereby ratified and
confirmed.
Synergy Semiconductor Corporation Coast Business Credit, a division of
Southern Pacific Thrift & Loan
Association
By /s/ Thomas D. Mino By /s/ Edit Kondorosi
------------------------------ ----------------------------------
President or Vice President Title Vice President
--------------------------------
By /s/ T. Olin Nichols
------------------------------
Secretary or Ass't Secretary
T. Olin Nichols
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EXHIBIT 10.8
BUSINESS AND TECHNOLOGY TRANSFER AGREEMENT
BETWEEN
DIGITAL EQUIPMENT CORPORATION
AND
SYNERGY SEMICONDUCTOR CORPORATION
AGREEMENT NO. 1
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INDEX
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<TABLE>
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<S> <C> <C>
SECTION 1 RECITALS 1
SECTION 2 DEFINITIONS 3
SECTION 3 TITLE AND LICENSE RIGHTS 8
SECTION 4 CONFIDENTIALITY PROVISIONS 15
SECTION 5 PREFERRED SUPPLIER 20
SECTION 6 PROCESS TRANSFER 25
SECTION 7 SYNERGY TECHNICAL ASSISTANCE 32
SECTION 8 TRANSFER OF TECHNICAL INFORMATION 33
SECTION 9 UPDATES TO TECHNICAL INFORMATION 42
SECTION 10 LIMITATION OF LIABILITY AND
REMEDIES FOR CAUSES OF ACTION 42
SECTION 11 TERMINATION 48
SECTION 12 WARRANTY PROVISIONS 52
SECTION 13 GRANT OF SECURITY INTEREST 54
SECTION 14 INDEPENDENT DEVELOPMENTS 55
SECTION 15 REPORTS AND DESIGN REVIEWS 56
</TABLE>
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<TABLE>
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<S> <C> <C>
SECTION 16 PUBLICITY 57
SECTION 17 DISPUTE SETTLEMENT 58
SECTION 18 NOTICES 59
SECTION 19 FORCE MAJEURE 59
SECTION 20 GOVERNING LAW 60
SECTION 21 EFFECT OF HEADINGS 60
SECTION 22 SEVERABILITY 60
SECTION 23 INTEGRATION 61
SECTION 24 TRANSFERABILITY 61
SECTION 25 DISCLAIMER OF AGENCY 63
EXHIBIT A TECHNOLOGY TRANSFER MILESTONES
EXHIBIT B BINDING MILESTONES
EXHIBIT C NON-BINDING MILESTONES
</TABLE>
<PAGE>
This Agreement is entered into as of the 15th day of December 1987, by and
between Digital Equipment Corporation, a corporation duly organized and existing
under the laws of the Commonwealth C Massachusetts, with principal offices at
146 Main Street, Maynard, Massachusetts 01754, (hereinafter "DIGITAL") and
including all of its wholly-owned subsidiaries now or hereafter organized and
Synergy Semiconductor Corporation, a corporation duly organize and existing
under the laws of the State of California and having principal offices at 3450
Central Expressway, Santa Clara California 95051 (hereinafter "SYNERGY").
SECTION 1 - RECITATIONS
1.1 DIGITAL has developed and has extensive continuing research in the
design, development and manufacture of data processing system hardware and
software computer products and component parts including integrated circuit
semiconductor chips and packaging. DIGITAL further is the owner of information
technical experience, know-how, show-how and data of confidential and
proprietary nature relating to such hardware and software computer products and
component parts which are valuable trade secrets of DIGITAL.
1.2 SYNERGY intends to develop and to maintain extensive continuing
research In integrated circuit design, fabrication and packaging technology.
SYNERGY further is the owner C information, technical experience, know-how,
show-how and data C a confidential and proprietary nature relating to
semiconductor fabrication and assembly processes which are valuable trade
secrets to SYNERGY.
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1.3 SYNERGY is interested in becoming a preferred supplier of Standard
and Custom Integrated Circuits (IC's) for DIGITAL.
1.4 SYNERGY further, is interested in having DIGITAL technical personnel
evaluate certain of SYNERGY's products which DIGITAL intends to purchase.
1.5 DIGITAL is interested in having an option for the transfer of
SYNERGY process and product technology to DIGITAL.
1.6 DIGITAL further, is interested in having SYNERGY produce DIGITAL
custom designed IC's for DIGITAL, as a preferred customer of SYNERGY, as and
when DIGITAL elects to have a specific custom IC manufactured by SYNERGY for
DIGITAL.
1.7 DIGITAL and SYNERGY are to enter into a Stock Purchase Agreement
effective as of the effective date of this Agreement under which DIGITAL is
purchasing SYNERGY Series B preferred stock and a Lease Commitment Agreement
incorporating a Master Lease Agreement effective as of the date of this
Agreement, pursuant to which DIGITAL will make available to SYNERGY an equipment
line of credit ("Even Date Agreements").
1.8 As an inducement to persuade DIGITAL to enter into the Even Date
Agreements, SYNERGY has offered to grant DIGITAL a license to certain SYNERGY
Bipolar ECL and BiCMOS processes.
NOW THEREFORE, in consideration of the mutual covenants and promises hereinafter
set forth, and the covenants and promises of the Even Date Agreements, DIGITAL
and SYNERGY agree as follows:
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SECTION 2 - DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
2.1 LICENSED BIPOLAR ECL TECHNOLOGY shall mean SYNERGY's bipolar ECL
processes and including all VARIATIONS to any such process, and all related
product and design technologies, including information relating to of SYNERGY's
Computer Aided Design ("CAD"), Electronic Computer Aided Design ("ECAD"),
Computer Aided Manufacturing ("CAM"), Computer Aided Engineering ("CAE") and
Simulation ("SIM") hardware and software design and/or manufacturing tools.
technology and any other design and/or manufacturing tools and/or methodology,
necessary to or useful in the design and/or manufacture of IC's using SYNERGY's
bipolar ECL processes, including all documentation relating thereto, and
including, further, all such technology which is licensed to SYNERGY, with the
right to sub-license, now or hereafter during the TERM of this Agreement up to
and including the date of the completion of the TECHNOLOGY TRANSFER of a BIPOLAR
ECL PROCESS including UPDATES, pursuant to this Agreement, but not including any
actual products or mask sets of SYNERGY except as provided for in Section 8.
2.2 LICENSED BiCMOS TECHNOLOGY shall mean SYNERGY's BiCMOS processes and
including all VARIATIONS to any such process, and all related product and design
technologies, including all information relating to SYNERGY's CAD, ECAD, CAM,
CAE, CIM and SIM hardware and software design and/or manufacturing tools,
technology and any other design and/or manufacturing tools and/or methodology.
necessary to or useful in the design and/or manufacture of IC's using SYNERGY's
BiCMOS processes, including all documentation relating thereto, and including,
further, all
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such technology which is licensed to SYNERGY, with the right to sub-license, now
or hereafter during the TERM of this Agreement up to and including the date 'of
the completion of the TECHNOLOGY TRANSFER of a BICMOS PROCESS, including
UPDATES, pursuant to this Agreement, but not including any actual products or
mask sets of SYNERGY except as provided for in Section 8.
2.3 LICENSED TECHNOLOGY shall mean either or both of LICENSED BIPOLAR
ECL TECHNOLOGY and LICENSED BiCMOS TECHNOLOGY, as the context of this Agreement
shall indicate, which licensed technology is either in existence as of the date
of the execution of this Agreement or subsequently created or developed by
SYNERGY during the TERM of this Agreement or obtained by SYNERGY during the TERM
of this Agreement with the right of SYNERGY to sublicense to others.
2.4 UPDATE(S) shall have the meanings set forth in Section 9 hereof.
2.5 INTELLECTUAL PROPERTY RIGHTS shall mean all rights below listed
which have been, or will be, acquired or otherwise secured by either party
before or during the TERM of this Agreement, throughout the world, and which
rights are necessary to and/or essential to the reasonable practice or exercise
of any rights granted under this Agreement:
2.5.1 All right, title and interest in and to all Letters Patent and
applications for Letters Patent, Industrial Models, Industrial Designs,
Petty Patens, Patents of Importation, Utility Models, Certificates of
Invention, and other indicia of invention ownership, including any such
rights granted upon any reissue, division, continuation or continuation-in-
part applications now or hereafter filed; and
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2.5.2 All right, title and interest in and to all trade secret rights
arising under the common law, state law, federal law or the laws of any
foreign country; and
2.5.3 All right, title and interest in and to all semiconductor mask work
rights, and in all copyright rights and all other literary property and
author rights, whether or not copyrightable; and all right, title and
interest in and to all copyrights and copyrighted interests; and
2.5.4 All right, title and interest in all know-how a. show-how, whether
or not protectable by patent, copyright mask work right or trade secret.
2.6 TERM shall mean the term of this Agreement, commencing upon the date
first above mentioned and extending for ten (l0) years thereafter, unless
terminated sooner in accordance with the provisions of this Agreement.
2.7 COMMODITY INTEGRATED CIRCUITS ("COMMODITY IC's") for the purposes of
this Agreement shall mean any small scale integrated circuit (SSI), medium scale
integrated circuit (MSI), large scale integrated circuit (LSI), very large scale
integrated circuit (VLSI) or ultra-large scale integrated circuit (ULSI), which
integrated circuit ("IC") is fabricated using SYNERGY LICENSED TECHNOLOGY and is
not customized or semi-customized specifically and only for any one customer of
SYNERGY, including, by way of example only, Static RAM IC's fabricated by
SYNERGY for sale to the semiconductor users market, and for which a source for
Digital other than SYNERGY or DIGITAL exists.
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2.8 CUSTOM INTEGRATED CIRCUITS ("CUSTOM IC's") for the purposes of this
Agreement shall mean any SSI, MSI, LSI, VLSI or ULSI, which integrated circuit
("IC") is fabricated using SYNERGY LICENSED TECHNOLOGY and is designed by or on
behalf of DIGITAL, or by SYNERGY for DIGITAL's benefit, using DIGITAL design
specifications provided to SYNERGY by or on behalf of DIGITAL, or by DIGITAL and
SYNERGY together, or by another on behalf of DIGITAL and SYNERGY together, and
which is subject to an agreement by which SYNERGY will not fabricate such CUSTOM
IC for or on behalf of anyone other than DIGITAL, or a purchaser authorized by
DIGITAL, including by way of example only, fully customized IC's and IC's based
upon SYNERGY's gate arrays, standard cells or sea of gates, with metalization
thereof personalized and customized to DIGITAL's design specifications, or any
other IC not available to DIGITAL through any other source except SYNERGY or
DIGITAL.
2.9 SYNERGY TECHNICAL INFORMATION includes all of that information in
written, or other corporeal form, referred to in Section 8, including the
SYNERGY designed TEST VEHICLE, which SYNERGY is required to provide to DIGITAL
subsequent to the exercise by DIGITAL of an option for the transfer to DIGITAL
of a respective one of the SYNERGY BIPOLAR ECL PROCESS and/or the SYNERGY BiCMOS
PROCESS, pursuant to this Agreement.
2.10 TECHNOLOGY TRANSFER shall mean the transfer by SYNERGY to DIGITAL,
pursuant to this Agreement, of all of the TECHNICAL INFORMATION, as more
specifically defined in Section 8 of this Agreement, and/or the provision by
SYNERGY to DIGITAL of all of the TECHNICAL ASSISTANCE, as more specifically
defined in Section 7 of this Agreement, in order to effect the PROCESS TRANSFER
as required by Section 6 of this Agreement, of either or both of the
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BiPOLAR ECL PROCESS or BiCMOS PROCESS as the context of this Agreement shall
indicate.
2.11 TECHNICAL ASSISTANCE COMMENCEMENT DATE(S) shall mean the respective
date(s), each to be mutually agreed upon by the parties, after the exercise by
DIGITAL of an option to receive the TECHNOLOGY TRANSFER from SYNERGY for a
respective one of the SYNERGY BIPOLAR ECL or BiCMOS PROCESS, upon which date
SYNERGY will have completed the transfer to DIGITAL of the TECHNICAL INFORMATION
necessary for DIGITAL to commence receiving the TECHNICAL ASSISTANCE from
SYNERGY in order to effect the PROCESS TRANSFER for the respective one of the
SYNERGY BIPOLAR ECL or the SYNERGY BiCMOS PROCESS.
2.12 BIPOLAR ECL PROCESS shall mean one of SYNERGY's bipolar ECL
processes, and including all VARIATIONS to such process, and all related product
and design technologies, including all information relating to SYNERGY's CAD,
ECAD, CAM, CIM and SIM hardware and software design and/or manufacturing tools,
technology and any other design and/or manufacturing tools and/or methodology,
necessary for or useful in the design and/or manufacture of IC's using such one
SYNERGY BIPOLAR ECL PROCESS as shall, at DIGITAL's option, be selected by
DIGITAL for transfer to DIGITAL pursuant to this Agreement, and including also
all documentation relating thereto, the completion of the transfer of all of
which is intended to enable DIGITAL to implement such process, or an equivalent
compatible process, to fabricate IC's using the SYNERGY BIPOLAR ECL PROCESS, but
not including any actual products or mask sets of SYNERGY, except as set forth
in Section 8.
2.13 BiCMOS PROCESS shall mean one of SYNERGY's BiCMOS processes, and
including all VARIATIONS to such process, and all
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related product and design technologies, including all information relating to
SYNERGY's CAD, ECAD, CAM, CIM and SIM hardware and software design and/or
manufacturing tools, technology and any other design and/or manufacturing tools
and/or methodology, necessary for or useful in the design and/or manufacture of
IC's using such one SYNERGY BiCMOS PROCESS as shall, at DIGITAL's option, be
selected by DIGITAL for transfer to DIGITAL pursuant to this Agreement, and
including also all documentation relating thereto, the completion of the
transfer of all of which is intended to enable DIGITAL to implement such
process, or an equivalent compatible process, to fabricate IC's using the
SYNERGY BiCMOS PROCESS, but not including any actual products or mask sets of
SYNERGY, except as set forth in Section 8.
2.14 VARIATIONS shall mean additional or modified process steps that,
when applied to the basic process flow, would allow additional products or
product types to be built.
2.15 TEST VEHICLE shall mean three chips consisting of the following: a
process parametric and defect density chip called the Process Control Pattern; a
process characterization chip called a Test Device; and a RAM used to evaluate
circuit performance and debug the process.
SECTION 3 - TITLE AND LICENSE RIGHTS
3.1 SYNERGY shall retain title in and to all LICENSED TECHNOLOGY,
including all right, title, and interest in and to all of SYNERGY's INTELLECTUAL
PROPERTY RIGHTS covering such LICENSED TECHNOLOGY.
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3.2 SYNERGY hereby grants to DIGITAL a non-exclusive, world wide,
royalty-free, irrevocable license under all INTELLECTUAL PROPERTY RIGHTS of
SYNERGY necessary to practice SYNERGY LICENSED TECHNOLOGY, subject to the terms
set forth below in this paragraph and the condition, enforceable personally and
only by SYNERGY or such successors and assigns of SYNERGY as are permitted
pursuant to the terms of this Agreement, and specifically excluding successors
and assigns of SYNERGY resulting from SYNERGY's having become insolvent, or
having made an assignment for the benefit of creditors, or having had a receiver
or other officer appointed to take charge of all or part of SYNERGY's assets
(hereinafter "permitted successors and assigns"), that DIGITAL may not exercise
its rights pursuant to the license granted under this paragraph except (i) as to
that part or parts of the LICENSED TECHNOLOGY necessary or useful to the
practice of either or both of the BIPOLAR ECL and BiCMOS PROCESSES transferred
to DIGITAL pursuant to this Agreement once such transfer shall have occurred, or
(ii) if prior to the completion of such transfer, all or any part of such
transfer is prohibited by SYNERGY's having become insolvent or having made an
assignment for the benefit of creditors, or having had a receiver or other
officer appointed to take charge of all or part of SYNERGY's assets. The license
granted under this paragraph ("DIGITAL's MANUFACTURING LICENSE") shall include
the right of DIGITAL to manufacture IC's fabricated using such part or parts of
the LICENSED TECHNOLOGY solely in the design, production, distribution, and
repair of DIGITAL's products that incorporate IC's fabricated by DIGITAL using
such part or parts of the LICENSED TECHNOLOGY, including the right to use or
sell such incorporated IC's and authorize others to use or sell such
incorporated IC's, and the right to use or sell such IC's for the purpose of
incorporation into such products, as spare parts, and authorize others to so use
or sell for the purpose of
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incorporation as such spare parts. Upon the exercise of one of the options of
DIGITAL for the transfer of the BIPOLAR ECL PROCESS or the BiCMOS PROCESS by
SYNERGY to DIGITAL pursuant to this Agreement, whichever occurs first, the
license provided for under this paragraph shall cease as to any part or parts of
the LICENSED TECHNOLOGY not necessary or useful to the practice of such PROCESS,
except that which may be necessary or useful to the practice of the other of the
BIPOLAR ECL and the BiCMOS PROCESS, which is the second to be transferred. Upon
the transfer of both a BIPOLAR ECL PROCESS and a BiCMOS PROCESS, or the
expiration of the ten year period, without the transfer of either or both of a
BIPOLAR ECL PROCESS and a BiCMOS PROCESS, the license provided for under this
Paragraph shall cease as to that part or parts of the LICENSED TECHNOLOGY not
necessary or useful to the practice of the BIPOLAR ECL PROCESS and/or the BiCMOS
PROCESS, of which the option to receive a transfer has not been exercised by
DIGITAL. Should SYNERGY, for reason of becoming insolvent or making an
assignment for the benefit of creditors, or having a receiver or similar officer
appointed to take charge of all or part of SYNERGY's assets, be or become
unwilling or unable to transfer all or a part of either the BIPOLAR ECL PROCESS
or the BiCMOS PROCESS to DIGITAL pursuant to this Agreement, then, DIGITAL's
license for all LICENSED TECHNOLOGY shall remain in full force and effect and
the condition mentioned above in this Paragraph, personally enforceable only by
SYNERGY or its permitted successors and assigns, shall be extinguished.
3.2.1 As employed in this Section 3.2, the term "use" shall mean and
include the rights to copy, reproduce, manufacture, fabricate, assemble,
package, install, operate, test, correct, maintain, repair, modify, revise,
adapt, translate, transliterate, extend, enhance and prepare derivative works
from, but shall not include the right to sublicense for the purpose of
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having any of the foregoing acts performed by a third party for DIGITAL's
benefit.
3.3 DIGITAL shall, to the complete exclusion of SYNERGY, own all right,
title and interest in and to any INTELLECTUAL PROPERTY RIGHTS in and to any
improvements, modifications, enhancements, extensions and derivatives of
LICENSED TECHNOLOGY made by DIGITAL. If DIGITAL licenses any such improvements,
modifications, enhancements, extensions and derivatives of LICENSED TECHNOLOGY
made by DIGITAL to any sublicensee of any part of SYNERGY's LICENSED TECHNOLOGY
received by DIGITAL hereunder, then an equivalent license shall be granted by
DIGITAL to SYNERGY on terms no less favorable to SYNERGY than the terms to such
sublicensee.
3.4 In the event that SYNERGY has not itself established a second source
to manufacture CUSTOM IC's using SYNERGY's LICENSED TECHNOLOGY or does not
itself have a second plant that manufactures an adequate supply of CUSTOM IC's
or otherwise guarantees a continuity of supply of such CUSTOM IC's (e.g. by
establishing a second manufacturing facility, maintaining an adequate inventory
or setting up a second source) and should SYNERGY and DIGITAL, in the future,
enter into an agreement for SYNERGY to fabricate CUSTOM IC's for DIGITAL, then,
subject to the conditions above stated in this paragraph, SYNERGY hereby grants
to DIGITAL a worldwide, irrevocable, non-exclusive license, with the right to
sublicense others, to any LICENSED TECHNOLOGY, including a license under any and
all INTELLECTUAL PROPERTY RIGHTS of SYNERGY necessary to the practice of such
LICENSED TECHNOLOGY, solely for the purpose of manufacturing, on DIGITAL's
behalf, CUSTOM IC's ("DIGITAL's CUSTOM SECOND SOURCE LICENSE"). DIGITAL's CUSTOM
SECOND SOURCE LICENSE shall also arise, for the purpose of enabling DIGITAL to
insure a second
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source of supply, if necessary, in the event that, during the term of any such
agreement to fabricate CUSTOM IC's for DIGITAL, it occurs that neither such
second source established by SYNERGY, nor such second plant, nor the ability to
otherwise guarantee a continuity of supply to DIGITAL shall be and remain in
existence. DIGITAL's CUSTOM SECOND SOURCE LICENSE granted under this Paragraph
3.4 shall expire as of the date of the completion of the TECHNOLOGY TRANSFER to
DIGITAL of a BIPOLAR ECL PROCESS pursuant to this Agreement, as to CUSTOM IC's
manufactured utilizing SYNERGY BIPOLAR ECL LICENSED TECHNOLOGY, and of the
completion of the TECHNOLOGY TRANSFER to DIGITAL of a BiCMOS PROCESS, as to
CUSTOM IC's manufactured utilizing SYNERGY BiCMOS LICENSED TECHNOLOGY. DIGITAL's
sublicense rights contained herein shall be limited to second source
manufacturers approved in advance in writing by SYNERGY, which approval shall
not be unreasonably withheld, and which second source manufacturer shall have
executed a form of Confidentiality and Non-Disclosure Agreement acceptable to
SYNERGY. The DIGITAL CUSTOM SECOND SOURCE LICENSE provided for in this Paragraph
3.4 shall be royalty-free, provided however that if DIGITAL licenses third
parties the license shall be royalty-free for one (1) year, or until such time
as SYNERGY is able to meet such delivery requirements of DIGITAL, whichever
occurs later. The royalty to be paid by DIGITAL or by a sublicensee of DIGITAL
pursuant to DIGITAL's CUSTOM SECOND SOURCE LICENSE for IC's manufactured by any
sublicensee for DIGITAL's behalf for which a royalty is required shall be equal
to five percent (5%) of the Net Sales Price to DIGITAL for the first $10 million
of IC's purchased by DIGITAL from such sublicensee, four percent (4%) of the Net
Sales Price to DIGITAL for between $10 million and $20 million of IC's purchased
by DIGITAL from such sublicensee, and three percent (3%) of the Net Sales Price
to DIGITAL for those IC's purchased by DIGITAL from such sublicensee in excess
of $20 million. Net
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Sales Price shall mean the actual price paid by DIGITAL, less any credits or set
offs for returned IC's.
3.5 DIGITAL hereby grants to SYNERGY a personal non-exclusive, non-
transferable, royalty-free license within the United States to use INTELLECTUAL
PROPERTY RIGHTS of DIGITAL the subject matter of which INTELLECTUAL PROPERTY
RIGHTS is disclosed and designated by DIGITAL as INTELLECTUAL PROPERTY RIGHTS or
made available to SYNERGY for SYNERGY's use pursuant to Section 5.6 of this
Agreement, solely for the purpose of designing and/or making and testing IC's
for DIGITAL. This paragraph defines the full scope of the license granted by
DIGITAL to SYNERGY and no other license or right to use DIGITAL's INTELLECTUAL
PROPERTY RIGHTS for any purpose is granted expressly or by implication. This
license specifically excludes SYNERGY from using any of DIGITAL's INTELLECTUAL
PROPERTY RIGHTS to make or test IC's for any party other than DIGITAL. Should
SYNERGY require any licenses in addition to that provided for in this Paragraph,
the parties will confer and attempt in good faith to agree as to the terms and
conditions for the grant of such license, including whether any additional
license will be granted at all, and the royalty or other payment, if any, for
such additional license.
3.6.1 SYNERGY agrees that for a period of five (5) years it will not
transfer technology to, or grant a license to directly make IC's for any person,
firm or other legal entity having derived revenues, in its last full fiscal
year, of at least five hundred million dollars ($500,000,000) from the business
of the manufacture, or marketing and selling, of computer or computer peripheral
equipment which is sold, leased or licensed in direct competition with computer
or computer equipment manufactured or sold by DIGITAL, or to a person, firm or
other legal entity controlled by, or which controls directly or indirectly, any
such
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person, firm or entity as described in this Paragraph; provided however that a
person, firm or other legal entity primarily engaged in the business of
investment, including investment banking and venture capital firms, shall not be
considered to control or be controlled by any such person, firm or other legal
entity as described in this Paragraph.
3.6.2 SYNERGY agrees that, until the earlier of the completion of the TERM
of this Agreement or the conversion of all of the shares, purchased by DIGITAL
pursuant to the Stock Purchase Agreement, into Common Shares, pursuant to the
consummation of the Company's first public offering, it will not sell to any
persons firm or other legal entity having derived, in its last full fiscal year,
at least five hundred million dollars ($500,000,000.00) in revenues from the
business of the manufacturer, or marketing and selling of computer or computer
peripheral equipment which is sold, leased or licensed in direct competition
with computer or computer peripheral equipment manufactured or sold by DIGITAL,
or to a person, firm or other legal entity controlled by, or which controls,
directly or indirectly, any such person, firm or entity as described in this
sub-paragraph, sufficient shares of its capital stock to enable such person,
firm or entity to possess the legal or equitable ownership of the same or a
greater number of shares than are then owned by DIGITAL; provided however that a
person, firm or other legal entity primarily engaged in the business of
investment, including investment banking and venture capital firms, shall not be
considered to control or be controlled by any such person, firm or other legal
entity as described in this Paragraph.
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SECTION 4 - CONFIDENTIALITY PROVISIONS
4.1 It is the intention of DIGITAL and SYNERGY to transfer and/or
exchange information in connection with this Agreement. Such information may be
disclosed in oral, written, or any other tangible and/or corporeal form, or in
the form of a computer program or database in machine-readable or other form,
and shall, if such information is furnished in compliance with Section 4.4,
constitute SYNERGY CONFIDENTIAL INFORMATION and/or DIGITAL CONFIDENTIAL
INFORMATION, the confidential and proprietary nature of which, to DIGITAL and
SYNERGY, respectively, is hereby acknowledged.
4.2 It is expressly understood that any drawings, blueprints,
descriptions, or other papers, documents, tapes, or any other media, and all
copies or derivatives thereof, shall remain the property of the disclosing
party. and the receiving party is authorized to use those materials only within
the scope of the rights and licenses herein granted.
4.3 Each party shall designate one or more Program Managers. The
responsibility of the Program Manager(s) for each party will be to control the
exchange of CONFIDENTIAL INFORMATION between the parties and to monitor within
their company the distribution of information received from the other party
solely for the purposes of performance under this Agreement. The Program
Manager(s) for each party shall also arrange conferences and visitations between
personnel of the respective parties. and acknowledge the receipt from the other
party of all CONFIDENTIAL INFORMATION.
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Program Manager(s) for SYNERGY shall be designated by its President.
and
Program Manager(s) for DIGITAL shall be designated by the Group Manager,
Semiconductor Business Operations.
4.4 Disclosures of CONFIDENTIAL INFORMATION by one party to the other
party pursuant to this Agreement shall be made by the disclosing party to the
Program Manager for the receiving party (or his/her designee), with copy to a
Program Manager for the disclosing party (or his/her designee). The Program
Manager(s) will maintain a record of received CONFIDENTIAL INFORMATION for the
duration of this Agreement. CONFIDENTIAL INFORMATION shall be disclosed as
follows:
4.4.1 When such is disclosed in writing and accepted. such writing will
contain an appropriate legend. such as "Synergy Confidential" or "Digital
Equipment Corporation Confidential," or the substantial equivalent thereof.
If such disclosure is orally and/or visually made, it shall be identified
at the time of disclosure as being CONFIDENTIAL INFORMATION and shall be
confirmed in writing within thirty (30) days following such disclosure. The
written confirmation will specifically point out that portion of the oral
or visual disclosure which is CONFIDENTIAL INFORMATION in sufficient detail
to allow the receiving party to identify that information deemed to be
CONFIDENTIAL INFORMATION. Such written confirmation will also contain an
appropriate legend as set forth above in this sub-paragraph. When such
disclosure is in the form of a computer program or database, it shall be
identified as CONFIDENTIAL INFORMATION
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by a label with an appropriate legend, or by notice of the confidential
nature of the information as set forth in this sub-paragraph, appearing
prominently in a principle screen display produced in using the program or
database, if any screen display is produced, and on the media in which the
program or database resides.
4.5 Except as provided hereinafter, for a period of five (5) years from
the date of receipt of the CONFIDENTIAL INFORMATION of the disclosing party, the
receiving party agrees to use the same care and discretion to avoid disclosure,
publication, or dissemination of received CONFIDENTIAL INFORMATION, as the case
may be, outside the receiving party, as the receiving party employs with similar
information of its own which it does not desire to publish; disclose, or
disseminate.
4.6 Disclosure by a receiving party of any CONFIDENTIAL INFORMATION of a
disclosing party hereto shall not be precluded if such disclosure is:
4.6.1 In response to a valid order of a court or other governmental body
of the United States or any political subdivision thereof; provided,
however, that the receiving party subject to such order shall first have
made a good faith effort to obtain a protective order, requiring that the
information and/or documents so disclosed under such order be used only for
the purpose for which the order was issued and not be publicly disclosed,
and provided, further, the receiving party, upon becoming aware of the
existence of any such order, or a request that could result in the issuance
of such an order. Shall have given reasonable and timely notice to the
disclosing party sufficient to allow
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the disclosing party to challenge the request or order with respect to
CONFIDENTIAL INFORMATION of the disclosing party.
4.7 Information shall not be considered CONFIDENTIAL INFORMATION and the
requirements of this Section 4 will not apply to any information which:
4.7.1 If in writing in documented form, or in any other corporeal form,
including recordings on any media, is not marked with a prominent and
legible trade secret legend as specified in 4.4.1 above;
4.7.2 Was in the receiving party's possession or was known to the
receiving party prior to receipt under this Agreement;
4.7.3 Is or becomes public knowledge without breach of this Agreement by
the receiving party;
4.7.4 Is or becomes available to the receiving party without a
confidentiality restriction and without a breach of this Agreement from a
source other than the disclosing party;
4.7.5 Is developed by the receiving party independent of and without
reference to CONFIDENTIAL INFORMATION received under this Agreement;
4.7.6 Is received by the receiving party after written notification
delivered to the disclosing party that the receiving party shall not accept
any further information in confidence under this Agreement, in which event,
notwithstanding any other terms in this Agreement, the disclosing party
shall not be obligated to thereafter provide any such CONFIDENTIAL
INFORMATION, except upon
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cancellation of the notice referred to in this Paragraph 4.7.6.
4.8 SYNERGY and DIGITAL agree that the terms and conditions of this
Section 4 shall survive the termination of this Agreement for any reason
whatsoever, including the expiration of TERM.
4.9 SYNERGY agrees to faithfully reproduce DIGITAL trade secret,
copyright and other proprietary notices and legends as applicable on all whole
or partial copies and derivatives of DIGITAL CONFIDENTIAL INFORMATION occurring
in any form.
4.10 DIGITAL agrees to faithfully reproduce SYNERGY trade secret,
copyright and other proprietary notices and legends as applicable on all whole
or partial copies and derivatives of SYNERGY CONFIDENTIAL INFORMATION occurring
in any form.
4.11 SYNERGY and DIGITAL, both agree not to export or reexport, or cause
to be exported or reexported, any technical data (including any CONFIDENTIAL
INFORMATION) received hereunder, or the direct product of such technical data,
to any country to which, under the laws of the United States, either party is or
may be prohibited from exporting its technology or the direct product thereof.
4.12 Any CONFIDENTIAL INFORMATION previously transferred under the
Non-Disclosure Agreements executed by the Parties on 10 June, 1987 and 8
December, 1987, shall be considered to have been transferred on the effective
date of this Agreement provided it constitutes CONFIDENTIAL INFORMATION within
the meaning of the term or any equivalent term as used in such Non-Disclosure
Agreements.
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SECTION 5 - PREFERRED SUPPLIER
5.1 DIGITAL agrees to purchase specific COMMODITY IC's from SYNERGY and
SYNERGY agrees to sell specific COMMODITY IC's to DIGITAL if and when DIGITAL
has a requirement for those specific COMMODITY IC's, designed and produced by
SYNERGY. The terms and conditions of sale will be determined upon SYNERGY
submitting a specific COMMODITY IC to DIGITAL for which DIGITAL has requirements
or at any time during the development of CUSTOM IC's specifically for DIGITAL.
The terms and conditions will include, but not be limited to, the following:
5.1.1 SYNERGY will be provided an opportunity to supply up to fifty (50)
percent of DIGITAL's requirements for each specific COMMODITY IC that
SYNERGY designs and produces and for which DIGITAL has a requirement.
DIGITAL may, at its discretion, allow SYNERGY to supply greater than fifty
(50) percent of its requirements for such COMMODITY IC's, however, under no
circumstances will DIGITAL be obligated to do so. If DIGITAL has prior
commitments with other suppliers that preclude DIGITAL from providing
SYNERGY up to fifty (50) percent of its total requirements for a specific
COMMODITY IC, DIGITAL will exert its best efforts to provide SYNERGY as
large an opportunity as possible up to the fifty (50) percent level. In no
event will DIGITAL be obligated to violate prior agreements in an attempt
to satisfy this Agreement.
5.1.2 Each specific COMMODITY IC for which DIGITAL has a requirement, and
which SYNERGY manufacturers, must first meet DIGITAL's standard
qualification requirements for each specific COMMODITY IC. DIGITAL will
attempt to provide
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qualification of SYNERGY manufactured products on a priority basis in order
to assist SYNERGY in meeting the opportunities in Section 5.1.1.
5.1.3 The percentage of DIGITAL's requirements for a specific COMMODITY IC
that SYNERGY will be given the opportunity to sell to DIGITAL will not be
reduced unless SYNERGY is unable to:
a. achieve a reasonable competitive market price;
b. satisfy DIGITAL's delivery requirements at the time of the
presentation to SYNERGY of a purchase order, which delivery
requirements are customarily applied to other suppliers of
similar devices;
c. satisfy DIGITAL's quantity requirements;
d. maintain an acceptable incoming quality rate of no more than
10,000 ppm on a quarterly basis failing to meet DIGITAL
specifications.
DIGITAL will calculate SYNERGY's incoming quality rate quarterly by
calculating the' cumulative effect of all shipments, for each part number
received, during the thirteen (13) week' period of the quarter. DIGITAL's
authorized Purchasing Agent for a specific part number may waive this
requirement for any thirteen week period. Waiver by DIGITAL's authorized
Purchasing Agent during any thirteen (13) week period does not constitute
waiver for any future thirteen (13) week period. The thirteen (13) week
periods all start on the first day of either July, October, January, or
April.
5.1.4 The percentage of DIGITAL's requirements for a specific COMMODITY IC
that DIGITAL agrees to purchase from
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SYNERGY may be reduced to the same extent SYNERGY is unable to fulfill
DIGITAL's requirements, for any specific IC, for any of the reasons stated
in Paragraph 5.1.3, as measured during the quarter in which SYNERGY's
inability was demonstrated, and such reduced percentage of DIGITAL':
requirement: that DIGITAL is committed to purchase from SYNERGY may, if
necessary for DIGITAL to obtain a source to cover such inability, last for
a period of one (1) year from the end of such quarter or until such time as
SYNERGY is able to meet DIGITAL's requirements, whichever occurs later.
5.2 SYNERGY agrees to provide to DIGITAL up to the following percentages
of SYNERGY's total wafer manufacturing capacity for production of all of
-----
DIGITAL's COMMODITY IC's (to be manufactured by SYNERGY pursuant to Section 5.1)
plus all of DIGITAL's CUSTOM IC's (to be manufactured by SYNERGY pursuant to
- ----
Section 5.7) in each of the following years: 1988: 80%; 1989: 50%; 1990: 40%;
1991:, 30% and 1992 and thereafter: 20% (hereinafter "allocated SYNERGY
capacity"). Subject to the requirements of Sections 5.3 and 5.7.1, DIGITAL shall
be free to allocate what portion of these percentages of SYNERGY's total wafer
-----
manufacturing capacity will be used to produce DIGITAL's COMMODITY IC's and what
portion will be used to produce DIGITAL's CUSTOM IC's.
5.3 Subject to the total capacity limitations set forth in Section 5.2
above, SYNERGY agrees to provide up to fifty (50) percent of SYNERGY's capacity
for any specific COMMODITY IC for which DIGITAL has a requirement and for which
SYNERGY and DIGITAL have entered into an agreement of sale as provided in
Section 5.1 to meet DIGITAL's purchase requirements as stated in Section 5.1. In
the event that SYNERGY is unable to meet the allocated SYNERGY capacity to meet
DIGITAL's requirements due to a capacity
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constraint and later experiences an increase in capacity, DIGITAL will be given
a right of first refusal to purchase such increased capacity up to such
allocated SYNERGY capacity as it existed at the time SYNERGY became unable to
meet DIGITAL's requirements.
5.4 DIGITAL's requirements for specific COMMODITY IC's that DIGITAL
could buy from SYNERGY will be forecasted to SYNERGY, with non-binding
forecasts, annually at least three (3) months prior to the beginning of
DIGITAL's fiscal year. DIGITAL will update such forecasts at each quarterly
meeting between SYNERGY and DIGITAL. During such fiscal year, DIGITAL may adjust
it's requirements up or down based upon its actual need and SYNERGY's
demonstrated ability to supply as described in Paragraphs 5.1.3 and 5.1.4.
5.5 SYNERGY agrees to offer DIGITAL terms and conditions of sale no less
favorable than those offered to any other SYNERGY customer for similar products
in volumes equal to or less than those requested by or furnished to DIGITAL.
5.6 During the course of SYNERGY's product development cycle DIGITAL
agrees to provide technical resources to evaluate certain of SYNERGY's products
of interest to DIGITAL, and to provide a detailed evaluation of such product(s).
Such detailed evaluation will in no event constitute qualification of that
product for use by DIGITAL. The evaluation is only intended to provide
performance data for SYNERGY's engineers and to provide the availability of test
equipment which SYNERGY may not own at the time. Any such evaluation by DIGITAL
will be completed at a facility of DIGITAL's choice and within a schedule of
DIGITAL's choice. DIGITAL makes no warranty of the data it supplies SYNERGY
pursuant to any such evaluation.
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5.7 SYNERGY agrees to use its best efforts to manufacture DIGITAL CUSTOM
IC's when and as requested by DIGITAL at mutually agreed prices which yield to
SYNERGY reasonable profit, which profit is expected to be based upon the average
revenue per wafer start of wafers produced by SYNERGY which are not for the
fabrication of CUSTOM ICs.
5.7.1 SYNERGY agrees to provide the following percentages of the allocated
SYNERGY wafer capacity for CUSTOM IC's, for which DIGITAL has a
requirement, to meet DIGITAL's purchase requirements as stated in Section
5.7 in the following years: 1988: 20%; 1989: 30%; 1990: 40%; 1991: 50%;
1992 and thereafter: 50%.
5.7.1.1 In the event that SYNERGY is unable to meet the percent of
DIGITAL's requirements due to a capacity constraint and later experiences
an increase in capacity, DIGITAL will be given a right of first refusal to
purchase such increased capacity up to such percent of DIGITAL's
requirements as they existed at the time SYNERGY became unable to meet
DIGITAL's requirements.
5.7.2 To insure DIGITAL's custom designs are manufacturable on SYNERGY's
process, and to aid DIGITAL in designing custom devices, SYNERGY will, upon
DIGITAL's written request, transfer all of SYNERGY's CAD, ECAD, CAM, SIM,
and CAE hardware specifications and software tool specifications and any
other design methodology in existence at the time of DIGITAL's request to
DIGITAL.
5.7.3 Any sublicense granted by DIGITAL pursuant to its CUSTOM SECOND
SOURCE LICENSE shall include confidentiality and other provisions to
protect SYNERGY's INTELLECTUAL
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PROPERTY RIGHTS in the LICENSED TECHNOLOGY, and any sublicensee shall be
subject to SYNERGY's prior approval, which shall not unreasonably be
withheld.
SECTION 6 - PROCESS TRANSFER
6.1 SYNERGY agrees to carry out the TECHNOLOGY TRANSFER to DIGITAL, at
DIGITAL's request, which request will be made during the ten (10) year period
from the effective date of this Agreement, and which option shall be exercisable
one time with respect to each of the following:
6.1.1 A BIPOLAR ECL PROCESS as selected by DIGITAL, and including all
VARIATIONS of that process, and
6.1.2 A BiCMOS PROCESS as selected by DIGITAL, and including all
VARIATIONS of that process, and
6.1.3 A related product or TEST VEHICLE to effect the transfer of each of
the BIPOLAR ECL PROCESS and the BiCMOS PROCESS as selected by DIGITAL, and
6.1.4 UPDATES as they occur for each such BiPolar ECL and BiCMOS PROCESS
for an additional three (3) years from the date of completion of the
initial TECHNOLOGY TRANSFER to DIGITAL for each such process.
6.2 SYNERGY's obligation to transfer such technology shall apply to all
LICENSED TECHNOLOGY applicable to either or both of the one (1) BIPOLAR ECL
PROCESS and one (1) BiCMOS PROCESS, provided that one or more of the following
occurs:
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(1) DIGITAL and SYNERGY enter into an agreement for the production of IC's
by SYNERGY for DIGITAL, utilizing practice of any BiPolar ECL process
or BiCMOS process of SYNERGY, and SYNERGY materially fails to meet the
delivery requirements of such agreement; or
(2) DIGITAL and SYNERGY enter into one or more agreements for the
production of IC's by SYNERGY for DIGITAL utilizing the practice of
either any Bipolar ECL process of SYNERGY or any BiCMOS process of
SYNERGY, or both, totaling in the aggregate four million dollars
($4,000,000.00) over a six (6) month period; or
(3) DIGITAL provides to SYNERGY a forecast or forecasts of business with
SYNERGY for the production of IC's by SYNERGY for DIGITAL, utilizing
the practice of any Bipolar ECL process of SYNERGY or any BiCMOS
process of SYNERGY, or both, totaling in the aggregate eight million
dollars ($8,000,000.00) over any consecutive twelve (12) month period
during the period of forty-eight (48) months from the date of the
provision of the last of such forecasts necessary to meet the
conditions of this subparagraph; or
(4) DIGITAL and SYNERGY enter into an agreement for one or more joint
research and development projects in accordance with which SYNERGY
will receive from DIGITAL payments in the aggregate totaling eight
million dollars ($8,000,000.00) in any consecutive twelve (12) month
period during the forty-eight (.48) months following the date of the
execution of the last of such agreements necessary to meet the
conditions of this sub-paragraph; or
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(5) DIGITAL and SYNERGY enter into one or more agreements as contemplated
in sub-paragraphs (2) and (4) above and/or DIGITAL provides one or
more forecasts as contemplated in sub-paragraph (3) above pursuant to
which SYNERGY would receive payments from DIGITAL and/or forecasted
business from DIGITAL totally in the aggregate eight million dollars
($8,000,000.00) during any consecutive twelve (12) month period during
the forty-eight (48) months following the execution of the last
agreement, or the provision of the last forecast necessary to meet the
conditions of this sub-paragraph.
6.2.1 If DIGITAL exercises its option to receive the TECHNOLOGY TRANSFER,
in whole or in part, based upon forecasted business from DIGITAL totaling
in the aggregate eight million dollars ($8,000,000) during any consecutive
twelve (12) month period pursuant to subparagraphs 6.2(3), (4) or (5)
above, and, within the forty-eight (48) months following such forecast,
SYNERGY does not receive at least two million dollar ($2,000,000) in actual
business from DIGITAL during any twelve (12) month period included in such
forty-eight (48) months, then DIGITAL shall pay SYNERGY the difference
between two million dollars ($2,000,000) and the amount of actual business
from DIGITAL during any such twelve month (12) period.
6.2.2 Notwithstanding the above, DIGITAL shall be entitled to request
immediately under this Section 6 a PROCESS TRANSFER of either or both a
BIPOLAR ECL PROCESS or a BiCMOS PROCESS, as selected by DIGITAL, and
SYNERGY shall be obligated to effect the related TECHNOLOGY TRANSFER, which
TECHNOLOGY
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TRANSFER obligation shall survive the termination of this Agreement, if:
(1) SYNERGY shall have willfully breached its material obligations under
Section 4 (CONFIDENTIALITY PROVISIONS) hereof; or
(2) SYNERGY shall have materially breached its material obligations under
Section 4 (CONFIDENTIALITY PROVISIONS) hereof and any such breach
shall have a material adverse effect upon the financial condition of
DIGITAL; or
(3) SYNERGY shall have willfully breached any of its material obligations
under Section 5 (PREFERRED SUPPLIER) hereof; or
(4) A Default or Event of Default under the Master Lease Agreement between
SYNERGY and Digital Equipment Finance Corporation, a wholly owned
subsidiary of DIGITAL, shall have occurred and be continuing.
6.3 Except as otherwise provided in this Agreement, the TECHNOLOGY
TRANSFER from SYNERGY to DIGITAL shall be at no additional cost to DIGITAL, and,
including as more specifically set forth in this Agreement, shall be provided by
SYNERGY to DIGITAL in whatever form is reasonably requested by DIGITAL. If such
process or processes are available, DIGITAL shall have the right to exercise its
option to select a BIPOLAR ECL PROCESS and a BiCMOS PROCESS at the same or
different times during the ten (10) year period, and in whatever, order DIGITAL
shall select. However, nothing in this Agreement creates an obligation upon
SYNERGY to create or develop a BiCMOS PROCESS and SYNERGY shall not be deemed to
have breached this Agreement because of a failure to create a fully operational
BiCMOS PROCESS during the
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TERM of this Agreement, nor shall such failure prevent DIGITAL from exercising
its right to TRANSFER a SYNERGY BiCMOS PROCESS pursuant to this Agreement to the
extent that TECHNICAL INFORMATION and/or TECHNICAL ASSISTANCE are capable of
being made available to DIGITAL by SYNERGY regarding a BiCMOS PROCESS.
6.4 The TECHNOLOGY TRANSFER by SYNERGY to DIGITAL will include all
applicable documentation, know-how, and show-how, and SYNERGY shall make
available, for each TECHNOLOGY TRANSFER of a BIPOLAR ECL PROCESS and a BiCMOS
PROCESS, seven hundred fifty (750) man hours of its technical personnel to
instruct DIGITAL in the implementation and use of the transferred technology, at
no additional charge to DIGITAL except for direct out-of-pocket expenses that
will be paid by DIGITAL as provided in Section 6.4. below.
6.4.1 If DIGITAL deems it necessary. to have SYNERGY technical personnel
available for more than seven hundred fifty (750) man hours for either
transfer, SYNERGY will provide such technical personnel until the yield
specified in Section 6.5.2 is achieved, unless such achievement is excused
pursuant to Sections 6.5.2.1-6.5.2.4, in which event, until the end of a
twelve (12) month period from the date the provision of the seven hundred
fifty (750) man hours was completed, SYNERGY will provide technical
personnel at a per diem rate of one thousand ($1,000.00) dollars per day,
per individual, to be paid by DIGITAL. Notwithstanding the foregoing, in no
event shall SYNERGY be requested to provide more than two (2) individuals
to provide such additional TECHNICAL ASSISTANCE to DIGITAL, nor shall
SYNERGY be required to make these individuals available to provide more
than one (1) week each per month
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of such additional TECHNICAL ASSISTANCE to DIGITAL during this period of
time.
6.4.2 DIGITAL will pay for reasonable direct out-of-pocket expenses for
any SYNERGY technical personnel sent to DIGITAL, at the request of DIGITAL
pursuant to Section 6.4.1 and supported by bona fide expense receipts for
lodging, meals, coach air or ground transportation and other miscellaneous
expenses so long as the expenses are in keeping with DIGITAL's normal
business practices
6.4.3 DIGITAL shall pay such per die. and out-of-pocket expenses on a
monthly basis within thirty (30) days after receipt of an invoice from
SYNERGY.
6.4.4 DIGITAL shall reimburse SYNERGY, at a mutually agreed to price, for
all functional correlation wafers and assembly piece parts excluding reject
material normally available during the course of manufacturing unless
specifically made on demand for DIGITAL.
6.5 Pursuant to the milestones established in EXHIBIT A and beginning
upon DIGITAL's exercise in writing of the option to receive the TECHNOLOGY
TRANSFER of a BiPOLAR ECL PROCESS and/or a BiCMOS PROCESS from SYNERGY, SYNERGY
shall transfer to DIGITAL all of the TECHNICAL INFORMATION which SYNERGY itself
employs or intends to employ in the design and manufacture of IC's. SYNERGY
shall endeavor to provide such body of technology in the TECHNICAL INFORMATION
as is sufficiently complete and understandable to DIGITAL so as to make DIGITAL,
along with the accompanying TECHNICAL ASSISTANCE, successful in having a process
compatible to the SYNERGY's process with minimal delays and/or problems.
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6.5.1 If conditions exist which result in greater than minimal delays
and/or problems being encountered by DIGITAL in attempting to practice the
SYNERGY BiPOLAR ECL and/or BiCMOS PROCESS, as the case may be, then SYNERGY
and DIGITAL individually and jointly shall use their best efforts to
identify and promptly resolve such conditions so that DIGITAL has the
capability of fabricating devices with the SYNERGY process or compatible
process as soon as is reasonably practicable.
6.5.2 Until DIGITAL achieves a minimum wafer probe yield of at least
seventy-five (75%) percent of SYNERGY's then existing yields on Test or
Product Wafers manufactured hereunder by DIGITAL using SYNERGY's BIPOLAR
ECL PROCESS or BiCMOS PROCESS, as the case may be, SYNERGY agrees,
notwithstanding EXHIBIT A, but subject to Section 6.4 above with respect to
the additional TECHNICAL ASSISTANCE and DIGITAL's payment of direct out-of-
pocket expenses, to provide more detailed information and additional
assistance to DIGITAL as needed. Such information and assistance shall be
provided by SYNERGY on a best efforts basis to enable DIGITAL to rectify
problems inhibiting its realization of such minimum wafer probe yield.
DIGITAL understands and agrees, however, that SYNERGY's supply of such
information and the furnishing of such assistance in support of such
minimum wafer probe yield may be either limited or precluded in the event:
6.5.2.1 DIGITAL's wafer manufacturing facilities are not of the same clean
room class as that of SYNERGY's wafer manufacturing facility, and such
class is maintained and
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evidenced by supporting data, such as lower defect density levels; or
6.5.2.2 DIGITAL uses consumable manufacturing material (e.g., chemicals,
masks, dc-ionized water) of lesser quality than that used at SYNERGY's wafer
manufacturing facility; or
6.5.2.3 DIGITAL uses starting material of a different size (diameter) than
SYNERGY; or
6.5.2.4 DIGITAL uses a Test or Product Design not mutually sourced or used
at SYNERGY.
SECTION 7 - SYNERGY TECHNICAL ASSISTANCE
7.1 Until such time as the TECHNOLOGY TRANSFER is completed, including
UPDATES, for both BIPOLAR ECL and BiCMOS PROCESSES of SYNERGY, or until
DIGITAL's option expires without exercise, both parties agree to hold
information exchange meetings for the purpose of transferring that information
which is necessary and required to allow DIGITAL to evaluate the cost to DIGITAL
of, and to properly prepare for, the efficient transfer and implementation of
the BIPOLAR ECL and/or BiCMOS PROCESS. After exercise by DIGITAL of the option
to receive a BIPOLAR ECL PROCESS and/or a BiCMOS PROCESS, and beginning on the
respective TECHNICAL ASSISTANCE COMMENCEMENT DATE, which date shall be mutually
determined by and between the parties, SYNERGY shall provide all reasonable
TECHNICAL ASSISTANCE to DIGITAL, as set forth herein, for the purpose of
enabling DIGITAL to understand and implement the BIPOLAR ECL PROCESS or the
BiCMOS PROCESS being transferred to DIGITAL. It is agreed that DIGITAL
employees shall limit their activities related to the completion
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of such TECHNICAL ASSISTANCE at SYNERGY's facilities to learning the BIPOLAR ECL
and/or BiCMOS PROCESS being transferred to DIGITAL. More specifically, DIGITAL
employees shall be restricted to SYNERGY's wafer fabrication area and the
appropriate assembly and test area(s), with proper escort. These people will
meet and work with their counterparts on SYNERGY's manufacturing lines. They
will have access to all of the relevant specifications and data necessary to
understand the operation of and to operate the respective BIPOLAR ECL PROCESS or
BiCMOS PROCESS. Any information DIGITAL has a need to know, except that related
to production yields, product cost, and other SYNERGY customers will be made
available to these people during the time such assistance is provided by
SYNERGY.
7.2 DIGITAL will assign no more than ten (10) experienced engineers per
process to receive the TECHNICAL ASSISTANCE relating to either of the BIPOLAR
ECL or BiCMOS PROCESS and UPDATES thereto (as hereinafter defined in Article 9),
at SYNERGY's fabrication, assembly. and test facility or facilities. This
TECHNICAL ASSISTANCE shall not commence earlier than fourteen (14) days after
the TECHNICAL ASSISTANCE COMMENCEMENT DATE.
7.3 Additionally, SYNERGY will make available, as appropriate. one design,
process, device, product, assembly and test engineer for technical reviews for
the duration of the TECHNOLOGY TRANSFER, beginning on the TECHNICAL ASSISTANCE
COMMENCEMENT DATE. The schedule and duration and location of such technical
reviews shall be agreed upon mutually. Such technical reviews shall be conducted
at DIGITAL's facility in Massachusetts no more than once in any twelve month
period.
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7.4 Except for the provision of additional TECHNICAL ASSISTANCE by SYNERGY
technical personnel. as provided for in Section 6.4.1 through 6.4.3 above, each
party will bear all travel and living expenses for its personnel while visiting
the other party's facilities. Representatives and personnel of each party,
during the time they are present on the other party's premises. shall be subject
to all rules and regulations prevailing on such premises. None of either
party's representatives or personnel shall be considered for any purpose to be
an employee of the other party.
7.5 Each party agrees that if any person connected with it or any of its
subsidiaries or assigned by it or any of its subsidiaries to work hereunder, for
either party during the Technology Transfer, or his legal representative, shall
present any claim or institute any suit of action against the other party or its
subsidiaries, or their directors, officers, agents or employees, for any
property damage or personal injury, including death, connected with, related to,
or arising out of the performance of the Technology Transfer portion of this
Agreement, except for the gross negligence or willful misconduct of the other
party, the party employing such a person shall defend and indemnify the other
party and its subsidiaries, and their directors, officers, agents and employees,
against any and all such claims, suits or actions.
7.6 After the effective date of this agreement, DIGITAL shall have the
right, subject to the reasonable approval of SYNERGY, as to the specific periods
of attendance, to send its personnel to SYNERGY's development and manufacturing
facilities to receive TECHNICAL INFORMATION and/or TECHNICAL ASSISTANCE
regarding UPDATES. In the event that DIGITAL should require such TECHNICAL
INFORMATION and/or TECHNICAL ASSISTANCE from SYNERGY
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regarding UPDATES at its own facility, it shall be made available to DIGITAL by
SYNERGY. The schedule and duration of such additional TECHNICAL ASSISTANCE
regarding UPDATES shall be agreed upon mutually. Written information may be
requested by DIGITAL with respect to all UPDATES considered on such a visit and
such will be promptly provided if reasonably available.
7.7 To assist DIGITAL in the implementation of the TECHNOLOGY TRANSFER,
SYNERGY agrees to prepare and make a minimum of twenty five (25) samples for
equipment and/or measurement correlation at mutually agreed to steps, which will
include but not be limited to, epi, implant, oxide, nitride poly, and metal,
with the appropriate measurement data and refractive index included (e.g.,
critical dimensions, film thicknesses, junction depths, resistivity and
refractive index).
7.8 To further assist DIGITAL in the implementation of the TECHNOLOGY
TRANSFER, SYNERGY agrees to test the process control pattern and/or finished
Test and/or product dies on wafers manufactured by DIGITAL using a SYNERGY
BIPOLAR ECL PROCESS or a SYNERGY BiCMOS PROCESS. The test(s) to be performed by
SYNERGY shall be limited to a maximum of five (5) such wafers per month during
the first twenty-four (24) months following the TECHNICAL ASSISTANCE
COMMENCEMENT DATE until SYNERGY has tested a total of forty-five (45) wafers for
each TECHNOLOGY TRANSFER of a BIPOLAR ECL PROCESS and a BiCMOS PROCESS.
7.8.1 SYNERGY and DIGITAL will exchange a wafer lot comprising five (5)
partially processed wafers on six (6) separate occasions for process
correlation. Four (4) of these exchanges will include wafers which have been
processed up to, but not including, metalization and two of these exchanges
will include completely processed wafers. SYNERGY
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and DIGITAL shall mutually agree to the dates of the exchanges and the
process steps up to which these four (4) partially processed wafer lots are
to be manufactured.
7.8.2 DIGITAL understands and agrees that the use and implementation of
starting material (wafer size) and product and/or test die different from
that used by SYNERGY may preclude part or all of such major exchanges.
7.9 With respect to the items of TECHNICAL INFORMATION relating to the
BIPOLAR ECL and/or BiCMOS PROCESS, DIGITAL may make changes and modifications of
such TECHNICAL INFORMATION in order to render such information compatible with
DIGITAL's manufacturing equipment.
7.9.1 DIGITAL understands and agrees that the use and implementation of
equipment substantially different from that used by SYNERGY will be done at
DIGITAL's risk and may preclude the transfer of technology directly related
to the use of such equipment.
7.10 DIGITAL requires that SYNERGY identify key contact individuals in the
areas of diffusion/implant, photo/etch, metals/CVD, evaluation/yield analysis,
assembly, test, and product engineering who have direct on-line sustaining
responsibilities. DIGITAL will identify individuals in each of the above areas,
and process problems or questions will be directed to the SYNERGY individuals by
DIGITAL's Program Manager or his/her designee.
7.11 SYNERGY and DIGITAL will exchange assembly and test splits, if
necessary, to ensure cross compatibility of each operation. Assembly will
consist of two phases. Phase 1 will be
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initiated within ninety (90) days of completion of the transfer by SYNERGY to
DIGITAL of all TECHNICAL INFORMATION as provided for in Section 8. SYNERGY will
furnish DIGITAL at least two hundred and fifty (250) die of zero-yielding
Product and/or Test Devices in wafer form already probed and backside prepared.
Phase 2 will involve an eight (8)-way split between SYNERGY and DIGITAL assembly
and test operations using both SYNERGY wafers and DIGITAL wafers. This split
will be composed of at least one hundred (100) assembled die in each leg of the
split and will occur after the final wafer lot exchange described in Paragraph
7.8, but before the final review meeting.
7.11.1 DIGITAL understands and agrees that the use and implementation of the
starting material (wafer size) and Product and/or Test die different from
that used by SYNERGY may preclude part or all of the assembly and test
compatibility split.
SECTION 8 - TRANSFER OF TECHNICAL INFORMATION
8.1 Upon DIGITAL's exercise in writing of the Technology Transfer Option,
SYNERGY agrees to promptly transfer to DIGITAL one set or copy (hard copy as
applicable), each, of all information required by DIGITAL to understand and
implement the SYNERGY BIPOLAR ECL or BiCMOS PROCESS, as applicable, or a
compatible process, including the following:
8.1.1 All BIPOLAR ECL and/or BiCMOS PROCESS specifications, including
operational specifications and operator instructions, inspection
specifications, process control specifications, photomask stepped print
specifications, and
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incoming inspection specifications for raw wafers, chemicals and gases.
8.1.2 Detailed BIPOLAR ECL and/or BiCMOS PROCESS flow documents. Included
in these documents shall be, as applicable, step-by-step drawings of the
topography resulting after each major step, the identity of fabrication and
measurement equipment used, and process monitor specifications and
measurement methods used. The process flow documents shall indicate both the
in-line and end-of-process targets, and the control and reject limits related
to all measurable parameters. These measurable parameters shall include but
not be limited to, as applicable, critical dimensions, thicknesses, junction
depths and sheet resistances for oxide, nitride, polysilicon, epi and metals.
The parameters may be provided in histogram format with means and sigmas
indicated. Additionally, and to the extent available, the information is to
be provided in process control trend chart format with means, sigmas and
control limits represented. This data shall include, as a minimum, the last
three (3) months of production data of SYNERGY's applicable fabrication
facility.
8.1.3 Samples of all relevant material lot travelers used at SYNERGY, which
comprise the entire relevant product manufacturing flow, including wafer
fabrication, assembly, and test operations.
8.1.4 A complete set of design and layout rules comprising all aspects of
design, including simulation of both transistors and logic, and including
compensation rules for final mask and finished wafer tolerances.
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8.1.5 Calma data base tapes in GDS 2 format of the Test Vehicle, and all
relevant documentation used in the process debugging and characterization of
the SYNERGY wafer manufacturing line. The documentation shall comprise
analysis techniques and test equipment documentation for the TEST VEHICLE
used.
8.1.6 A complete list of SYNERGY's relevant assembly specifications
detailing process flows, process techniques, equipment used, raw materials
and piece parts (including drawings, description and vendor(s) used), and all
lot travelers and specifications, including quality inspections and in-
process product movement and finished product shipping containers (tubes or
the like), fixtures, heat sinks, and marking equipment used at SYNERGY in the
assembly and test of IC's. The assembly specifications shall also include die
layout (die attachment and bonding diagrams), critical die dimensions (pad
size and spacing), scribe information, mechanical finished part drawing(s),
and, as applicable, all necessary backside preparation data (wafer backside
resistance specifications, temperature coefficients, and permissible die
attachment methods, and including related wafer backside preparation data).
8.1.7 All available relevant critical device characterization data from
SYNERGY showing compliance with all parametric tests for which specifications
are in place. This data shall include temperature characteristics and pin-to-
pin variation characterization data. This data shall include process split
lot analysis demonstrating yield performance versus specification limits.
SYNERGY shall also provide DIGITAL with histograms of parametric and
functional results, with control and action limits, representing the
preceding three
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(3) month period from SYNERGY's applicable production facility which shall
include mean, sigma, and total number of measurement(s) for each histogram.
8.1.8 Ten (10) functionally probed reject die from wafers whose process
control pattern measurement is parametrically good from five (5) separate
wafer lots (fifty (50) total) for destructive analysis.
8.1.9 Two hundred (200) relevant assembly piece parts to allow for first
assembly exchange, if required.
8.1.10 Copies of all BIPOLAR ECL and/or BiCMOS PROCESS "Change Orders"
incorporated into the BIPOLAR ECL and/or BiCMOS PROCESS at SYNERGY during the
TECHNOLOGY TRANSFER.
8.1.11 Any detail or drawing related to necessary special equipment, and/or
modification of commercial equipment, which SYNERGY and DIGITAL mutually
agree is necessary for DIGITAL to duplicate the BIPOLAR ECL and/or BiCMOS
PROCESS and relevant test processes, as applicable. SYNERGY agrees to grant
DIGITAL the option to purchase from SYNERGY, at a reasonable price, any
special equipment, or fixtures, and software necessary in the manufacture of
such processes if the equipment is not commercially available from any vendor
except SYNERGY.
8.1.12 SEM cross-sections of all physical structures of the BIPOLAR ECL
and/or BiCMOS PROCESS comprising transistors, isolation structures,
resistors, metal/via and dielectric topographies at mutually determined and
agreed to BIPOLAR ECL and/or BiCMOS process steps. At the minimum, such SEM
cross-sections shall be made after epi deposition, isolation,
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emitter drive, enhanced (extrinsic) base drive, 1st metal mask, 2nd metal
mask and from the finished wafer, or samples shall be made available by
SYNERGY to DIGITAL for such purposes.
8.1.13 Documentation relating to the Process Control Patterns, detailing
physical layout, measurement conditions, target values, control limits,
reject limits, process capability index for each measurable parameter, and
statistical control charts as available including histograms of three (3)
months worth of data for each rejectable wafer evaluation criteria with mean,
sigma, and total number of measurements for each histogram. The data format
is to be similar to that requested in Paragraph 8.1.2.
8.1.14 Test programs and related documentation for wafer probe, final test
and finished product characterization test of the RAM TEST VEHICLE. The test
programs shall include the functional and parametrical test conditions, and
the documentation shall include the test program flow, required guard bands,
and the test process flow, as well as all applicable vector information,
worst case conditions on vectors, and test times. Additionally, and upon
DIGITAL's special request therefore, SYNERGY will furnish DIGITAL with
details related to the test equipment used at SYNERGY.
8.1.15 Calma tapes in GDS 2 format for each test cell in the SYNERGY
designed Test Device, including the corresponding circuit schematic for each
of the cells, the logic diagram and the block diagram of the entire cell, and
timing diagrams for all paths.
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8.1.16 Ten (10) functional die from five (5) separate wafer lots (fifty
(50) die total). These die will be used for characterization. They will be
in the form of the packaged Test Device. The purpose of providing this is
for DIGITAL to perform DC and AC electrical characterization of the test
circuit and/or transistors.
8.1.17 The BiPOLAR ECL and/or BiCMOS PROCESS sensitivity data, showing the
relationship between process parameters and product performance at wafer
fabrication, process control pattern probe test, wafer unit probe test,
assembly, and final test.
8.1.18 Quality and reliability specifications covering the BiPOLAR ECL
and/or BiCMOS PROCESS, including supporting data. This supporting data shall
include ESD (ElectroStatic Discharge) information, one thousand (1000) hour
life test data, and quality defect levels in PPM and reliability data in fits
for both infancy and steady state failures for two (2) mutually agreed upon
SYNERGY manufactured IC's.
SECTION 9 - UPDATES TO TECHNICAL INFORMATION
9.1 If DIGITAL exercises its option to receive the TECHNOLOGY TRANSFER for
either or both of a BiPOLAR ECL PROCESS or BiCMOS PROCESS, SYNERGY will notify
DIGITAL on a best efforts basis six (6) months in advance of any UPDATE, if it
is reasonably able to do so, that is to be implemented by SYNERGY, and in any
event, UPDATES will be routinely delivered to DIGITAL, on a continuing basis,
for an additional period of three (3) years from the date of completion of the
TECHNOLOGY TRANSFER of such a process. Following the date on which the
TECHNOLOGY
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TRANSFER to DIGITAL is completed, SYNERGY shall furnish UPDATES to DIGITAL
within thirty (30) days after the first successful implementation of such UPDATE
by SYNERGY.
9.2 UPDATE(S), with respect to transferred items shall have one of the
following meanings depending upon the nature of the transferred item and shall
mean Product UPDATE(S), Process UPDATE(S), and Test Information UPDATE(S) when
the term UPDATE(S) is used without specifying Product, Process or Test
Information:
9.2.1 Product UPDATE(S) shall mean information regarding modifications to
SYNERGY the TEST VEHICLE which has been made to change, modify or correct the
design of the SYNERGY TEST VEHICLE or to improve the electrical performance
of the SYNERGY TEST VEHICLE such that the improved SYNERGY TEST VEHICLE is a
direct replacement for the nonimproved SYNERGY TEST VEHICLE and, therefore,
eliminates the need for the nonimproved SYNERGY TEST VEHICLE. The form of the
information shall be a Calma data base tape, if requested, composite plots
and/or written descriptions or explanations of the product UPDATE, sufficient
to allow DIGITAL to implement such Product UPDATE. Product UPDATE(S) shall
not mean modifications to the design made for the purpose of yield
improvement or cost reduction. Examples of what are and what are not Product
UPDATE(S) are given in the following. When an item is both classifiable as
"included" and "excluded", the item will be considered to be a Product
UPDATE.
Product UPDATE(S) include:
9.2.1.1 Modification of the design made to correct logic errors and/or
circuit errors.
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9.2.1.2 Modifications of the design made to correct layout rule errors.
9.2.1.3 Modification made to the design to enhance the performance (i.e.
speed, power and/or density)
Product UPDATE(S) exclude:
9.2.1.4 Modification made to the design to generate new and/or different
SYNERGY products.
9.2.1.5 Modifications of the design made to allow the product to be made on
a different process device structure than the product was originally designed
to be manufactured on.
9.2.1.6 Modifications made to the design using proprietary design technology
of/from another customer.
9.2.2 Test Information UPDATE(S) shall mean modifications to test
information for the purpose of correcting the test information as necessary
to adequately test the TEST VEHICLE. Test Information UPDATE(S) do not
include modifications made for the purpose of cost reduction or changes in
guard bands. In the case where both corrections and cost improvements are
included in the same test information, then the corrections will be
documented and transferred so that the receiving party may likewise modify
its information. Examples of what are and what are not Test Information
UPDATES are given below. When an item is classifiable as both "included" and
"excluded" the item will be considered to be a Test Information UPDATE:
Test information UPDATE(S) include:
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9.2.2.1 Modifications made to the generic test masterfile, e.g., information
to correct test routines, subroutines or preconditions.
9.2.2.2 Modifications made to the test information to detect and reject
parts having new or different failure modes.
9.2.2.3 Modifications of drawings of special test fixtures related to the
testing of a product for the purpose of correcting errors.
Test Information UPDATE(S) exclude:
9.2.2.4 Modifications made to the test information for the purpose of cost
reduction, (e.g., multi-sort programs, automatic handlers, changes in guard
bands and guard band strategies, and changes to provide shorter test time.)
9.2.2.5 Modifications made to the test information to test products other
than the product that the test procedure was originally designed to test.
9.2.3 While the modifications of Paragraph 9.2.2.4 are excluded from Test
Information UPDATE(S) for purposes of required transfer thereof, these
modifications may be practiced in the factory of either party.
9.2.4 Process UPDATE(S) shall mean modifications to a process which have
been made as a correction or to improve the process in such a way as to be a
direct replacement for the nonimproved process. Process UPDATE(S) do not
include modifications made to generate processes which incorporate new and/or
different device structures. When an item is classifiable as both "included"
and "excluded", the item
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shall be considered a Process UPDATE. Examples of what are and what are not
Process UPDATES are given below:
Process UPDATE(S) include, but are not limited to:
9.2.4.1 Modifications of time, temperature, or gas-flow schedules of
diffusion, oxidation and heat treatment steps.
9.2.4.2 Modifications of process design rules as necessary to improve
manufacturability of products designed to be manufactured on the unmodified
process.
9.2.4.3 Modification of the ratio of metal components in the metalization
targets.
9.2.4.4 Modification to trace impurity concentrations in deposited
insulator layers.
9.2.4.5 Modifications of the liquid or gaseous etchants.
9.2.4.6 Modifications which change starting material resistivity,
equipment settings, and/or chemical specifications.
9.2.4.7 Changes in dopant materials and related doses.
9.2.4.8 Changes in major manufacturing equipment.
9.2.4.9 Changes in vendors (except for cost) and/or specifications to
vendors related to wafer manufacturing, assembly and test material
procurement.
9.2.4.10 Modification to the items of TECHNICAL INFORMATION to
incorporate an improvement to a given process step which
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is for speed enhancement or photolithographic 'shrink' and which directly
replaces a prior process step .
Process UPDATE(S) exclude:
9.2.4.11 TECHNICAL INFORMATION not related to the technology transferred
under this Agreement.
9.2.4.12 A new process which does not replace the old process but runs
simultaneously with the existing process.
SECTION 10 - LIMITATION OF LIABILITY AND REMEDIES FOR CAUSES OF
ACTION
10.1 SYNERGY shall be liable for, shall indemnify and hold DIGITAL harmless
from any cause of action arising from any injury to persons or personal property
occurring in the course of activities pursuant to this Agreement, and caused
solely by the fault or negligence of SYNERGY, its officers, employees, agents or
representatives.
10.2 DIGITAL shall be liable for, shall indemnify and hold SYNERGY harmless
from any cause of action arising from any injury to persons or personal property
occurring in the course of activities pursuant to this Agreement, and caused
solely by the fault or negligence of DIGITAL, its officers, employees, agents or
representatives.
10.3 Except for the willful and wanton breach of Section 4 of this
Agreement, each party's liability in damages to the other party under this
Agreement shall be limited to actual direct damages proximately caused by a
breach of this Agreement.
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10.4 Except for the willful and wanton breach of Section 4 of this
Agreement, in no event shall DIGITAL or SYNERGY be liable, one to the other, for
any indirect, consequential, incidental or punitive damages arising out of
performance under or breach of this Agreement.
10.5 The parties hereto agree that no action in any form arising out of
this Agreement may be instituted by either party against the other more than two
(2) years after the cause of action has arisen and should have become known
through the exercise of reasonable diligence, or in the case of nonpayment, more
than two (2) years from the date such payment becomes due.
SECTION 11 - TERMINATION
11.0 DIGITAL may terminate this Agreement for cause, at its sole option,
upon fifteen (15) days' prior written notice to SYNERGY, if SYNERGY is in
default under the Stock Purchase Agreement by virtue of SYNERGY's failure to
comply with its obligations as set forth in Section 1.3(b) thereof. Upon such
termination, all of the rights and obligations of the parties hereto shall
thereupon terminate unless otherwise expressly provided herein.
11.1 DIGITAL may terminate this Agreement for cause, at its sole option,
upon thirty (30) days' prior written notice to SYNERGY, if a default or Event of
Default under the Master Lease Agreement between SYNERGY and Digital Equipment
Finance Corporation, a wholly-owned subsidiary of DIGITAL, of even date
herewith, shall have occurred and be continuing. Upon such termination, all of
the rights and obligations of the parties
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hereto shall thereupon terminate unless otherwise expressly provided herein.
11.1.1 Either party may terminate this Agreement for cause, if the other
party materially breaches any of its material obligations hereunder upon written
notice specifying such breach and the failure of the party receiving such notice
to cure or remedy such breach within 90 days after receipt of such notice;
provided that the party giving such notice shall have undertaken the dispute
settlement procedures provided for in Section 17 hereof; and provided further
that a failure by SYNERGY to meet delivery or quality requirements for IC's
under any purchase agreement entered into pursuant to this Agreement shall not
be considered to be a material breach of this Agreement. Upon any such
termination, all of the rights and obligations of the parties hereto shall
thereupon terminate unless otherwise expressly provided herein. The termination
shall be effective upon the defaulting party's receipt of such written notice of
termination, or upon the third day following the mailing of the notice of
termination in accordance with the terms of Section 17, whichever occurs first.
11.1.2 Notwithstanding paragraph 11.1.1 above:
11.1.2.1 Neither DIGITAL nor SYNERGY may terminate this Agreement for a
breach of the CONFIDENTIALITY PROVISIONS contained in Section 4 hereof
unless:
(i) the other party shall have willfully breached its material
obligations thereunder, or
(ii) any such breach of such CONFIDENTIALITY PROVISIONS shall have
a material adverse effect
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upon the financial condition of DIGITAL or SYNERGY, as the case may be.
11.2 Termination of this Agreement shall not (i) affect or release the
parties hereto from any rights or obligations which have accrued to one of the
parties hereto at the time such termination becomes effective, including,
without limitation, any licensed granted hereunder; (ii) rescind any transaction
or circumstance pursuant to which any payment or other consideration was made or
given by one party to the other, or (iii) affect in any manner the survival of
any right, duty or obligation of a party hereto which is expressly provided
elsewhere in this Agreement to survive such termination.
11.3 Upon the occurrence of events or circumstances which give DIGITAL a
right to terminate this Agreement and the giving by DIGITAL of the notice
provided for in Section 11 and, if applicable, the passage of the ninety (90)
days provided for in Section 11.1.1 along with the undertaking of the dispute
resolution procedures, as called for in Section 11.1.1, SYNERGY shall be
considered in default of this Business and Technology Transfer Agreement for
purposes of DIGITAL's or DIGITAL EQUIPMENT FINANCE CORPORATION'S rights and
remedies under the Even Date Agreements.
11.4 Without derogating any other rights of DIGITAL pursuant to this Section
11, in the event that SYNERGY is in violation of either or both of Sections
3.6.1, 3.6.2 and 24 of this Agreement, or DIGITAL is given notice of an intent
of SYNERGY to enter into a transaction which would be in violation of either or
both of such Sections 3.6.1, 3.6.2 and 24, then DIGITAL shall, at its option,
have the right (1) to immediately
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exercise its options for the transfer of either or both of the BIPOLAR ECL
PROCESS and the BiCMOS PROCESS, whether or not the provisions of Section 6.2
have been met (2) to exercise such option as against SYNERGY, if SYNERGY
survives such transaction, and enforce all of its rights and SYNERGY's
obligations, pursuant to this Agreement, against SYNERGY, or (3) to exercise
such option as against the successor in interest to SYNERGY, and enforce all of
its rights and the obligations of SYNERGY, pursuant to this Agreement, as
against the successor in interest of SYNERGY. Any such option shall be exercised
by notice to SYNERGY given not more than twenty (20) days following notice to
DIGITAL that SYNERGY is in violation of or intends to enter into a transaction
in violation of Section 3.6.1, 3.6.2 or 24. Should DIGITAL elect to immediately
exercise its option as to either or both of the BiPOLAR ECL LICENSED TECHNOLOGY
and the BiCMOS LICENSED TECHNOLOGY, SYNERGY will be obligated to complete, prior
to one (1) year from the date of DIGITAL's notice to SYNERGY or the completion
of such transaction which would violate such Sections 3.6.1, 3.6.2 and 24, or
any of them, whichever occurs first, the TECHNOLOGY TRANSFER (excluding the
requirement to deliver UPDATES during that time), as to whichever, or both, of
the BIPOLAR ECL PROCESS or BiCMOS PROCESS is elected by DIGITAL to be
transferred immediately to DIGITAL. In addition, DIGITAL's MANUFACTURING LICENSE
shall be and hereby is made royalty free, without any requirements, to purchase
IC's from SYNERGY, or its successor, as including a right to sublicense others
for the purpose of designing and/or making IC's for DIGITAL.
11.5 In the event SYNERGY proposes to consolidate, or merge with or into, or
sell all or substantially all of its assets to any other corporation, person or
other legal entity, (hereinafter "merger, consolidation or sale of assets"}, it
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shall give notice of such proposal to DIGITAL given as soon as practical but not
later than the second day following the public disclosure of such proposal.
DIGITAL may (i) by notice to SYNERGY given within twenty (20) days of SYNERGY's
notice to DIGITAL, require that SYNERGY immediately commence the TECHNOLOGY
TRANSFER whether or not the provisions of Section 6.2 have been met and (ii) by
notice to SYNERGY given within thirty days of SYNERGY's notice to DIGITAL,
cancel the preferred supplier relationship set forth in Section 5. In the event
that DIGITAL exercises its right under subsection (i) above, SYNERGY shall not
consummate its proposed merger, consolidation or sale of assets prior to
transferring such of the SYNERGY TECHNICAL INFORMATION as is then in its
possession. In addition, if requested by DIGITAL, SYNERGY shall make available
up to six technical personnel, selected by DIGITAL, to supply up to seven
hundred fifty (750) man hours prior to the closing of such merger, consolidation
or sale of assets. In no event, however, shall SYNERGY be obligated to delay
such merger, consolidation or sale of assets if less than seven hundred fifty
(750) man hours have been supplied pursuant to the foregoing.
SECTION 12 - WARRANTY PROVISIONS
12.1 General Warranty
----------------
12.1.1 DIGITAL represents and warrants to SYNERGY that DIGITAL is not
under any obligation that would prevent it from entering into and fully
performing under this Agreement.
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12.1.2 SYNERGY represents and warrants to DIGITAL that SYNERGY has not
made and shall not make any commitment to others which is inconsistent with
or in derogation of the rights granted to DIGITAL hereunder; that subject to
the provisions of Section 12.1.3 below, SYNERGY has all necessary legal
title and license rights in LICENSED TECHNOLOGY to grant such rights to
DIGITAL as are granted under this Agreement; and that SYNERGY is under no
obligation that would prevent it from entering into and fully performing
under this Agreement.
12.1.3 SYNERGY represents and warrants that to the best of SYNERGY's
knowledge, information and belief, without conducting a technology clearance
search in the United States Patent and Trademark Office, there are no
impending, threatened or pending infringement actions, or infringements of
any third party patent, copyright, mask work right, trade secret, trademark
or other third party proprietary rights involving LICENSED TECHNOLOGY, and
that SYNERGY, its officers and directors, are not aware of any information
which would indicate that any LICENSED TECHNOLOGY infringes upon any third
party patent, copyright, mask work right, trade secret, trademark or other
intellectual property right.
12.1.4 SYNERGY represents and warrants that SYNERGY shall use best
efforts in acquiring LICENSED TECHNOLOGY from third parties to receive all
necessary legal title and license rights that are necessary to grant such
rights as are or may be granted to DIGITAL under this Agreement, and shall
immediately upon discovery notify DIGITAL of any restriction against such
grants and thereafter use best efforts to overcome the restriction.
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12.2 WARRANTY EXCLUSION:
------------------
The warranties and agreements stated herein are EXPRESSLY IN LIEU OF all
other understandings, agreements, representations or warranties regarding the
subject matter of this Agreement, including but not limited to express
warranties and the IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
SECTION 13 - GRANT OF SECURITY INTEREST
13.1 To secure SYNERGY's obligations hereunder to transfer to DIGITAL a
BIPOLAR ECL PROCESS and a BiCMOS PROCESS, and UPDATES, and to license DIGITAL to
use LICENSED TECHNOLOGY, and to secure DIGITAL's right to the quiet possession
and full enjoyment of the rights in LICENSED TECHNOLOGY granted to DIGITAL
hereunder (collectively hereinafter referred to as the "Secured Obligations"),
and in consideration of the payments made to SYNERGY under the Stock Purchase
Agreement and other good and valuable consideration , the receipt of which is
hereby acknowledged by SYNERGY, SYNERGY hereby grants to DIGITAL a security
interest in all of SYNERGY's right, title and interest, including INTELLECTUAL
PROPERTY RIGHTS, in and to the LICENSED TECHNOLOGY (hereinafter collectively
referred to as "COLLATERAL"). The security interest shall attach on the
effective date of this Agreement. To enable DIGITAL to perfect the security
interest, SYNERGY agrees, upon request, to execute appropriate financing
statement(s) for DIGITAL in all relevant jurisdictions. DIGITAL shall be
entitled to exercise all rights and protections afforded to a secured creditor
under Article 9 of the Uniform Commercial Code of any state in which the
COLLATERAL
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<PAGE>
may be found, or in which an action is brought under this Agreement, or in which
SYNERGY becomes involved in proceedings in insolvency or bankruptcy. This
Section 13 shall not, and is not intended to, prohibit SYNERGY from using,
transferring or licensing the LICENSED TECHNOLOGY, not otherwise in
contravention of the terms and conditions of this Agreement. The security
interest under this Section 13, with respect to the BIPOLAR ECL TECHNOLOGY shall
terminate upon the completion of the TECHNOLOGY TRANSFER of the BIPOLAR ECL
PROCESS to DIGITAL, and with respect to the BiCMOS LICENSED TECHNOLOGY, shall
terminate upon the completion of the TECHNOLOGY TRANSFER of the BiCMOS PROCESS
to DIGITAL, and upon such termination(s) DIGITAL will file the appropriate
termination statements to terminate the applicable part of the security
interest.
SECTION 14 - INDEPENDENT DEVELOPMENTS
14.1 Nothing contained in this Agreement shall prevent or in any way
restrict DIGITAL in independently, without the use of SYNERGY PROPRIETARY
TECHNOLOGY or SYNERGY CONFIDENTIAL INFORMATION developing and marketing either
through the use of its own personnel or through third parties, or from acquiring
from third parties and marketing, hardware or software products similar to any
SYNERGY PROPRIETARY TECHNOLOGY OR SYNERGY CONFIDENTIAL INFORMATION. Nothing
herein shall be construed to grant SYNERGY any rights in any such similar
hardware or software products so developed or acquired, or in the revenues or
any portion thereof derived by DIGITAL from the use, sale, lease, license or
other disposal of any such similar hardware and software products.
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<PAGE>
14.2 Nothing contained in this Agreement shall prevent or in any way
restrict SYNERGY in independently, without the use of DIGITAL PROPRIETARY
TECHNOLOGY or DIGITAL CONFIDENTIAL INFORMATION developing and marketing, either
through the use of its own personnel or through third parties, or from acquiring
from third parties and marketing, hardware or software products similar to any
DIGITAL PROPRIETARY TECHNOLOGY or DIGITAL CONFIDENTIAL INFORMATION. Nothing
herein shall be construed to grant DIGITAL any rights in any such similar
hardware or software products so developed or acquired, or in the revenues or
any portion thereof derived by SYNERGY from the use, sale, lease, license or
other disposal of any such similar hardware and software products.
SECTION 15 - REPORTS AND DESIGN REVIEWS
15.1 SYNERGY shall provide DIGITAL written technical progress reports, and
conduct design and technical status reviews.
15.2 The design and technical status reviews shall be held at DIGITAL's or
SYNERGY's facilities as mutually agreed to by the parties.
15.3 SYNERGY and DIGITAL shall meet at least once each calendar quarter as
provided in Section 7.3 above to evaluate SYNERGY's business and technological
progress. These design and technical status reviews shall focus on joint
planning and design efforts for new products to be developed by SYNERGY for use
by DIGITAL in its products.
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<PAGE>
15.4 The technical progress reports shall include a separate summary for
each research and development activity occurring during the reporting period and
in pursuance of this Agreement. At a minimum, each of the research and
development activities occurring during the reporting period shall be addressed.
15.5 Each technical progress report, as applicable, shall report the
accomplishment of, or the failure to accomplish, any applicable milestone
referenced in Exhibit B and Exhibit C to this Agreement, which, according to
Exhibit B and Exhibit C, should have been accomplished during such reporting
period. SYNERGY understands that DIGITAL considers time to be of the essence
with respect to the milestone schedule contained in Exhibit B, and any failure
of SYNERGY to meet the milestone dates in the schedule of Exhibit B, may be
considered by DIGITAL to be a material breach of this Agreement. In no event,
shall failure to meet the milestones set forth in Exhibit C be considered a
material breach of this Agreement.
SECTION 16 - PUBLICITY
16.1 Neither party to this Agreement shall publicize the existence. of this
Agreement, nor refer to the other party in connection with any product,
promotion or publication without the prior written approval of such other party.
Each party shall use its best efforts not to disclose to any third party the
terms and conditions of this Agreement during its term, except as required by
law, or by government regulation, requirement or order, or as may be necessary
to establish or assert its rights hereunder; or as SYNERGY may reasonably
conclude will be important to SYNERGY in its efforts to raise capital in private
transactions, provided that such disclosure in its efforts to raise capital
shall be
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<PAGE>
accompanied by a notice from SYNERGY to the party to whom the Disclosure is made
that the existence of this Agreement is to be maintained in confidence.
SECTION 17 - DISPUTE SETTLEMENT
17.1 In the event of a dispute or disagreement between the parties hereto
as to any provision hereof, including, without limitations, the failure of
either party to meet any of its obligations hereunder (whether or not such
failure would give rise to a right of termination under Section 11 hereof), the
party claiming such dispute shall serve upon the other written notice setting
forth in sufficient detail the nature and basis for such dispute. If the dispute
so described in the notice is not cured or remedied to the satisfaction of the
party giving such notice within thirty (30) days of receipt of such notice, then
the disputing party may, by written notice to the other party, request a meeting
of representatives of the management of SYNERGY and DIGITAL to consider such
dispute, which meeting shall occur within thirty (30) days of receipt of the
notice requesting such meeting, which meeting shall be held in the State of
California at a place to be designated by SYNERGY, if such request is given by
DIGITAL, or in the Commonwealth of Massachusetts at a place to be designated by
DIGITAL, if such request is made by SYNERGY, for the purpose of resolving the
dispute in the spirit of mutual respect, mutual trust and mutual benefit in
which this Agreement is entered into.
17.2 If the dispute is not resolved, or the basis thereof is not cured to
the satisfaction of the parties, within thirty (30) days of the commencement of
the management meeting referred to in Section 17.1 above, or if upon expiration
of thirty (30) days
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<PAGE>
from the receipt of written notice requesting such meeting no such meeting shall
have commenced, either party may pursue whatever rights and remedies are
available to it hereunder or elsewhere.
SECTION 18 - NOTICES
18.1 Any and all written notices, communications and deliveries between
SYNERGY and DIGITAL with reference to this Agreement shall be sufficiently made
on the date of mailing if sent by registered mail to the respective address,
subject to change upon written notice, of the other party as follows;
In the case of DIGITAL: Copy to:
Manager, Semiconductor Semiconductor Operations
Business Operators 77 Reed Road
111 Locke Drive Hudson, Massachusetts 01749
Marlboro, Massachusetts 01752 Attn: Synergy Program Manager
In the case of SYNERGY: Copy to:
Synergy Semiconductor Synergy Semiconductor
Attn: President Attn: Digital Program Manager
3450 Central Expressway 3450 Central Expressway
Santa Clara, CA 95051 Santa Clara CA 95051
SECTION 19 - FORCE MAJEURE
19.1 Neither party to this Agreement shall be responsible for delay or
failure in performance caused by any government act, law, regulation, order or
decree, by communication line or power
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<PAGE>
failures beyond its reasonable control, or by fire, flood or other natural
disasters nor shall any such delay or failure be considered to be a breach of
this Agreement. In any such event, performance shall take place as soon
thereafter as is reasonably feasible.
SECTION 20 - GOVERNING LAW
20.1 The laws of the State of California shall govern with respect to the
construction of and performance under this Agreement and any legal questions
which may arise under this Agreement.
SECTION 21 - EFFECT OF HEADINGS
21.1 The Article headings appearing in this Agreement are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or intent of such Article or in any way affect this Agreement.
SECTION 22 - SEVERABILITY
22.1 In the event that any one or more of the provisions of this Agreement
shall be deemed invalid, illegal or unenforceable in any respect for any reason,
the validity, legality and enforceability of any such provisions in every other
respect and of the remaining provisions of this Agreement shall not in any way
be impaired. Any ambiguity which arises by reason of such invalidity,
illegality or unenforceability shall be construed in
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<PAGE>
accordance with the overall intent of the parties as exhibited by the remaining
provisions of this Agreement.
SECTION 23 - INTEGRATION
23.1 This Agreement and the even date agreements set forth the exclusive
and entire agreement and understanding of the parties relating to the subject
matter contained herein, and merges all other prior and contemporaneous
discussions and agreements, including the non-disclosure agreement of 10 June
1987, between DIGITAL and SOLID STATE TECHNOLOGIES (prior name of SYNERGY) and
December 8, 1987 between SYNERGY and DIGITAL.
23.2 Neither party shall be bound by any definition, condition, warranty,
or representation, except as expressly referenced or set forth in this
Agreement, or as subsequently set forth in a writing signed by a duly authorized
representative of each party.
SECTION 24 - TRANSFERABILITY
24.1 This Agreement shall be binding upon and shall enure to the benefit of
any corporation or other legal entity with which SYNERGY or DIGITAL may be
merged or consolidated, or to an assignee of the total assets of either party
which relate to this Agreement, provided that such legal entity or assignee
agrees to assume and be bound by the obligations and provisions of this
Agreement to the same extent that it would have been bound had such legal entity
or assignee been an original party to this Agreement., and further provided that
the surviving corporation
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<PAGE>
has a demonstrably ready capability to fully perform under this Agreement.
24.2.1 For the period set forth in subsection 24.2.2, SYNERGY will not
consolidate or merge with or into or sell all or substantially all of its
assets, without the consent of DIGITAL, which consent will not be reasonably
withheld, to any person, firm or other legal entity described in Section
3.6.1.
24.2.2 The consent of DIGITAL to a transaction described in, and as
permitted in, subparagraph 24.2.1 is required until the consummation of the
sale of SYNERGY's shares of its common stock in a firm commitment
underwriting pursuant to a registration statement filed pursuant to the
Securities Act of 1933, as amended; provided that, subsequent to December
31, 1989, DIGITAL's consent shall only be required if one or more of the
.events set forth in Section 6.2 shall have occurred.
24.2.3 In determining whether DIGITAL's consent has been unreasonably
withheld due consideration shall be given to whether the proposed merger
would impair the ability of DIGITAL to receive the benefits of the
TECHNOLOGY TRANSFER provided for in Section 8.
24.3 This Agreement is materially based upon each party's confidence
reposed in the other with respect to satisfactory performance of required work
and the nondisclosure of valuable and proprietary secrets, and is, therefore,
personal to each of the parties hereto. Except as expressly set forth in Section
24.2.1 of this Agreement, neither party shall transfer or assign any rights,
obligations, or interests in this Agreement without
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<PAGE>
the prior written consent of the other party, and SYNERGY shall not be
restricted from consolidating or merging with or into or selling of all its
assets to any person, firm or entity.
24.4 Neither party's obligations to perform under this Agreement shall be
subcontracted or otherwise transferred to a third party except as expressly
provided in this Agreement.
SECTION 25 - DISCLAIMER OF AGENCY
25.1 This Agreement shall not constitute either party the legal
representative or agent of the other, nor shall either party have the right or
authority to assume, create, or incur any liability or any obligation of any
kind, expressed or implied, against, or in the name of or on behalf of the other
party.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement,
including EXHIBIT A which is incorporated herein and made a part hereof, in
duplicate by their respective duly authorized officers.
SYNERGY SEMICONDUCTOR CORPORATION DIGITAL EQUIPMENT CORPORATION
By:___________________________ By:_____________________________
(Signature) V (Signature)
Name: Kenneth G. Wolf Name: Robert B. Palmer
---------------------------- --------------------------
(Typed) (Typed)
Vice President and Group Manage
Title: President Title: Semiconductor Operations
--------------------------- ------ -------------------------
Date: December 15, 1987 Date: December 14, 1987
---------------------------- -------------------------
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<PAGE>
EXHIBIT A
TECHNOLOGY TRANSFER MILESTONES
(To be firmed up at time of Transfer)
<TABLE>
<CAPTION>
MILESTONE MONTH ACTIVITY
- --------- ----- --------
<S> <C> <C>
1 0 DIGITAL exercises one of its two (2) options
to have SYNERGY transfer the ECL and/or
BiCMOS Process to DIGITAL, having satisfied
one or more of the preconditions stated in
paragraph 6.2
2 1 Key contact individuals responsible for the
transfer and receipt of TECHNICAL INFORMATION
are identified by SYNERGY and DIGITAL.
SYNERGY transfers to DIGITAL the items of
TECHNICAL INFORMATION identified in
paragraphs 8.1.1 thru 8.1.12
3 3 Meeting at SYNERGY to review and understand
the items of TECHNICAL INFORMATION received
by DIGITAL pursuant to Milestone 2.
4 4 On-Line Technical Assistance (Training)
related to the SYNERGY ECL and/or BiCMOS
Process at SYNERGY's applicable manufacturing
facility begins.
5 6 Meeting at DIGITAL to review final issues
regarding the items of TECHNICAL INFORMATION
received by DIGITAL.
6 9 Correlation wafers/samples transfer initiated
per paragraphs 7.7 (Measurements) and 7.11
(Assembly-Part 1)
7 12 DIGITAL and SYNERGY initiate wafer
exchange(s) pursuant to Paragraph 7.8.1
(Process Compatibility).
Meeting at SYNERGY to review results of wafer
analysis.
Process Technical Assistance (Training)
complete.
8 15 DIGITAL and SYNERGY exchange wafers pursuant
to Paragraph 7.11 (Assembly-Part 2).
9 18 Parametric data and defect densities are
statistically comparable with 95% confidence
to SYNERGY's results for mean and sigma.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MILESTONE MONTH ACTIVITY
- --------- ----- --------
<S> <C> <C>
10 24 DIGITAL achieves a minimum wafer probe yield
which is equivalent to seventy five (75)
percent of SYNERGY's then current wafer probe
yield. Yield goals shall be demonstrated on
the cumulative average of five (5)
consecutive wafer lots started from initial
oxide.
11 29 DIGITAL processed product passes DIGITAL's
requirements of characterization and
qualification.
12 30 Final Review meeting between SYNERGY and
DIGITAL.
</TABLE>
<PAGE>
EXHIBIT B
BINDING MILESTONES
<TABLE>
<CAPTION>
MILESTONE COMPLETION DATE
--------- ---------------
<S> <C> <C>
1. TEST DEVICE EVALUATION UNITS JUNE 1988
----------
2. 1Kx4 RAM QUAL SAMPLES DEC 1988
3. 1Kx4 STRAM QUAL SAMPLES
(P/N 19-28732-XX)* JUNE 1989
4. MEET REVENUE GOAL CUMULATIVE
$500K JUNE 1989
5. 256x4 RAM QUAL SAMPLES (P/N 19-2873l-XX)* SEP 1989
OR ANOTHER PART MUTUALLY AGREED TO
6. 1Kx4 STRAM MINIMUM PRODUCTION QUANTITY
CAPABILITY (SHIP 5K UNITS OR
DIGITAL P.O. QTY) DEC 1989
7. MEET AND ESTABLISH 1990 AND 1991 MILESTONES DEC 1989
</TABLE>
<PAGE>
EXHIBIT C
Synergy Semiconductor Corporation
Technical Milestone Schedule
<TABLE>
<CAPTION>
MILESTONE SCHEDULED ACTUAL
DESCRIPTION COMPLETION COMPLETION
- ----------- ---------- ----------
<S> <C> <C>
ASSET(TM) Process Defined 3rd Qtr '87 3rd Qtr '87
Interim Design Rules 4th Qtr '87 4th Qtr '87
Fab Agreement Signed 4th Qtr '87 4th Qtr '87
Test Pattern Masks 1st Qtr '88
Final Design Rules 2nd Qtr '88
1Kx4 Masks 2nd Qtr '88
1Kx4 Product Wafers 3rd Qtr '88
First Sales 4th Qtr '88
1Kx4 Volume Production 2nd Qtr '89
BiCMOS initiated 3rd Qtr '89
2nd Product Line Init (ASM) 4th Qtr '89
4Kx4 Masks 2nd Qtr '89
4Kx4 Product Wafers 3rd Qtr '89
4Kx4 Qualification Samples 4th Qtr '89
4KX4 Volume Production 1st Qtr '90
4Kx1 RAM Introduced 4th Qtr '89
16Kx1 Masks 1st Qtr '89
16Kx1 Product Wafers 2nd Qtr '89
l6Kx1 Qualification Samples 3rd Qtr '89
</TABLE>
<PAGE>
EXHIBIT 10.9
LICENSE AGREEMENT
-----------------
This Agreement is made this 17th day of April, 1995, by and between Synergy
----
Semiconductor Corporation, a California corporation, with its principal place of
business at 3450 Central Expressway, Santa Clara, California ("Synergy"), and
Linear Technology Corporation, a California corporation, with its principal
place of business at 1630 McCarthy Boulevard, Milpitas, California 95035-7487
("LTC").
WHEREAS, Synergy has developed certain wafer fabrication processes; and
WHEREAS, LTC desires to obtain certain license rights to such processes;
NOW THEREFORE, the parties agree as follows:
1. Definitions.
-----------
(a) "Licensed Process" shall mean Synergy's ASSET(TM) BiPolar wafer
fabrication technologies and all improvements (including documentation) thereto
implemented prior to December 31, 1996, as described on Attachment A-1 hereto,
relating to the production of integrated circuits.
(b) "Patents" shall mean patents and patent applications that claim or
disclose any invention relating to the Licensed Process in any country of the
world which have effective filing dates on or prior to December 31, 1996 and
continuations and divisions thereof which are owned or controlled by Synergy or
which Synergy has the right to grant licenses to without payment of any
compensation to third parties (except its employees or consultants).
(c) "Subsidiary" shall mean a corporation, company or other entity:
i) more than fifty percent (50%) of whose outstanding shares of
securities (representing the right to vote for the election of directors or
other managing authority) are; or
ii) which does not have outstanding shares or securities, as may
be the case in a partnership, joint venture, or unincorporated association, but
more than fifty percent (50%) of the ownership interest representing the right
to make the decisions for such corporation, company or other entity is;
*Confidential treatment requested. Confidential portion has been filed
separately with the Securities and Exchange Commission.
<PAGE>
now or hereafter, owned or controlled, directly or indirectly, by a party
hereto, but such corporation, company or entity shall be deemed a Subsidiary
only so long as such ownership or control exists.
(d) "Products" shall mean integrated circuits manufactured by a
process using all or substantially all of the Licensed Process.
(e) "Prohibited Licensee" shall mean any company that designs,
manufactures or sells analog integrated circuits other than AT&T, Samsung,
Northern Telecom, Advanced Micro Devices, Inc. or any company headquartered in
the Republic of China.
(f) "Technical Documents" shall mean Synergy's technical information
in document form relating to the Licensed Process and as described in Attachment
A-2 hereto.
2. Transfer of Technical Documents.
-------------------------------
(a) As soon as practicable (but not later than fourteen (14) days)
after execution of this Agreement, Synergy shall transfer to LTC one set of
Technical Documents pertaining to the Asset BiPolar Process then available at
Synergy.
(b) During the term of this Agreement, Synergy shall transfer to LTC
one set of documents describing improvements or modifications, including details
of specification changes made by Synergy to the Licensed Process or Technical
Documents transferred to LTC pursuant to Section 2(a) above as soon as
practicable after Synergy uses such modifications or improvements for its design
or fabrication of Products.
3. Technical Assistance. Synergy agrees to provide LTC with reasonable
--------------------
technical assistance in implementing the Licensed Process for two years
commencing on the date this Agreement is executed as follows: (i) Synergy shall
make two engineers available for up to two weeks per quarter, (ii) LTC shall be
responsible for paying for all travel, room, board and similar expenses incurred
by such engineers as a result thereof and (iii) after the first six months, or
after LTC has received eight (8) engineer-weeks of assistance, whichever occurs
later, LTC shall also be responsible for paying for those engineers time at
their actual hourly rate, and (iv) LTC shall have the right to have one of its
process engineers work at Synergy full-time until such time as LTC manufactures
test structures in LTC's wafer fabrication facility and obtains comparable
results to those achieved by Synergy. Such engineer shall be an employee of LTC
and LTC shall be responsible for all compensation and expense of such engineer.
4. License Grant.
-------------
2.
<PAGE>
(a) Subject to the terms and conditions of this Agreement, Synergy
hereby grants LTC (and its Subsidiaries, as long as they remain Subsidiaries,
and provided that they agree in writing to be bound by all the obligations of
LTC hereunder) a worldwide, nonsublicensable, perpetual, nonexclusive fully-paid
license under (i) Synergy's Patents and (ii) intellectual property rights (other
than Patents) in Synergy's Technical Documents and technology relating to the
"Licensed Process to use and modify and to manufacture, use, sell and otherwise
dispose of products which are manufactured by a process using any portion of the
Licensed Process or modifications or improvements made by LTC to the Licensed
Process; provided, however, that in no event shall either LTC or its
Subsidiaries exercise such license to manufacture those integrated circuits
which are pin for pin replacements for those described in the "1994 Synergy
Product Book."
(b) For a period of five years from the Effective Date of this
Agreement, Synergy shall not grant a license to the Patents or intellectual
property rights in Synergy's Technical Documents and technology related to the
Licensed Process (the "Technology") to any Prohibited Licensee. Synergy may
contract with a Prohibited Licensee to use the Technology for the sole purpose
of designing products for Synergy, provided that such agreement does not
authorize the third party to manufacture, have manufactured or sell such
products or any other products using the Technology. These restrictions shall
not prevent the sale of Synergy or substantially all of its assets or business
to a Prohibited Licensee.
5. Restriction. No license is granted to Synergy to produce Linear
-----------
Technology products. Synergy agrees not to reverse engineer either in whole or
in part or to copy Linear Technology products developed on the Asset process.
Products under development by either company shall be considered proprietary
information of the respective companies until the products are commercially
released.
6. Limitation on Improvements.
--------------------------
(a) Synergy is developing advanced metal systems needed for future
products, whose potential for shrunken feature sizes and tolerances is essential
to the success of those products ("Advance Metal System"). Since metal systems
are usually portable to any underlying technology, this metal system could be
retrofitted to earlier technologies. It is possible that Synergy may want to do
this. As such, it is not considered an improvement to the ASSET I and would not
be available to LTC as part of this license.
(b) Should the SOG planarized process, acquired by LTC as part of this
license, not be successfully introduced to the manufacture by LTC, Synergy will
provide LTC with access to the Advance Metal System to resolve any manufacturing
problems.
3.
<PAGE>
(c) Should LTC wish to increase layers of metal, or decrease design
rules, Synergy will negotiate in good faith to grant LTC a license to the
Advance Metal System for additional fees.
7. Payment.
-------
In consideration for the licenses and other rights granted hereunder,
LTC shall pay to Synergy the non-refundable sum of Two Million United States
Dollars (US$2,000,000) as follows: (i) One Million United States Dollars shall
be due within three (3) days following the execution of this Agreement; (ii)
$300,000 shall be due upon completion of items 1, 2, 3, 5, and 8 of Attachment
A-2; (iii) $200,000 shall be due upon completion of items 6, 7, 9, and 10 of
Attachment A-2 and (iv) $500,000 shall be due upon completion and evaluation of
three (3) test runs that have included the LTC test pattern module and
completion of all conditions identified in item 4 of Attachment A-2. The parties
agree that $1,980,000 of the license fees are payable in respect of the license
to Patents, $19,750 are payable in respect of the License to non-patented
technology included in the Licensed Process and $250 is payable in respect of
the written documentation.
8. Option to License BiCMOS Technology. Synergy hereby grants to LTC
-----------------------------------
an option to acquire, at any time during the period beginning on the Effective
Date and ending eighteen (18) months thereafter, a license to Synergy's BiCMOS
technology of the same scope and on the same terms and conditions a those
contained in this Agreement, except that the total license fee shall be $ *
LTC may exercise the option by providing written notice to Synergy. Within
fourteen (14) business days from the date of such written notice, the parties
will execute a written license agreement in the form attached as Attachment B.
Synergy will not license the BiCMOS technology to a Prohibited
Licensee during the term of the option without complying with the following
right of first refusal in favor of LTC. During the term of the option, if
Synergy receives a bona fide written offer from a Prohibited Licensee to license
the BiCMOS technology, Synergy shall notify LTC in writing of the terms of the
proposed license. LTC shall have seven (7) days from the date of receipt of such
written notice to exercise its option to license BiCMOS at the lesser of its
existing terms or those contained in the offer. If LTC fails to exercise its
option at the end of the seven (7) day period, Synergy may license the offeree
pursuant to the terms of the proposed offer. Thereafter, LTC's option and right
of first refusal will remain in force and Synergy shall be required to notify
LTC of any other offerees during the term of the option. Upon exercise of LTC's
option, the BiCMOS license shall be granted subject to any authorized licenses
granted by Synergy to such offerees. The parties acknowledge that this right of
first refusal restricts Synergy's ability to grant a license of any nature to a
Prohibited Licensee but is not intended to restrict Synergy's ability to (i)
sell all or substantially all of its business or assets to any party (including
without limitation Prohibited Licensees) or
*Confidential treatment requested. Confidential portion has been filed
separately with the Securities and Exchange Commission.
4.
<PAGE>
(ii) contract with a Prohibited Licensee for the sole purpose of designing
products for Synergy, provided that such license agreement does not authorize
the Prohibited Licensee to manufacture, have manufactured or sell such products
or any other products using the BiCMOS technology.
9. Confidentiality of the Licensed Process and Exchange of Confidential
--------------------------------------------------------------------
Information.
- -----------
(a) "Confidential Information" means any information, technical data,
or know-how, including the Licensed Process, and other information such as
research product plans, products, services, customers, markets, developments,
inventions, processes, designs, drawings, engineering, marketing or finances, or
other business or technical information which the disclosing party treats
confidentially or which the recipient has reason to believe is so treated.
Confidential Information does not include information, technical data or know-
how that: (i) is in the possession of the receiving party at the time of
disclosure as shown by the receiving party's files and records immediately prior
to the time of disclosure; (ii) prior or after the time of disclosure becomes
part of the public knowledge or literature, not as a result of any inaction or
action of the receiving party, (iii) is approved by the disclosing party, in
writing, for release or (iv) becomes available to the receiving party from a
third party source not bound by any obligation of confidentiality with respect
to such information.
(b) Each party agrees not to use or disclose the Confidential
Information disclosed to it by the other party for any purpose except to carry
out its obligations or exercise its rights under this Agreement. Each party
agrees that it will take all reasonable measures to protect the secrecy of and
avoid disclosure or use of Confidential Information of the other in order to
prevent it from falling into the public domain or the possession of persons
other than those persons authorized to have any such information, which measures
shall include at least a reasonable degree of care. Each party agrees that
Confidential Information will only be disclosed to its employees or independent
contractors who have a need to know and are bound by written agreements
prohibiting them from disclosing Confidential Information to any third party.
(c) The parties acknowledge that the obligations and promises under
this Section 9 are of a special, unique and intellectual character which gives
them particular value, and that a breach thereof could result in irreparable and
continuing damage for which there can be no reasonable or adequate damages,
remedy or compensation in an action or law. Each party expressly agrees that
each shall be entitled to injunctive relief, a decree for specific performance
and/or other equitable relief in the event of any breach or threatened breach by
the other of its obligations or promises under this Section 9, in addition to
any other rights or remedies which it may possess (including monetary damages,
if appropriate).
5.
<PAGE>
(d) The obligations set forth in this Section 9 shall expire at the
fifth (5th) anniversary of receipt of information with regard to each piece of
information and survive termination of this Agreement for such period. After
expiration of such period for each piece of information, the receiving party may
sublicense that information to third parties, provided that such third parties
are bound to confidentiality restrictions similar to the provisions of this
Section 9.
10. Warranty and Negation of Warranties.
-----------------------------------
(a) To the best of its knowledge, as of the date hereof without having
conducted any patent or other searches, Synergy represents to LTC that use of
the Licensed Process will not infringe or misappropriate any proprietary rights
of a third party.
(b) Synergy represents that to the best of its knowledge as of the
Effective Date there are no claims pending or threatened relating to the
validity of the Patents.
(c) Synergy represents and warrants that (i) it has granted only the
three (3) licenses to the Licensed Process and Patents to the entities listed on
Attachment C and (ii) such licenses are non-transferable.
(d) EXCEPT AS EXPRESSLY PROVIDED IN SUBSECTIONS 10(a), (b) and (c)
ABOVE, NEITHER PARTY GRANTS TO THE OTHER ANY WARRANTIES, EITHER EXPRESS OR
IMPLIED, AS TO THE LICENSED PROCESS, PROPRIETARY RIGHTS OR OTHER CONFIDENTIAL
INFORMATION, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NONINFRINGEMENT.
11. Indemnification and Enforcement. Synergy shall indemnify, defend
-------------------------------
and hold LTC harmless from any losses, judgments, damages, costs or expenses
incurred by LTC, including reasonable attorney's fees, resulting from any claim
that the Licensed Process or Patents infringe the proprietary rights of a third
party, provided that LTC notifies Synergy promptly in writing of and gives
Synergy the exclusive authority to defend or settle such claim. LTC shall
provide proper and full information and assistance to settle or defend any such
claim. LTC shall be entitled to prosecute claims for infringement of the Patents
or Licensed Process to the extent that such infringement affects LTC's rights
under this Agreement if Synergy is unwilling or unable to prosecute such claims.
12. Liability Limitation. EXCEPT FOR A BREACH OF SECTION 9 ABOVE, OR
--------------------
IN CONNECTION WITH OBLIGATIONS UNDER SECTION 11, NEITHER PARTY SHALL BE LIABLE
UNDER ANY CONTRACT, STRICT LIABILITY, NEGLIGENCE OR OTHER LEGAL OR EQUITABLE
THEORY FOR ANY INDIRECT,
6.
<PAGE>
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS, LOST DATA OR COST OF
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.
13. Term and Termination.
--------------------
(a) This Agreement shall become effective on the date on which it is
executed by both parties and shall terminate on March 31, 2000 unless terminated
earlier as provided herein.
(b) Either party may terminate this Agreement in the event of
bankruptcy, insolvency or winding-up of the other party's business by giving the
other party thirty (30) days written notice of termination.
(c) Either party may terminate this Agreement by written notice
specifying the cause in detail in the event of a material breach or default by
the other in the performance of any one or more of the material provisions
contained in this Agreement, provided that if the offending party shall during
the thirty (30) days immediately following written notice of the breach or
default, remedy the breach or default upon which the notice is based, then the
notice shall not become effective, and this Agreement shall remain in full force
and effect. Notwithstanding the above, in the event either party breaches its
obligations under Section 9 above, the non-breaching party shall be entitled,
among other things, to immediately terminate this Agreement.
(d) Sections 4, 5, 6, 7, 9, 10, 11, 12, 13, 14 and 16 shall survive
termination of this Agreement. Sections 8 and 15 shall survive termination other
than termination for a breach by LTC.
14. Export Control.
--------------
(a) LTC hereby agrees to comply with all export laws and restrictions
and regulations of the Department of Commerce or other United States or foreign
agency or authority, and not to export, or allow the export or re-export of any
proprietary information or Licensed Process or copy or any direct product
thereof in violation of any such restrictions, laws or regulations, or to
Afghanistan, the People's Republic of China or any Group Q, S, W, Y or Z country
specified in the then current Supplement No. 1 to Section 770 of the U.S. Export
Administration Regulations (or any successor supplement or regulations); Synergy
shall obtain any necessary licenses and/or exemptions with respect to the export
from the U.S. of all Synergy proprietary information and shall demonstrate to
LTC compliance with all applicable laws and regulations prior to delivery.
15. Foundry Services. Synergy agrees to provide foundry services to
----------------
LTC for the purpose of conducting engineering runs and to produce up to twenty-
four
7.
<PAGE>
(24) wafers per month for LTC until such time as LTC's Camas wafer fabrication
facility becomes operational. The cost for such services shall be Two Thousand
Five Hundred Dollars (US $2,500.00) per wafer.
16. Miscellaneous.
-------------
(a) All payments and notices which a party is entitled to or required
to give to the other under this Agreement shall be in writing and shall be
effective if given personally or 3 days after being deposited in the mail of the
U.S. first class postage prepaid addressed to the address of such other party
specified on the first page hereof, or such other address as is provided by the
other party in accordance with this sentence.
(b) This Agreement is executed with the understanding that it embodies
the entire agreement between the parties and that there are no prior
representations, warranties or agreements relating thereto. This agreement may
be modified only by a duly executed writing.
(c) A delay or failure to exercise any right shall not be deemed to be
a waiver. Any waiver of any right or condition shall not apply to any other time
or right.
(d) This Agreement does not create any agency relationship between
either of the parties and neither party shall hold itself out as being an agent
for the other.
(e) Neither party shall be liable for failures (except the payment of
monies) for failures and delays in performance due to matters and circumstances
beyond its reasonable control.
(f) The prevailing party in any legal action (including arbitration)
brought to enforce this agreement shall be entitled to legal fees and costs. Any
provision of this Agreement held to be invalid shall not render this Agreement
invalid as a whole.
(g) This Agreement shall be governed and construed in accordance with
the laws of the State of California, without regard to the conflicts of laws
provisions thereof. Any controversy or claim arising out of or relating to this
Agreement shall be settled by binding arbitration in Palo Alto, California, in
accordance with the arbitration rules of the AAA, and judgment upon the award
rendered may be entered in any court having jurisdiction thereof.
(h) Neither party may assign (including assignments by law, mergers,
acquisitions or any other change of control) its rights and obligations under
8.
<PAGE>
this Agreement without the other party's prior written consent which will not be
unreasonably withheld; any proposed assignment made without the requisite
consent shall be null and void.
(i) This Agreement may be executed simultaneously in one or more
counterparts, each of which will be deemed an original.
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement.
SYNERGY SEMICONDUCTOR CORPORATION
/s/ Thomas O. Mini
By: ____________________________________
LTC CORPORATION
/s/ Russ Coglili
By: ____________________________________
9.
<PAGE>
ATTACHMENT A-1
--------------
I. Definition:
Wafer fabrication processes and sub-processes modules used to produce the
ASSET device and the device structures encompassed in the ASSET 1.5 micron and
1.2 micron technologies. Device structures and process modules include, but are
not limited to, the following:
. Open bottom slot with thin side wall oxide
. Wide slot ground tap with selective poly doping
. Side wall sinker
. Two step polish planarization
. Field oxidation self aligned to slot
. Emitter first transistor structure
. Silicided poly, glass enclosed emitter structure
. Metal to metal inter poly via contact
. SOG pre-metal 1 planarization process
. TiN metal I barrier
. SOG pre-metal 2 planarization process
. Multiple deposition spacer process
. Silicided poly of refractory metal base contact
. Silicided poly and Al-Si RIE Process
. Reliability Rate
The technology includes all updates implemented prior to December 31, 1996.
<PAGE>
ATTACHMENT A-2
--------------
TECHNOLOGY DOCUMENTATION
- ------------------------
1. Process Presentation based on Synergy's "Process Guide Book" given to
--------------------
L.T.C. Processing Engineering Staff, emphasizing important and critical
aspects of the process, with full open question and answer.
2. Full set of process specifications fully updated to the day of transfer.
3. Typical S.E.M.s of all relevant aspects of the process.
4. On-site training for two engineers in addition to the engineer referenced
in Section 3(iv) who should witness every process and every in process and
off line quality control point. These engineers should see 3 lots from
start to finish.
5. Assistance in selection of appropriate processing equipment for our Camas
facility to allow Synergy process to run correctly.
6. Presentation and full documentation on existing Synergy test pattern. This
should consist of all design rules, schematics and plots of the E.T. die
and have device characteristics from the database of 20 recent lots.
There should be a full set of LOMAC test programs for the evaluation of
the test patterns and conditions for non-obvious situations such as ft or
fmax should be defined.
7. Full instruction on interpretation of test data including all control
limits, all absolute limits and possible waivers must be given.
8. Full set of design rules indicating all spacings, all doping profiles, all
junction depths, all transistor parameter and those of all other active
and passive components.
- All CD tolerances and all alignment tolerances.
- All non-third party CAD tools for design rule checks plus
layout vs. schematic tech files
<PAGE>
9. Complete assistance in the design and integration of a L.T.C. test module
into the existing Synergy test module including full processing and
electrical evaluation.
10. Reliability data
- Full temperature range evaluation of devices and test structures.
- High temperature operating life.
- 85(Degrees Celsius)/85% RH testing in a plastic package.
- H.A.S.T. data.
- Biased or non-biased pressure cooker testing on plastic packages.
- Temperature cycling.
- Electromigration data on the metalization systems.
2.
<PAGE>
ATTACHMENT B
------------
License Agreement
The license agreement to be attached will be identical to the final form of
agreement for the BiPolar technology except that references to BiPolar will be
changed to BiCMOS, the $______ licensee fee will be payable $______ within 3 *
days from execution of the agreement, $______ upon transfer of the technical
documentation and $______ upon completion of process testing, and Attachment A-1
and A-2 will reflect the description and technical documentation relating to the
BiCMOS technology.
*Confidential treatment requested. Confidential portion has been filed
separately with the Securities and Exchange Commission.
<PAGE>
ATTACHMENT C
------------
TOSHIBA CORPORATION
DIGITAL EQUIPMENT CORPORATION
SYSTEM MICROELECTRONIC INNOVATION ("SMI")
<PAGE>
EXHIBIT 10.10
LICENSE AGREEMENT
-----------------
This Agreement is made this 14th day of November, 1990, by and between
Synergy Semiconductor Corporation, a California corporation, with its principal
place of business at 3450 Central Expressway, Santa Clara, California
("Synergy"), and Toshiba Corporation, a Japanese corporation, with its principal
place of business at 1-1 Shibaura 1-Chome, Minato-Ku, Tokyo 105, Japan
("Toshiba").
WHEREAS, Synergy has developed certain wafer fabrication processes;
and
WHEREAS, Toshiba desires to obtain certain license rights to such
processes;
NOW THEREFORE, the parties agree as follows:
1. Definitions.
-----------
(a) "Licensed Process" shall mean Synergy's ASSET(TM) and BiCMOS
wafer fabrication technologies and all improvements (including documentation)
thereto implemented prior to December 31, 1995, as described on Attachment A
hereto, used for the production of integrated circuits.
(b) "Patents" of a party shall mean patent applications in any
country of the world which have effective filing dates on or prior to December
31, 1995 and patents issued thereon which are owned or controlled by such party
or which such party has the right to grant license to the other party hereunder
without payment of any compensation to third parties (except its employees or
consultants).
(c) "Subsidiary" shall mean a corporation, company or other
entity:
i) more than fifty percent (50%) of whose outstanding shares
of securities (representing the right to vote for the election of directors or
other managing authority) are; or
ii) which does not have outstanding shares or securities, as
may be the case in a partnership, joint venture, or unincorporated association,
but more than fifty percent (50%)
*Confidential treatment requested. Confidential portion has been filed
separately with the Securities and Exchange Commission.
<PAGE>
of the ownership interest representing the right to make the decisions for such
corporation, company or other entity is;
now or hereafter, owned or controlled, directly or indirectly, by a party
hereto, but such corporation, company or entity shall be deemed a Subsidiary
only so long as such ownership or control exists
(d) "Contract Products" shall mean integrated circuits
manufactured by a process using all or substantially all of the Licensed
Process.
(e) "Technical Documents" shall mean Synergy's technical
information in document form relating to the Licensed Process and as described
in Attachment A hereto.
2. Transfer of Technical Documents.
-------------------------------
(a) As soon as practicable (but not later than thirty (30) days)
after the effective date of this Agreement, Synergy shall transfer to Toshiba
one set of Technical Documents then available at Synergy. Additionally, Synergy
agrees to use commercially reasonable efforts to comply with the technology
transfer schedule attached hereto as Attachment C.
(b) During the term of this Agreement, Synergy shall transfer to
Toshiba one set of documents describing improvements or modifications made by
Synergy to the Licensed Process or Technical Documents transferred to Toshiba
pursuant to Section 2(a) above as soon as practicable after Synergy uses such
modifications or improvements for its design or fabrication of Contract
Products.
(c) During the term of this Agreement, Toshiba shall transfer to
Synergy one set of documents describing improvements or modifications made by
Toshiba to the Technical Documents transferred to Toshiba pursuant to Section
2(a) above as soon as practicable after Toshiba uses such modifications or
improvements for its design and fabrication of Contract Products; it being
understood, however, that Toshiba will only transfer such modifications or
improvements relating to items I.B.2 (except for equipment lists), 3, 4 and 5 of
Attachment A insofar as and to the extent that those items are developed
primarily for the purpose of modifying or improving the Licensed Process and are
necessary to maintain process compatibility to enable Toshiba to manufacture
Synergy's products.
2.
<PAGE>
(d) Both parties will periodically discuss the direction of
improvements for the Licensed Process so that they can maintain process
compatibility to enable Toshiba to manufacture Synergy's ASIC products. Each
party shall reasonably cooperate with the other's request regarding the
direction of improvements to the Licensed Process.
3. Technical Assistance. Synergy agrees to provide Toshiba with
--------------------
reasonable technical assistance in implementing the Licensed Process; provided,
however, that if such assistance is to occur away from the Synergy's principal
place of business, Toshiba shall reimburse Synergy for all travel, room, board
and similar expenses incurred as a result thereof.
4. License Grant.
-------------
(a) Subject to the terms and conditions of this Agreement,
Synergy hereby grants Toshiba (and its Subsidiaries, as long as they remain
Subsidiaries, and provided that they agree in writing to be bound by all the
obligations of Toshiba hereunder) a worldwide, nonsublicensable, perpetual,
nonexclusive, fully-paid license under (i) Synergy's Patents and (ii)
intellectual property rights (except for Patents) in Synergy's Technical
Documents or other technology relating to Licensed Process transferred to
Toshiba hereunder to manufacture, use, sell and otherwise dispose of integrated
circuits which are manufactured by a process using any portion of the Licensed
Process or modifications or improvements made by Toshiba to the Licensed
Process; provided, however, that in no event shall either Toshiba or its
Subsidiaries exercise such license to manufacture those integrated circuits
described in Attachment B prior to December 31, 1995 for any entity (including,
but not limited to, Toshiba and its Subsidiaries) other than Synergy.
(b) Subject to the terms and conditions of this Agreement,
Toshiba hereby grants Synergy (and its Subsidiaries, as long as they remain
Subsidiaries, and provided that they agree in writing to be bound by all the
obligations of Synergy hereunder) a worldwide, nonsublicensable, perpetual,
nonexclusive, fully-paid license under intellectual property rights (except for
Patents) in Toshiba's technology relating to the Licensed Process transferred to
Synergy hereunder to manufacture, use, sell and otherwise dispose of
integrated circuits 'which are manufactured by a process using any portion of
the Licensed Process or modifications or improvements made by Synergy to
Licensed Process.
3.
<PAGE>
(c) Subject to the terms and conditions of this Agreement, each
party hereby grants the other (and its Subsidiaries, as long as they remain
Subsidiaries, and provided that they agree in writing to be bound by all the
obligations of such other party hereunder) a worldwide, nonsublicensable,
perpetual, nonexclusive, fully-paid license under such party's Patents to
manufacture, use, sell and otherwise dispose of Contract Products.
5. Payment.
-------
In full consideration for the licenses and other rights granted
hereunder, Toshiba shall pay to Synergy the non-refundable sum of * within
fourteen (14) days following the effective date of this Agreement. Toshiba shall
make the payment required without deduction of any tax, duty, fee or
commissions; provided, however, that Toshiba may deduct from payment any income
tax or tax of a similar nature imposed by the government of Japan on the income
of Synergy from such payment ("Japanese Income Tax") and actually paid by
Toshiba for the account of Synergy, to the extent that such income tax does not
exceed ten percent (10%) of the payment from which it is deducted. In the event
Toshiba deducts any such Japanese Income Tax from such payment, Toshiba shall
furnish Synergy with official tax receipts and other evidence acceptable to the
United States Internal Revenue Service to establish that such Japanese Income
Tax has been paid for the account of Synergy.
6. Confidentiality of the Licensed Process and Exchange of
-------------------------------------------------------
Confidential Information.
- ------------------------
(a) Each party acknowledges the proprietary nature of the
Licensed Process and improvements and modifications thereto and the business
advantage and opportunity provided thereby. Accordingly, each party agrees
information relating to the Licensed Process it receives from the other
(including the Licensed Process itself) will be disclosed only to such of its
employees or independent contractors who have a need to know such particular
information in furtherance of their duties and are bound to an enforceable
written agreement prohibiting them from disclosing any such information to any
other party.
(b) Except as provided above, each party further agrees and
covenants that it will maintain such information in confidence and will not
disclose it to any third party, except such information and only such
information as:
4.
*Confidential treatment requested. Confidential portion has been filed
separately with the Securities and Exchange Commission.
<PAGE>
1. is in the possession of the receiving party as of the
effective date of this Agreement, independently of any disclosure by the
disclosing party, as evidenced by written documents in existence prior to the
date of any disclosure of such information to the receiving party by the
disclosing party;
2. is or becomes available to the public, separate and
apart from any disclosures by the receiving party;
3. is learned by the receiving party from a third party
entitled to disclose such information, provided the receiving party complies
with all restrictions imposed by the third party; or
4. is independently developed by the receiving party.
(d) The parties acknowledge that the obligations and promises
under this Section 6 are of a special, unique and intellectual character which
gives them particular value, and that a breach thereof could result in
irreparable and continuing damage for which there can be no reasonable or
adequate damages, remedy or compensation in an action or law. Each party
expressly agrees that each shall be entitled to injunctive relief, a decree for
specific performance and/or other equitable relief in the event of any breach or
threatened breach by the other of its obligations or promises under this Section
6, in addition to any other rights or remedies which it may possess (including
monetary damages, if appropriate).
(e) The obligations set forth in this Section 6 shall expire at
the fifth (5th) anniversary of receipt of information with regard to each piece
of information and survive termination of this Agreement for such period. After
expiration of such period for each piece of information, the receiving party may
sublicense that information to third parties, provided that such third parties
are bound to confidentiality restrictions similar to the provisions of this
Section 6.
7. Warranty and Negation of Warranties.
-----------------------------------
(a) To the best of its knowledge, as of the date hereof without
having conducted any patent or other searches, Synergy represents to Toshiba
that use of the Licensed Process will not infringe or misappropriate any
proprietary rights of a third party.
5.
<PAGE>
(b) EXCEPT AS EXPRESSLY PROVIDED IN SUBSECTION 7(a) ABOVE,
NEITHER PARTY GRANTS TO THE OTHER ANY WARRANTIES, EITHER EXPRESS OR IMPLIED, AS
TO THE LICENSED PROCESS, PROPRIETARY RIGHTS OR OTHER CONFIDENTIAL INFORMATION,
INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NONINFRINGEMENT.
8. Liability Limitation. EXCEPT FOR A BREACH OF SECTION 6 ABOVE,
--------------------
NEITHER PARTY SHALL BE LIABLE UNDER ANY CONTRACT, STRICT LIABILITY, NEGLIGENCE
OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES, LOST PROFITS, LOST DATA OR COST OF PROCUREMENT OF
SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.
9. Term and Termination.
--------------------
(a). This Agreement shall become effective on (i) the date on
which it is executed by both parties or on which it is approved by the
Japanese Government, whichever is later, or (ii) such other later date as
mutually agreed upon, and shall terminate on December 31, 1995 unless terminated
earlier as provided herein.
(b) Either party may terminate this Agreement in the event of
bankruptcy, insolvency or winding-up of the other party's business by giving the
other party thirty (30) days written notice of termination.
(c) Either party may terminate this Agreement by written notice
specifying the cause in detail in the event of a material breach or default by
the other in the performance of any one or more of the material provisions
contained in this Agreement, provided that if the offending party shall during
the thirty (30) days immediately following written notice of the breach or
default, remedy the breach or default upon which the notice is based, then the
notice shall not become effective, and this Agreement shall remain in full force
and effect. Notwithstanding the above, in the event either party breaches its
obligations under Section 6 above, the non-breaching party shall be entitled,
among other things, to immediately terminate this Agreement.
(d) Sections 4, 5, 6, 7, 8 and 10 shall survive termination of
this Agreement.
6.
<PAGE>
10. Export Control.
--------------
(a) Toshiba hereby agrees to comply with all export laws and
restrictions and regulations of the Department of Commerce or other United
States or foreign agency or authority, and not to export, or allow the export or
re-export of any proprietary information or Licensed Process or copy or any
direct product thereof in violation of any such restrictions, laws or
regulations, or to Afghanistan, the People's Republic of China or any Group Q,
S, W, Y or Z country specified in the then current Supplement No. 1 to Section
770 of the U.S. Export Administration Regulations (or any successor supplement
or regulations); Synergy shall obtain any necessary licenses and/or exemptions
with respect to the export from the U.S. of all Synergy proprietary information
and shall demonstrate to Toshiba compliance with all applicable laws and
regulations prior to delivery.
(b) Synergy hereby agrees that it shall not export or re-export,
directly or indirectly, any technical data received from Toshiba hereunder or
direct product thereof in violation of any export control laws and regulations
of the U.S. and Japan.
11. Government Compliance.
---------------------
(a) Toshiba represents, warrants and agrees that, except as
expressly provided hereunder, neither this Agreement (or any term hereof) nor
the performance or exercise of rights under this Agreement, is restricted by,
contrary to, in conflict with, ineffective under, requires registration under,
or affects Synergy's proprietary rights (or the duration thereof) under, or will
require any compulsory licensing under, any law or regulation of any
organization or governmental entity located within Japan.
(b) Synergy represents, warrants and agrees that, except as
expressly provided hereunder, neither this Agreement (or any term hereof) nor
the performance or exercise of rights under this Agreement, is restricted by,
contrary to, in conflict with, ineffective under, requires registration under,
or affects Toshiba's proprietary rights (or the duration thereof) under, or will
require any compulsory licensing under, any law or regulation of any
organization or governmental entity located within the United States.
7.
<PAGE>
12. Miscellaneous.
-------------
(a) All payments and notices which a party is entitled to or
required to give to the other under this Agreement shall be in writing and shall
be effective if given personally or deposited in the mail of the U.S. or Japan,
as the case may be, first class postage prepaid addressed to the address of such
other party specified on the first page hereof, or such other address as is
provided by the other party in accordance with this sentence.
(b) This Agreement is executed with the understanding that it
embodies the entire agreement between the parties and that there are no prior
representations, warranties or agreements relating thereto. This agreement may
be modified only by a duly executed writing.
(c) A delay or failure to exercise any right shall not be deemed
to be a waiver. Any waiver of any right or condition shall not apply to any
other time or right.
(d) This Agreement does not create any agency relationship
between either of the parties and neither party shall hold itself out as being
an agent for the other.
(e) Neither party shall be liable for failures (except the
payment of monies) for failures and delays in performance due to matters and
circumstances beyond its reasonable control.
(f) The prevailing party in any legal action (including
arbitration) brought to enforce this agreement shall be entitled to legal fees
and costs. Any provision of this Agreement held to be invalid shall not render
this Agreement invalid as a whole.
(g) This Agreement shall be governed and construed in accordance
with the laws of the State of California, without regard to the conflicts of
laws provisions thereof and without regard to the United Nations Convention on
Contracts for the International Sales of Goods. Except as provided in Section 5
above, any controversy or claim arising out of or relating to this Agreement
shall be settled by binding arbitration in Palo Alto, California, in accordance
with the arbitration rules of the International Chamber of Commerce, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof.
8.
<PAGE>
(h) Neither party may assign (including assignments by law,
mergers, acquisitions or any other change of control) its rights and obligations
under this Agreement without the other party's prior written consent; any
proposed assignment made without the requisite consent shall be null and void.
(i) This Agreement may be executed simultaneously in one or more
counterparts, each of which will be deemed an original.
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement.
SYNERGY SEMICONDUCTOR CORPORATION
By: ______________________________
TOSHIBA CORPORATION
By: ______________________________
9.
<PAGE>
ATTACHMENT A
------------
Definition:
Wafer fabrication processes and sub-processes modules used to produce the
ASSET device and the device structures encompassed in the ASSET 1.5 micron
and 1.2 micron technologies. Device structures and process modules
include, but are not limited to, the following:
. Open bottom slot with thin side wall oxide
. Wide slot ground tap with selective poly doping
. Side wall sinker
. Two step polish planarization
. Field oxidation self aligned to slot
. Emitter first transistor structure
. Silicided poly, glass enclosed emitter structure
. Metal to metal inter poly via contact
. SOG pre-metal 1 planarization process
. TiN metal 1 barrier
. SOG pre-metal 2 planarization process
. Multiple deposition spacer process
. Silicided poly of refractory metal base contact
. Silicided poly and Al-Si-Cu RIE Process
. Reliability Rate
The technology. includes all updates implemented prior to December 31, 1995
including 1 micron and sub-micron process
<PAGE>
modules. Included are evolutionary improvements such as slot walled
transistors, masked sinker, side based contact transistors, and the split
emitter transistor structure. The BiCMOS technology, based on ASSET(TM), is
also included.
I. Technology Documentation
A. All design rules, design rule assumptions and mask generating rules
used to produce ASSET and BiCMOS products.
1. Lithography rules, etch bias assumptions, topological design
rules.
2. Data base grids, alignment marks, critical dimension bars.
3. Database on process control monitors.
B. All show how and know how of the ASSET and BiCMOS process and sub-
process modules.
1. Detailed process flows including all specifications.
2. Equipment list and specifications of equipment.
3. All equipment set up procedures.
4. All times, temperatures, gasses and flows.
5. Critical dimension, V/I, film/epi thicknesses.
6. All in process checks and tests.
C. All information regarding process integration.
<PAGE>
1. Device cross sections, scanning electron microscope photographs of
device structures and cross sections, doping profiles and junction
depths.
2. Descriptions of device related process steps.
3. Description of yield related process steps.
4. Description of performance related process steps.
5. Complete review and description summary of historical ASSET process
trends, problems encountered and solutions found. Critical trends
discussed and reviewed.
D. Process parametric tests. Description, specifications, hardware used,
distribution and trended results.
1. Test structure, test conditions and historical trends.
2. Test equipment, hardware and software used in parametric tests. One.
set of interface hardware and one set of software included.
3. Trend charts and SPC monitors.
E. Description of CAD tools used for product design and
exchange
1. Data base.
2. Reticle generation.
3. CALMA GDS II stream tape, finished reticles used as transfer medium.
<PAGE>
ATTACHMENT B
------------
ECL SRAMS, MSI/LSI Logic meaning, specifically, the products encompassed by the
following logic families: F100K, F100K Series 300, SUPER 300K, ECLinPS, SPECL,
Series 810/880/881, l0/100H600 Series and 10/100700-900 Series or ECL/TTL PLD's.
Also any ASICs (except for sale to Toshiba's internal organizations or
Subsidiaries) other than Developed Products as defined in Section 1.13 of the
Development Agreement between the parties dated of even date herewith. For the
purpose of this Attachment B, ASICs shall mean gate arrays and standard cells
which are designed by customers utilizing any master array or cell/cell library
of Toshiba; it being understood that any product fully designed by customers
with their own master array and/or cell/cell library shall not be considered
ASICs.
SUPER 300K is a trademark of Synergy Semiconductor Corporation.
<PAGE>
ATTACHMENT C
------------
Phase I
. Toshiba engineers at Synergy
- Develop detailed knowledge of ASSET(TM)
Technology and the sub-process modules
. Synergy prepares detailed Technology Documentation document
Phase II
. Transfer technology to Toshiba
- Toshiba to acquire necessary equipment
- Generate masks (1Kx4 SRAM)
(Include both Toshiba and Synergy test structures)
- Synergy engineers to Toshiba
- Prepare documents necessary to run ASSET in Toshiba fab
- Establish sub-process modules
- Run 1st silicon
- Evaluate silicon
(Done at Synergy)
- Iterate
- Finalize the transfer
Phase III
. Establish yield and performance equivalent to Synergy
<PAGE>
ASSET' TECHNOLOGY TRANSFER SCHEDULE
90 91 92
____________________ __________________ __________________
Phase I
Familiarization <------->
Phase II
Transfer
Acquire Equip. <----------->
Preparation <--------------->
1st Silicon <--------->
Iterate <-------------->
Phase III
Improvement <---------------->
<PAGE>
LICENSE AGREEMENT
Exhibit 10.11
This Agreement is made, effective November 1, 1992, by and between:
Synergy Semiconductor Corporation, a California corporation,
with its principal place of business at 3450 Central Expressway,
Santa Clara. California 95051, USA ("Synergy"),
and
HEG mbH, a German limited liability company with its principal
place of business at Wildbahn, O-1201 Frankfurt/Oder, Germany
("HEG")
with reference to the following facts:
A. Synergy has developed certain semiconductor wafer fabrication
processes and product designs.
B. HEG desires to obtain certain license rights to such processes
and product designs.
The parties agree as follows:
1. Definitions.
-----------
(a) "Licensed Process" shall mean Synergy's ASSET wafer
fabrication technologies, as described on Attachment A hereto, and all
modifications and improvements (including documentation) thereto which
Synergy implements during the term of this Agreement, for the
production of integrated circuits.
(b) "Licensed Designs" shall mean all integrated circuits,
except ASICs, designed by or for Synergy for fabrication with the
Licensed Process and generally commercially supplied by Synergy during
the term of this Agreement; the product designs available as of the
date of execution of this Agreement are specified in the (1992)
Synergy Product Data Book.
(c) "Patents" of a party shall mean patent applications in any
country of the world which have effective filing dates on or prior to
December 31, 1995 and patents issued thereon which are owned or
controlled by such party or which such party has the right to grant
license to the other party hereunder without payment of any
compensation to third parties (except its employees or consultants).
(d) "Subsidiary" shall mean a corporation, company or other
entity:
(i) more than fifty percent (50%) of whose outstanding
shares of securities (representing the right to vote for the
election of directors or other managing authority) are; or
(ii) which does not have outstanding shares or
securities, as may be the case in a partnership, joint venture,
or unincorporated association, but more than fifty percent (50%)
of the ownership interest representing the right to make the
decisions for such corporation, company or other entity is; now
or hereafter, owned or controlled, directly or indirectly by a
party hereto, but such corporation, company or entity shall be
deemed a Subsidiary only so long as such ownership or control
exists.
-1-
<PAGE>
(e) "Contract Products" shall mean all integrated circuits
manufactured by a process using all or substantially all of the
Licensed Process or Licensed Designs.
(f) "Technical Documents "shall mean Synergy's technical
information in document form relating to the Licensed Process, as
described in Attachment A hereto. or to the Licensed Designs, as
described in Attachment B hereto.
2. Transfer of Technical Documents.
-------------------------------
(a) Upon execution of this Agreement, Synergy shall commence the
transfer to the HEG of one set of the Technical Documents then
available at Synergy. Synergy agrees to use commercially reasonable
efforts to comply with the technology transfer schedule attached
hereto as Attachment C.
(b) During the term of this Agreement, Synergy shall transfer to
the HEG one set of documents describing improvements or modifications
made by Synergy to the Licensed Process, Licensed Designs or Technical
Documents transferred to HEG pursuant of Section 2(a) above as soon as
practicable after Synergy uses such modifications or improvements for
its design or fabrication of Contract Products.
(c) During the term of this Agreement, HEG shall transfer to
Synergy one Set of documents describing improvements or modifications
made by HEG to the Technical Documents transferred to HEG pursuant to
Section 2(a) above as soon as practicable after HEG uses such
modifications or improvements for its design and fabrication of
Contract Products; it being understood, however, that HEG will only
transfer such modifications or improvements relating to items B.2
(except for equipment lists), 3, 4 and 5 of Attachment A insofar as
and to the extent that those items are developed primarily for the
purpose of modifying or improving the Licensed Process and are
necessary to maintain process compatibility to enable HEG to
manufacture Licensed Designs for Synergy.
(d) Both parties will periodically discuss the direction of
improvements for the Licensed Process so that they can maintain
process compatibility to enable HEG to manufacture Licensed Designs
for Synergy. Each party shall reasonably cooperate with the other's
request regarding the direction of improvements to the Licensed
Process.
3. Technical Assistance.
--------------------
(a) Synergy will provide technical assistance in implementing
the Licensed Process and the Licensed Designs as specified in
Attachment C.
(b) After the acceptance of the technology transfer in
accordance with Attachment C, Synergy shall not be obligated to
provide further technical assistance to HEG, except with respect to:
(i) the provision and implementation of updates which reflect the
modifications and improvements to the Licensed Process and Licensed
Designs; (ii) the performance of warranty obligations; or (iii)
pursuant to a technical support agreement separately agreed upon
between the parties.
-2-
<PAGE>
4. License Grant by Synergy.
------------------------
Synergy hereby grants to HEG, and HEG hereby accepts from
Synergy, the worldwide and perpetual license to use, make, have made,
sell or otherwise dispose of Contract Products utilizing the Licensed
Process and/or the Licensed Designs, and any (i) Synergy's Patents,
and (ii) copyrights, mask works, trade secrets and other intellectual
property rights now or hereafter owned by Synergy therein, subject to
the following conditions:
(a) The license shall be non-transferable and non-
sublicensable, except that it shall extend to HEG's
Subsidiaries, as long as they remain Subsidiaries, and provided
that they agree in writing to be bound by all the obligations,
of HEG hereunder.
(b) The license shall be non-exclusive, except that it
shall be exclusive in the territory of Western and Eastern
Europe, including the geographic area formerly known as the
USSR, for the period through December 31, 1995.
(c) Upon payment of the amounts set forth in section 5,
the license shall be fully-paid with respect to the use of the
Licensed Process. if and to the extent that HEG exercises its
rights to use the Licensed Designs, contingent royalties shall
be payable in accordance with section 6.
5. Lump-Sum License Fee.
--------------------
(a) In full consideration for the license to the Licensed
Process granted hereunder, HEG shall pay to Synergy the non-refundable
sum of Eight Million German Marks (DM 8,000,000). The payments will be
made in the following installments:
. Four Million German Marks (DM 4 million) not later than
fourteen days after the execution of this Agreement; and
. Two Million Four Hundred Thousand German Marks (DM 2.4
million) after completion of the technology transfer, as
defined in Phase I of Attachment C; and
. One Million Six Hundred Thousand (DM 1.6 million) upon
acceptance of the Technology Transfer, as defined in Phase 3
of Attachment C.
(b) The above license fee includes the consideration payable by
HEG to Synergy for all improvements or modifications made by Synergy
to the Licensed Process and Licensed Products and to be made available
to HEG during the first three years of this Agreement. Synergy shall
offer HEG any improvements or modifications to the Licensed Process
and Licensed Products made by Synergy thereafter at a reasonable rate.
6. Contingent Royalties and Reimbursement of Product Data
------------------------------------------------------
Transfer Costs.
--------------
(a) In addition to the licensee fee payable under Section 5, HEG
shall pay to Synergy royalties contingent upon HEG's Net Revenues from
the sale of Contract Products incorporating or utilizing the Licensed
Designs, until Synergy acquires an equity interest of fifty-one
percent
-3-
<PAGE>
(51%) or more in HEG. The term "Net Revenues" shall mean the
total sales prices collected by HEG (or by its Subsidiaries) from
customers for Contract Products; provided, however, that:
(1) The total sales prices shall be reduced by the following
expenses, unless charged separately to the customers: Commercially
reasonable discounts or rebates, credits for returns,
transportation charges, insurance, taxes (limited to import,
export, sales, use, excise, value-added and similar taxes), customs
duties and tariffs, installation and service fees, and the cost of
any parts or components purchased by HEG from Synergy.
(2) If HEG, directly or indirectly, sells Contract Products
covered by this Agreement to any customer (other than Synergy or
its Subsidiaries) at terms and conditions other than on a
commercial arms length basis, the applicable Net Revenues shall be
determined by increasing the invoice price for such products to
reflect the average per unit price charged by HEG, directly or
indirectly, in commercial arms length transactions with other
customers during the same royalty period.
(b) The royalties payable by HEG to Synergy shall be computed by
multiplying the Net Revenues with royalty rates, the amount of which
shall depend upon the geographic source of the Net Revenues as
follows:
USA, Canada, Mexico, Japan, Western Europe and Rest of World
Eastern Europe Korea
Rate 2 Rate l None.
5% for sales prior to 12/31/1995
17% 4% for sales in 1996
3% for sales after 12/31/1996
(c) Royalties shall be due and payable within thirty calendar
days (or sixty calendar days in the case of sales through
Subsidiaries) after the expiration of the royalty period, during which
the Contract Products were sold to the customers. For purposes of this
Agreement. royalty period shall mean each semi-annual period ending on
June 30 and December 31, respectively, during the term of this
Agreement. until Synergy acquires an equity interest of fifty-one
percent (51%) or more in HEG.
(d) HEG shall pay all royalties in German Marks by check or wire
transfer to the German bank designated by Synergy from time to time.
For purposes of computing the royalties, all Net Revenues collected by
HEG (or its Subsidiaries) and any other amounts stated in a currency
other than German Marks shall be converted into German Marks at the
official currency exchange rate published by the Frankfurter
Allgemeine Zeitung for the last day of the applicable royalty period.
(e) After the end of each royalty period, HEG shall submit to
Synergy a written report regarding HEG's activities under this
Agreement, including an accounting of all royalties earned by Synergy
during the royalty period. Such reports shall specify, on a country by
country basis, the amount/number and type of products subject to
royalties hereunder that were sold or otherwise disposed of by or for
HEG and/or its Subsidiaries during the applicable royalty period, the
aggregate Net Revenues, and the royalties due thereon. Synergy shall
keep said reports confidential.
-4-
<PAGE>
(f) HEG shall keep records adequate to verify each report and
payment to be made pursuant to this Agreement for three full years
following the submission of each such report and payment to Synergy,
and shall require its Subsidiaries to do the same. HEG and its
Subsidiaries shall permit their books and records to be examined once
during any calendar year on reasonable notice during regular business
hours by an independent auditor selected and paid for by Synergy. Such
auditor shall not disclose to Synergy any information other than that
relating solely to the correctness of, or necessity for, the reports
and payments required under this Agreement.
(g) In addition to the royalties payable hereunder, HEG shall
reimburse Synergy for the reasonable costs of transferring the
Licensed Designs to HEG, including the costs of the data tape, mask
sets, and other materials and items.
7: Withholding Obligations.
-----------------------
HEG shall make all payments required under this Agreement without
deduction of any tax, duty, fee or commissions; provided, however,
that HEG may deduct from such payments any income tax or tax of a
similar nature imposed by the German government on the income of
Synergy from such payment ("Withholding Tax") and actually paid by HEG
for the account of Synergy, to the extent that such income tax does
not exceed ten percent (10%) of the payment from which it is deducted.
If HEG deducts any such Withholding Tax from such payments, HEG shall
furnish Synergy with official tax receipts and other evidence
acceptable to the United States Internal Revenue Service to establish
that such Withholding Tax has been paid for the account of Synergy.
8. Option to Acquire License to Additional Technology.
--------------------------------------------------
(a) Synergy hereby grants to HEG the options, exercisable by HEG
at its sole discretion, to acquire non-exclusive licenses to Synergy's
BiCMOS process and ASICs (collectively the "Advanced Technologies")
upon completion of their development; provided that the grant of these
options shall be contingent upon Synergy having acquired an equity
interest of fifty-one percent (51%) or more in HEG. HEG shall have no
obligation to acquire any or all of the Advanced Technologies.
(b) Upon receipt of HEG's written notice of exercise, Synergy
will grant to HEG a non-exclusive and non-transferable license to the
Advanced Technology, with respect to which HEG has exercised its
option. Unless otherwise agreed between the parties, the terms.
conditions (excluding pricing) and limitations of the license(s) to be
granted by Synergy to HEG will be substantially similar to those set
forth in this Agreement; provided that the increase in HEG's technical
capabilities is expected to result in a corresponding reduction in
Synergy's technical assistance and support obligations in connection
with the transfer of the Advanced Technologies to HEG.
(c) In consideration for HEG's license to any Advanced
Technology, HEG will pay to Synergy reasonable license fees and
royalties, the amount of which shall be negotiated by the parties in
good faith upon HEG's exercise of the particular option. Synergy and
HEG agree that the factors to be considered in determining the amount
of such license fees and royalties shall include the maturity of the
Advanced Process; the timing of HEG's exercise of the particular
option; the competitive market conditions at the time of HEG's
exercise of the particular option; the market segments served by
Synergy and HEG, respectively; the financial viability of HEG; and the
expected return of Synergy on an overall basis.
-5-
<PAGE>
(d) Upon request of the other party, each party will execute and
deliver to the other party such additional agreements or instruments
as may be necessary or appropriate to document the rights and
obligations of the parties with respect to any Advanced Process
licensed to HEG pursuant to this Section 8.
9. Grant by HEG of Cross-License.
-----------------------------
At Synergy's request, HEG will grant to Synergy the worldwide, non-
exclusive and perpetual license to use, make. have made, sell or
otherwise dispose of Contract Products under any intellectual property
rights (excluding Patents) acquired by HEG with respect to
improvements and modifications made by HEG to the Licensed Process.
subject to the following conditions:
(a) The license shall be non-transferable and non-
sublicensable, except that it shall extend to Synergy's
Subsidiaries, as long as they remain Subsidiaries, and provided
that they agree in writing to be bound by all the obligations of
Synergy hereunder.
(b) For three years after the execution of this Agreement and
provided that Synergy provides updates to HEG free of charge, this
license shall be fully-paid and royalty-free. If and to the extent
that Synergy elects to use HEG's modifications and improvements to
the Licensed Process thereafter, Synergy shall pay reasonable
contingent royalties to HEG, the amount of which shall be
negotiated between the parties in good faith.
10. Confidentiality and Exchange of Confidential Information.
---------------------------------------------------------
(a) Each party acknowledges the proprietary nature of the
Licensed Process and the Licensed Designs and any improvements and
modifications thereto and the business advantage and opportunity
provided thereby. Accordingly, each party agrees that information
relating to the Licensed Process or Licensed Designs it receives from
the other will be disclosed only to such of its employees or
independent contractors who have a need to know such particular
information in furtherance of their duties and are bound to an
enforceable written agreement prohibiting them from disclosing any
such information to any other party.
(b) Except as provided above, each party further agrees and
covenants that it will maintain such information in confidence and
will not disclose it to any third party, except such information and
only such information as:
1. is in the possession of the receiving party as of the
effective date of this Agreement, independently of any disclosure
by the disclosing party, as evidenced by written documents in
existence prior to the date of any disclosure of such information
to the receiving party by the disclosing party;
2. is or becomes available to the public, separate and
apart from any disclosures by the receiving party:
3. is learned by the receiving party from a third party
entitled to disclose such information, provided the receiving party
complies with all restrictions imposed by the third party; or
-6-
<PAGE>
4. is independently developed by the receiving party.
(c) The parties acknowledge that the information covered by this
Section 10 are of a special, unique and intellectual character which
gives them particular value, and that a breach thereof could result in
irreparable and continuing damage for which there can be no reasonable
or adequate damages, remedy or compensation in an action of law. Each
party expressly agrees that each shall be entitled to injunctive
relief, a decree for specific performance and/or other equitable
relief in the event of any breach or threatened breach by the other of
its obligations or promises under this Section 10, in addition to any
other rights or remedies which it may possess (including monetary
damages, if appropriate).
(d) The obligations set forth in this Section 10 shall expire at
the fifth (5th) anniversary of receipt of information with regard to
each piece of information and survive termination or this Agreement
for such period. After expiration of such period for each piece of
information, the receiving party may sublicense that information to
third parties, provided that such third parties are bound to
confidentiality restrictions similar to the provisions of this Section
10.
11. Warranty Obligations and Indemnity.
----------------------------------
Synergy hereby represents and warrants that:
(a) Synergy has independently developed certain Patents,
masks works, copyrights, trade secrets and other intellectual
property rights and know-how with respect to the Licensed
Process and the Licensed Designs and has taken all commercially
reasonable steps to protect its inventions, including the filing
and prosecution of applications and registrations with
appropriate agencies in the United States, Japan, Korea and
Europe, and the safeguarding of its trade secrets.
(b) Synergy owns or has all necessary right, title and
interest to the Licensed Process and the Licensed Designs to be
provided by Synergy to HEG under this Agreement;
(c) The grant of the licenses hereunder will not violate
any obligation of Synergy to any third parry, and Synergy has
all requisite legal and corporate power to execute and deliver
this Agreement and to grant HEG licenses to the Licensed Process
and to the Licensed Designs;
(d) Upon completion by Synergy of the technology transfer,
the rights. materials, data and information made available to
HEG will be complete and current versions of all components of
the Licensed Process and the Licensed Designs, which are in the
possession of or available to Synergy and which are reasonably
required by HEG to design and manufacture Contract Products. The
items transferred to HEG will in all material respects be
identical to the data, information and materials used by Synergy
in its own manufacture of Contract Products utilizing the
Licensed Process and the Licensed Designs;
(e) The use by HEG of the Licensed Process or the Licensed
Designs and the manufacture of Contract Products therewith will
not infringe the intellectual property rights of any third
party. Synergy will defend and hold HEG harmless against all
claims,
-7-
<PAGE>
damages, losses and liabilities (including reasonable
attorneys fees) based on the allegation that HEG's use of the
Licensed Process or the Licensed Designs infringes the rights of
any third party, if (1) HEG gives Synergy notice of any such
allegation without undue delay; (2) Synergy has full control
over the defense and settlement of any resulting legal
proceeding; and (3) HEG, at Synergy's request and expense,
reasonably assists Synergy in its defense.
(f) The performance and characteristics of the Licensed
Process and Licensed Designs will substantially conform to the
specifications set forth in the Technical Documents.
12. Disclaimers and Limitations of Liability.
----------------------------------------
(a) Synergy does not represent or warrant that the utilization
by HEG of the Licensed Products or the Licensed Designs will be result
in a minimum yield, that the manufacture of Contract Products will be
economically profitable for HEG, or that the use of the Licensed
Products or the Licensed Designs will be uninterrupted or error-free,
it being understood that the degree of success with which processes,
designs and technologies can be applied to the manufacture of
semiconductors is dependent upon a variety of factors, many of which
are not under Synergy's control.
(b) Except as expressly provided in Section 11, above, neither
party grants to the other party any warranties, either express or
implied, as to the Licensed Process, the Licensed Designs, the
Technical Documents or any other materials, data or services provided
hereunder, including any implied warranties of merchantability,
fitness for a particular purpose and non-infringement.
(c) Except for a breach of Section 11, above, neither party
shall be liable under any contract, strict liability, negligence or
other legal or equitable theory (except those based on intentional or
grossly negligent torts) for any indirect, incidental, special or
consequential damages, lost profits. lost data or cost of procurement
of substitute goods, technology or services.
13. Term and Termination.
--------------------
(a) This Agreement shall become effective on November 1 ,
1992, and shall remain in force until terminated pursuant to this
Section 13.
(b) Either party shall have the right to terminate this
Agreement, if it withdraws, at its sole discretion, from the
privatization of HEG as contemplated in the Term Sheet Concerning the
Privatization of the Core Business of MTG mbH i.L - Frankfurt/Oder
Site, dated October 28, 1992. If Synergy terminates this Agreement for
such reason, all amounts paid under this Agreement shall be refunded
to HEG. If HEG terminates this Agreement for such reason, Synergy
shall be entitled to retain the amount of DM 400,000 in order to
compensate Synergy for its past activities under this Agreement and
the increased risk of misappropriation and unauthorized disclosure of
its intellectual property rights.
(c) Either party may terminate this Agreement in the event of
bankruptcy, insolvency or winding-up of the other party's business by
giving the other party thirty (30) days written notice of termination.
-8-
<PAGE>
(d) Either party may terminate this Agreement by written
notice specifying the cause in detail in the event of a material
breach or default by the other in the performance of any one or more
of the material provisions contained in this Agreement, provided that
if the offending party shall during the thirty (30) days immediately
following its receipt of written notice of the breach or default,
remedy the breach or default upon which the notice is based, then the
notice shall not become effective, and this Agreement shall remain in
full force and effect. Notwithstanding the above, in the event either
party breaches its obligations under Section 10 above, the non-
breaching party shall be entitled among other things, to immediately
terminate this Agreement.
(e) Section 10 shall survive the termination of this
Agreement.
14. Export Controls.
---------------
(a) HEG hereby agrees to comply with all export laws and
restrictions and regulations of the Department of Commerce or other
United States or foreign agency or authority, and not to export, or
allow the export or re-export of any proprietary information or
Licensed Process, Licensed Design, or copy of any direct product
thereof in violation of any such restrictions, laws or regulations to
any destination specified in Attachment D, as amended from time to
time; Synergy shall obtain any necessary licenses and/or exemptions
with respect to the export from the U.S. of all Synergy proprietary
information and shall demonstrate to HEG compliance with all
applicable laws and regulations prior to delivery.
(b) Synergy hereby agrees that it shall not export or re-
export, directly or indirectly, any technical data received from HEG
hereunder or direct product thereof in violation of any export control
laws and regulations of the U.S. and Germany.
15. Government Compliance.
---------------------
(a) HEG represents, warrants and agrees that, except as
expressly provided hereunder, neither this Agreement (or any term
hereof) nor the performance or exercise of rights under this
Agreement, is restricted by, contrary to, in conflict with,
ineffective under, requires registration under, or affects Synergy's
proprietary rights (or the duration thereof) under, or will require
any compulsory licensing under, any law or regulation of any
organization or governmental entity located within Germany.
(b) Synergy represents, warrants and agrees that, except as
expressly provided hereunder, neither this Agreement (or any term
hereof) nor the performance or exercise of rights under this
Agreement, is restricted by, contrary to, in conflict with,
ineffective under, requires registration under, or affects HEG's
proprietary rights (or the duration thereof) under, or will require
any compulsory licensing under, any law or regulation of any
organization or governmental entity located within the United States.
16. Miscellaneous.
-------------
(a) This Agreement is executed with the understanding that it
embodies the entire agreement between the parties with respect to the
subject matter hereof and that there are no prior representations,
warranties or agreements relating thereto. This Agreement may be
modified only by a duly executed writing.
-9-
<PAGE>
(b) This Agreement shall be governed by the laws of Germany
without regard to the conflicts of laws provisions thereof and without
regard to the United Nations Convention on Contracts for the
International Sales of Goods. Except as provided in Section 10(c),
above, any controversy or claim arising out of or relating to this
Agreement shall be settled by binding arbitration in Berlin, Germany,
in accordance with the UNCITRAL arbitration rules, and judgment upon
the award rendered may be entered in any court having jurisdiction
thereof,
(c) The prevailing party in any legal action (including
arbitration) brought to enforce this Agreement shall be entitled to
legal fees and costs. Any provision of this Agreement hold to be
invalid shall not render this Agreement invalid as a whole.
(d) Neither party may assign (including assignments by law,
mergers, acquisitions or any other change of control) its rights and
obligations under this Agreement without the other party's prior
written consent; any proposed assignment made without the requisite
consent shall be null and void.
* * *
The parties have caused their duly authorized representatives to
execute this Agreement.
SYNERGY SEMICONDUCTOR CORPORATION
By:
--------------------------------
Thomas Mino, President
HEG mbH
By:
--------------------------------
[Represented by Dr. W. Schaaf]
-10-
<PAGE>
ATTACHMENT A
Technical Documents - Licensed Process
--------------------------------------
Definition of Licensed Process:
- ------------------------------
Wafer fabrication processes and sub-processes modules used to produce the ASSET
device and the device structures encompassed in the ASSET 1.5 micron and 1.2
micron bipolar technologies. Device structures and process modules include, but
are not limited to, then following:
. Open bottom slot with thin side wall oxide
. Wide slot ground tap with selective poly-silicon doping
. Side wall sinker
. Two step polish planarization
. Field oxidation self aligned to slot
. Emitter first transistor structure
. Silicided poly, glass enclosed emitter structure
. Metal to metal inter poly via contact
. SOG pre-metal I planarization process
. TIN metal 1 barrier
. SOG pre-metal 2 planarization process
. Multiple deposition spacer process
. Silicided poly of refractory metal base contact
. Silicided poly and Al-Si-Cu RIE Process
. Reliability Rate
The technology includes all updates implemented prior to December 31, 1995
including 1 micron and sub-micron process modules. Included are evolutionary
improvements such as slot walled transistors, masked sinker, side based contact
transistors, and the split emitter transistor structure.
Technical Documents: (Technology Specific)
- -------------------
A. All design rules, design rule assumptions and mask generating rules used
to produce ASSET products.
1. Lithography rules, etch bias assumptions, topological design rules.
2. Data base grids, alignment marks, critical dimension bars.
3. Database on process control monitors.
B. All show-how and know-how of the ASSET/(TM)/ process and sub-process
modules.
1. Detailed process flows including all specifications.
2. Equipment list and specifications on equipment.
3. All equipment set up procedures.
4. All times, temperatures, gasses and flows.
5. Critical dimension, V/I film/epi thicknesses.
6. All in process checks and tests.
C. All information regarding process integration.
-11-
<PAGE>
1. Device cross sections, scanning election microscope photographs of
device structures and cross sections, doping profiles and junction
depths.
2. Descriptions of device related process steps.
3. Description of yield related process steps.
4. Description of performance related process steps.
5. Complete review and description summary of historical ASSET process
trends, problems encountered and solutions found. Critical trends
discussed and reviewed.
D. Process parametric tests. Description, specifications, hardware used.
distribution and trended results.
1. Test structure, test conditions and historical trends.
2. Test equipment, hardware and software used in parametric tests. One
set of interface hardware and one set of software included.
3. Trend charts and SPC monitors.
E. Description of CAD tools used for product design and exchange.
1. Data base.
2. Reticle generation.
3. CALMA GDS II stream tape, finished reticles used as transfer medium.
F. Design tools and methodology (based on Cadence tools and HSPICE)
1. Basic cell libraries for devices and macros.
2. Know-how/show-how design technology, including HSPICE stimulation.
. Schematic entry and cross-check know-how
. Circuit simulation
. Design layout
. Design identification (LVS)
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<PAGE>
ATTACHMENT B
Licensed Designs
----------------
Definition of Licensed Designs:
- ------------------------------
ECL SRAMS, MSI/LSI Logic meaning, specifically, then products encompassed by the
following logic families: F100K, F100K Series 300, SUPER 300K, ECLinPS, SPECL,
Series 810/880/881, 10/100H600 Series and 10/100700-900 Series.
As a matter of practice, these products will be defined as the ones contained in
the present (1992) Synergy Product Data Book and/or Product Selection Guide or
Products that are developed by engineers of HEG under contract for Synergy or
that are independently developed by Synergy. Products that are jointly developed
by Synergy and HEG or are independently developed by HEG are specifically
excluded from this list of products.
The table below more clearly outlines this relationship:
<TABLE>
<CAPTION>
------------------------------------------------------------------
Designs
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Markets Existing at Developed by/1/ Developed by/2/ Developed by
1. Jan. 1993 Synergy after the Joint Synergy after
(Synergy) 1. Jan. 1993 Venture (after 1. Jan 1996
to 31. Dec. 95 1. Jan.1993)
- --------------------------------------------------------------------------------
USA, Mexico, Non-exclusive Non-exclusive FREE Non-exclusive
Canada, Royalty Royalty No Royalty PL
Japan, Korea Rate 2 Rate 2 -- Royalty
Rate 2
- --------------------------------------------------------------------------------
Western Exclusive Exclusive FREE Non-exclusive
Europe Royalty Royalty No Royalty Royalty
Rate 1 Rate 1 -- Rate 1
- --------------------------------------------------------------------------------
Eastern Exclusive Exclusive FREE FREE
Europe FREE FREE No Royalty No Royalty
No Royalty/3/ No Royalty/3/ -- --
-- --
- --------------------------------------------------------------------------------
R.o.W. Non-exclusive Non-exclusive FREE Non-exclusive
PL PL No Royalty PL
Royalty Royalty -- Royalty
Rate l Rate l Rate 1
- --------------------------------------------------------------------------------
</TABLE>
Legend:
1 Including contracted development (from Synergy to HFO/J.V.)
2 Including joint development between Synergy and J.V.
3 Cost reimbursement for transfer of product know-how
NOTE: Table only valid for time frame with Synergy share less than 51%; with
Synergy having greater than 51% all rights free, no royalties.
-13-
<PAGE>
Rate 2 Rate l
5% for sales prior to 12/31/1995
17% 4% for sales in 1996
3% for sales after 12/31/1996
Technical Documents: (Design Specific)
- -------------------
A. Mask Index:
a. Mask tooling instructions and specifications:
b. Fabrication specifications
B. Product Data Sheets and Electrical Specifications.
C. Test tapes and hardware documentation (Provided ATE tester identical oe
software/hardware compatible.
D. Product assembly and/or build sheets.
E. Other documents and information that is reasonably required.
-14-
<PAGE>
ATTACHMENT C
Phases of Technology Transfer
-----------------------------
Phase 1: ASSET/TM/ Technology Transfer (to be completed by 1/31/1993)
a. Key HEG Engineering Staff trained in ASSET/(TM)/ Technology and Design
methodology:
. Maximum of 10 people from Frankfurt/Oder are trained in the
Synergy facility in Santa Clara for 6 weeks; expenses paid by
HEG (60 man weeks);
. Develop detailed knowledge of ASSET/(TM)/ Technology and all
relevant sub process modules;
. Synergy provides know-how and show-how in Santa Clara,
California;
b. Synergy prepares and transfers technology documentation to HEG:
. In general, this involves transferring all key documentation
describe in Attachment A, subparagraph I.
c. Key Equipment identified and ordered.
Phase 2: Sub-process Development (To be completed by 4/31/1993)
a. All key sub-process processes run by HEG Engineers
b. Engineering data derived and positive results demonstrated.
c. New Equipment installed and qualified.
Any reasonable assistance required in transferring the technology
will be provided by Synergy at no extra cost.
Phase 3: Fully-functional Product (To be completed by 10/31/1993)
a. Fully functional product is defined as:
. A logic Product built in the Synergy CAL/(TM)/ family that is
mutually agreed to.
. Product that meets product data sheet parametric AC and DC
specifications.
. Yields on four wafer lots which are started as a minimum of 24
wafers that demonstrate an average of 50% of Synergy's yields
at wafer sort.
. Because many wafers on early lots will be sacrificed for
destructive engineering analysis, yields for the purpose of
demonstrating this phase of the ASSET/(TM)/ technology transfer
will be based on percent of good die yielding on wafers that
come out of the fabrication process, not on wafers started, or
entering the process.
-15-
<PAGE>
EXHIBIT 10.12
FOUNDRY AGREEMENT
-----------------
This Foundry Agreement (the "Agreement") is made and entered into this 14
day of November, 1990, and is effective as of Effective Date (as defined
below) by and between SYNERGY SEMICONDUCTOR, a corporation organized and
existing under the laws of the State of California, having its principal office
at 3450 Central Expressway, Santa Clara, California 95051, U.S.A. (hereinafter
referred to as "Synergy"); and TOSHIBA CORPORATION, a corporation organized and
existing under the laws of Japan, having a place of business at 1-1, Shibaura,
1-Chome, Minato-ku, Tokyo 105, JAPAN and TOSHIBA AMERICA ELECTRONICS COMPONENTS
INC., a California corporation, having its principal place of business at 9775
Toledo Way, Irvine, California 92718 (hereinafter referred to as "TAEC".)
TOSHIBA CORPORATION and TAEC shall be hereinafter collectively referred to as
"Toshiba".
WITNESSETH:
WHEREAS, Toshiba desires to act as a vendor to Synergy for the purpose of
manufacturing and supplying Bipolar and BiCMOS ASICs and other semiconductor
devices as designed by Synergy and manufactured using Synergy Process as defined
below, and Synergy desires to use Toshiba as a vendor as provided herein and,
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. DEFINITION AND RELATED MATTERS
------------------------------
1.1 "Synergy Process" shall mean Synergy's existing Bipolar process
called "ASSET" and BiCMOS process which Toshiba has licensed from
Synergy pursuant to the "License Agreement" between Synergy and
Toshiba dated as of the date of this Agreement. Synergy Process
shall include modifications and/or improvements to such existing
process made by Toshiba.
1.2 "Product" shall mean each semiconductor product referenced in
Section 3.1 below.
1.3 "Affiliate" shall mean each company which controls, is controlled
by, or is under common control with, that party, where "control"
means, in the case of a corporation, the power to elect a
majority of the board of directors, but only for so long as such
control exists.
1.4 "Effective Date" shall have the meaning set forth in Section 14
below.
-1-
<PAGE>
1.5 "Prototype" Products shall mean limited quantities of Products
that are manufactured for the purpose of evaluating the design
thereof.
1.6 "Preproduction" Products shall mean Products manufactured in
limited quantities, prior to commencing production manufacturing
thereof.
2. PROCESSES
---------
2.1 Toshiba will, directly or through its Affiliates, install a wafer
fabrication facility or improve its existing wafer fabrication
facility so that it is capable of producing wafers using the
Synergy Process. This facility will be available not later than
April 1, 1992.
2.2 Toshiba will manufacture Products by utilization of design
pattern data provided by Synergy in CALMA GDS II or other agreed
upon in writing tape format sized to Toshiba standards.
2.3 In no event shall Toshiba be required to deliver any mask tooling
made by Toshiba hereunder during the term of this Agreement and
thereafter regardless of the payment therefor. Any mask tooling
made by Toshiba for Synergy's data base tapes shall be destroyed
by Toshiba within thirty (30) days of notification by Synergy
that the mask tooling is no longer needed. In no event shall such
mask tooling be used for the benefit of any party other than
Synergy.
3. PRODUCTS
--------
3.1 Pursuant to this Agreement, Toshiba will make available to
Synergy manufacturing services for
(i) Synergy designed products suitable for manufacture of
Toshiba's wafer fabrication facility as specified in Section 2.1,
and
(ii) ASICs to be developed pursuant to the "Development
Agreement" between Synergy and Toshiba dated as of the date of
this Agreement.
3.2 All Products will be ordered for delivery to Synergy in wafer
form. Synergy will be entitled to order Products in finished
product form subject to Toshiba's consent, which shall not be
unreasonably withheld by Toshiba. Terms and conditions for
finished products shall be discussed in good faith by the
parties.
3.3 Nothing herein shall be construed to grant Synergy any right or
license to market or sell its products
-2-
<PAGE>
as "Toshiba" products. Synergy shall, however, be entitled to
advise customers that its Products are manufactured for Synergy
by Toshiba.
4. TESTING-RELIABILITY
-------------------
4.1 Synergy and Toshiba agree that all Products purchased by Synergy
under this Agreement shall receive and meet mutually agreed in
writing parametric in-process inspection by Toshiba using process
control monitors on each wafer.
4.2 Synergy acknowledges that Products purchased by Synergy under
this Agreement shall not be specifically tested for reliability
by Toshiba. Synergy may, at its sole option and expense, perform
reliability testing on the Products provided by Toshiba. In the
event that any Synergy reliability testing detects a problem
whose cause for deterioration is not clear enough for both
parties to define, then both parties shall, in good faith, work
together to resolve the problem in a timely manner.
4.3 EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN SECTION 4.1 ABOVE
AND 4.5 BELOW, TOSHIBA MAKES NO OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
4.4 Toshiba agrees to perform a visual inspection prior to shipping
wafer Products to Synergy. Any wafer failing to meet Toshiba's
internal visual inspection criteria shall be removed at no charge
to Synergy from the wafer lot prior to shipment to Synergy.
4.5 Synergy shall perform lot acceptance testing of all Products
received by Synergy within 45 days after Synergy's receipt of
such lot. If Synergy determines that any product fails to meet
the mutually agreed parametric test criteria, Synergy shall
without delay send a failure report to Toshiba. If Toshiba
acknowledges such failure, Toshiba shall replace such failed
Product with new Product or, at its option, refund the price for
such failed Product.
-3-
<PAGE>
5. TECHNICAL SUPPORT
-----------------
5.1 Synergy and Toshiba will exchange specifications, drawings, and
other technical data necessary to execute the conditions of this
Agreement. Synergy will provide to Toshiba either GDS II (or
other agreed format) data base tapes or mask plates.
5.2 Toshiba agrees to cooperate with Synergy in discussing schedules,
production results, production problems, and other technical or
business related issues.
6. ORDER PROCEDURE
---------------
6.1 Forecast Requirements: Synergy shall provide to Toshiba a rolling
six (6) month production forecast at the beginning of each
calendar month. Such forecast shall detail, to the degree of
accuracy known at that time, the quantity and type of Products
required by Synergy for the period specified. Synergy agrees to
notify Toshiba, at least three (3) month in advance to the extent
practical, of any changes that may significantly alter the
current production forecast.
6.2 Capacity Allocation: Synergy will commit to have at least 50% of
its wafers of Products manufactured by Toshiba for a period until
March 31, 1997. Toshiba will make available sufficient capacity
for its and Affiliates facility to supply Synergy's commitments
subject to Toshiba's capacity limitation. Provided, however,
that, in the case Toshiba cannot meet Synergy's requirements due
to Toshiba's available capacity limitation, both parties will
negotiate in good faith an altered production allocation. Toshiba
agrees to notify Synergy as soon as practical after receipt of
Synergy forecast if it believes that it will be unable to fulfill
the forecasted orders because of capacity limitations.
6.3 Wafer Order Quantities: Synergy shall order Toshiba wafer
Products with the minimum quantity of six(6) wafers for
Prototypes of Gate Array and Standard Cell, and twelve(12) wafers
for Prototypes of other Products and all Preproduction and
production Products.
6.4 Lead Times: The maximum lead times for ordered wafer Products
shall be six(6) weeks for Gate Array and three(3) months for
other Products.
-4-
<PAGE>
6.5 Synergy shall release to Toshiba a purchase order for Products to
be purchased hereunder. Synergy purchase orders shall be
Toshiba's authorization to process and ship products to Synergy.
Purchase orders shall include product description, part number,
quantity, unit price, shipping instructions and reference to
product specifications. Toshiba shall provide to Synergy written
acceptance of Synergy purchase orders conforming to this
Agreement within one(1) week of Toshiba's receipt of such
purchase orders.
6.6 Product Cancellation: Synergy may cancel by written notice to
Toshiba any Product set forth by purchase order under this
Agreement. In such case, Synergy shall pay Toshiba the amounts
set forth hereunder:
6.6.1 Synergy shall pay Toshiba one hundred percent (100%) of the fully
processed wafer price for any Preproduction and production Gate
Array Product canceled within five (5) weeks of the scheduled
delivery date. If the wafer fabrication process has not begun at
the time of cancellation, there shall be no cancellation charge
to Synergy.
6.6.2 Synergy shall pay Toshiba the following percent of the fully
processed wafer price for any Preproduction or production Product
other than Gate Array canceled within the following weeks of the
scheduled delivery date.
<TABLE>
<S> <C> <C>
Less than 3 weeks 100%
3 to 6 weeks 75%
6 to 9 weeks 50%
9 to 12 weeks 25%
</TABLE>
If the wafer fabrication process has not begun at the time of
cancellation, there shall be no cancellation charge to Synergy.
6.6.3 Synergy shall pay Toshiba any unpaid portion of the mask tooling
charges for any design that is canceled prior to the first
delivery of the canceled Product. If mask making process has not
been started for that design, there shall be no cancellation
charge to Synergy.
6.7 For the purpose of this Agreement all lead times shall exclude
those periods for scheduled Toshiba plant closures for vacation.
Toshiba agrees to furnish to Synergy within seven(7) days of its
initial availability the schedule of its vacation plant closures.
It is also understood that all lead times are from Toshiba's
receipt of the
-5-
<PAGE>
Synergy purchase order and required mask tooling input (if
required) to delivery from TAEC (Irvine).
6.8 Delivery of the Products specified on each purchase order shall
be made by Toshiba on or before the delivery date(s) specified on
each purchase order and in quantity of not less than three(3)
wafers for Prototypes of Gate Array and Standard Cell Products,
and not less than eight(8) wafers for Prototypes of other
Products and all Preproduction and production Products.
6.9 All Products shipped to Synergy under this Agreement shall be
packaged to prevent shipping or electrostatic damage in a manner
consistent with normal industry practices for the shipment of
such devices.
7. PRICE
-----
7.1 In consideration of each item Toshiba work set forth hereinbelow,
Synergy shall pay Toshiba the amount corresponding to each item
of Toshiba work; provided, however, all amounts are subject to
adjustment in accordance with Section 7.5. All prices for
delivered Product are F.O.B. TAEC.
7.2 In the event that Synergy desires Toshiba to generate the
required mask tooling, Synergy shall pay Toshiba for mask plate
generated. The price of the mask plate is specified in Exhibit A
hereto.
7.2.1 Synergy may, at its option and expense, choose to fabricate the
mask tooling through any mask vendor who has been jointly
qualified by Toshiba and Synergy for these Products.
7.3 All prices for each Prototype, Preproduction, and production
product set forth by purchase order under this Agreement shall be
specified in Exhibit B and based on F.O.B. TAEC.
7.3.1 Toshiba warrants that all prices for Products purchased under
this Agreement by Synergy are at least as favorable as the prices
provided to any other non-Affiliated Toshiba customer for
comparable product and comparable aggregate annual volume and
other comparable terms and conditions.
7.3.2 In the event that Toshiba provides more favorable pricing to any
non-Affiliated Toshiba customer for comparable product and
comparable aggregate annual volume, then the prices offered to
Synergy shall be reduced by such amount as to match the more
favored customer.
-6-
<PAGE>
7.3.3 By January 1, 1992 and each July 1 and January 1 thereafter, the
parties shall have negotiated, in good faith, actual Product
prices for the following half year.
7.4 In the event further price negotiation is required for additional
work hereunder not yet discussed or defined, then both parties
agree to negotiate in good faith to arrive at an equitable
adjustment of existing prices on an expedited basis.
7.5 Any price or amount set forth in this Agreement shall be subject
to adjustment as set forth below if the exchange rate for
Japanese Yen to U.S. dollar, measured as set forth below, varies
from the "base rate" by more than ten (10) Japanese Yen. The
initial base rate shall be one hundred thirty (130) Japanese Yen
to one U.S. dollar.
7.5.1 The exchange rate shall be determined at the beginning of the
third month of each calendar quarter using the "Wall Street
Journal, Asian Edition" average exchange rate for the prior three
(3) months. The adjustment date shall be the beginning of the
next calendar quarter. Adjustment of the price shall be
calculated as follows:
( Base Rate - New Rate)
Adjusted Price = Current Price X (1+ ------------------)
(2 X Base Rate )
The new exchange rate shall then become the "base rate" for
subsequent determinations of whether adjustment is required and
for calculation of the adjustment.
7.5.2 All prices shall remain constant throughout the remainder of the
then current quarter. All price adjustments shall apply only to
new orders submitted after the adjustment date. There shall be no
adjustment to existing orders or new orders submitted prior to
the adjustment date; providing, however, that any such new order
must be scheduled for delivery within a period not to exceed two
(2) months from the adjustment date.
7.6 The parties shall diligently and in good faith negotiate pricing
for Products not specified in Exhibit B.
-7-
<PAGE>
8. PAYMENT
-------
All payments hereunder shall be made by Synergy in United States
dollars. The payment by Synergy to Toshiba shall be to TAEC.
Payment shall be made to invoice on terms of NET 30 DAYS.
9. TAXES AND DUTIES
----------------
9.1 Duties, taxes, import fees, tariffs now known, and the like
incurred relating to importation of product to the U.S.A. under
this Agreement, shall be the responsibility of Synergy.
10. SYNERGY'S FOUNDRY SERVICE FOR TOSHIBA
-------------------------------------
10.1 Subject to Section 10.2, Synergy will, upon request of Toshiba,
make available manufacturing for Prototypes of (i) ASICs to be
developed pursuant to the "Development Agreement" and (ii) any
other products to be mutually agreed upon by Synergy and Toshiba.
10.2 In the case Toshiba orders the manufacturing service from
Synergy, both parties shall discuss in good faith the terms and
conditions of such Synergy's foundry service for Toshiba, which
contain , but not limited to, production volume, price, schedule,
delivery, packaging, testing, reliability, and technical support.
The terms and conditions of such Synergy's foundry service for
Toshiba shall be comparable to those of Toshiba's foundry service
for Synergy.
11. PATENT AND LICENSE
------------------
11.1 Title to any inventions, mask work rights, copyrights, and any
patents issuing thereon which may be embodied in the logic
design, equipment design, or any other technical information
supplied by Synergy under this Agreement shall belong to Synergy
or its customer, provided that this shall not affect Toshiba's
rights with respect to copyrights, mask work rights, inventions,
patents issuing thereon and other technical information which is
owned, controlled or possessed by Toshiba prior to the receipt
thereof from Synergy.
11.2 Title to any inventions, mask work rights, copyrights, and any
technical information and patents issuing thereon which may arise
out of work performed by Toshiba under this Agreement shall
belong to Toshiba, provided that this shall not
-8-
<PAGE>
affect Synergy's rights with respect to copyrights, mask work
rights, inventions, patents issuing thereon and other technical
information which is possessed by Synergy prior to the receipt
thereof from Toshiba. Title to any inventions, mask work rights,
copyrights, and any technical information and patents issuing
thereon which may arise out of work performed by Synergy under
this Agreement shall belong to Synergy.
11.3 Title to any inventions, mask work rights and copyrights which
may be conceived jointly by Synergy and Toshiba employees under
this Agreement shall belong jointly to Synergy and Toshiba, and
both parties shall decide whether or not to file patent
applications or registrations with respect thereto. The control
over the preparation and prosecution of any patent applications
or other registrations with respect to such jointly owned rights
shall be mutually decided by Synergy and Toshiba, and the cost
thereof shall be shared equally by Toshiba and Synergy.
11.4 It is understood that neither party shall grant to the other
party any right or license under its intellectual property rights
except for purchases under, or otherwise as necessary for the
performance of, this Agreement.
12. LIMITATION OF LIABILITY
-----------------------
EXCEPT FOR A BREACH OF SECTION 13 HEREOF, NEITHER PARTY SHALL BE LIABLE FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR ANY CAUSE IN RESPECT OF THIS
AGREEMENT, OR THE PERFORMANCE OR NON-PERFORMANCE HEREOF. IN NO EVENT SHALL
THE MAXIMUM LIABILITY OF EITHER PARTY TO THE OTHER PARTY EXCEED THE AMOUNT
WHICH TOSHIBA RECEIVED FROM SYNERGY FOR PRODUCTS THAT CAUSED LIABILITY.
13. CONFIDENTIAL INFORMATION
------------------------
13.1 The term "Confidential Information" shall mean any information
disclosed by one party to the other pursuant to this Agreement
which is in written, graphic, machine readable or other tangible
form and is marked "Confidential", "Proprietary" or in some other
manner to indicate its confidential nature. Confidential
Information may also include oral information disclosed by one
party to the other pursuant to this Agreement, provided that such
information is designated as confidential at the time of
disclosure and is reduced to writing by the disclosing party
within a reasonable time (not to exceed thirty (30) days) after
its oral
-9-
<PAGE>
disclosure, and such writing is marked in a manner to indicate
its confidential nature and delivered to the receiving party.
13.2 Each party shall treat as confidential all Confidential
Information of the other party, shall not use such Confidential
Information except for purposes contemplated herein, and shall
not disclose such Confidential Information to any third party
except as may be reasonably required in connection with the
design, manufacture and sale of Products pursuant to this
Agreement, and subject to written confidentiality obligations at
least as protective as those set forth herein signed by the third
party and naming the other party to this Agreement as a
beneficiary of the third party's confidentiality obligations.
Without limiting the foregoing, each of the parties shall use at
least the same degree of care which it uses to prevent the
disclosure of its own confidential information of like importance
to prevent the disclosure of Confidential Information disclosed
to it by the other party under this Agreement
13.3 Notwithstanding the above, neither party shall have liability to
the other with regard to any Confidential Information of the
other which:
(i) is in the possession of the receiving party as of the
effective date of this Agreement, independently of any
disclosure by the disclosing party, as evidenced by
written documents in existence prior to the date of any
disclosure of such information to the receiving party by
the disclosing party;
(ii) is or becomes available to the public, separate or apart
from any disclosures by the receiving party;
(iii) is learned by the receiving party from a third party
entitled to disclose such information, provided the
receiving party complies with all restrictions imposed by
the third party; or
(iv) is independently developed by the receiving party.
13.4 Each party shall exert its best efforts, including, but not
limited to, the execution of proprietary non-disclosure
agreements with employees and consultants, and legal action, to
enforce compliance with the provisions of this section by
-10-
<PAGE>
its directors, officers, employees, and any third party having
access to the other party's Confidential Information.
13.5 the parties acknowledge that the obligations and promises under
this Section 13 are of a special, unique and intellectual
character which gives them particular value, and that a breach
thereof could result in irreparable and continuing damage for
which there can be no reasonable or adequate damages, remedy or
compensation in action or law. Each party expressly agrees that
each shall be entitled to injunctive relief, a decree for
specific performance and/or other equitable relief in the event
of any breach or threatened breach by the other of its
obligations or promises under this Section 13, in addition to any
other rights or remedies which it may possess (including monetary
damages, if appropriate).
13.6 The obligations of the parties under this section shall terminate
or the fifth anniversary of the disclosure of Confidential
Information.
14. TERM AND TERMINATION
--------------------
14.1 This Agreement shall be effective upon execution of this
Agreement or upon such other later date as mutually agreed upon,
and shall expire on March 31, 1997 unless and until earlier
terminated as provided in this section or elsewhere in this
Agreement. This Agreement may be renewed by agreement of both
parties.
14.2 If either party defaults in the performance of its material
obligations hereunder and if any such default is not corrected
within ninety (90) days after it shall have been called to the
attention of the defaulting party, in writing, by the other
party, then the other party, at its option, may, in addition to
any other remedies it may have, thereupon terminate this
Agreement by giving written notice of termination to the other
party.
14.3 This Agreement may be terminated by either party, on notice, (i)
upon the institution by the other party of insolvency,
receivership or bankruptcy proceedings or any other proceedings
for the settlement of the debts, (ii) upon the institution of
such proceedings against the other party, which are not dismissed
or otherwise resolved in such party's favor within sixty (60)
days thereafter, (iii) upon the other party's making an
assignment for the benefit of creditors, or (iv) upon the
-11-
<PAGE>
other party's dissolution or ceasing to do business in the normal
course.
14.4 This Agreement may be terminated by Toshiba on notice upon the
closing of a transaction or a series of related transactions by
which a competitor of Toshiba acquires all or substantially all
of the assets or voting securities of Synergy, or an Affiliate of
such an entity merges with or into Synergy. For this purpose, a
"competitor of Toshiba" means any corporation or other entity
which is engaged in selling semiconductor products to the market
at the time of such closing and whose annual sales of
semiconductor products is no less than 500 million U.S. dollars.
14.5 Upon any termination or expiration of this Agreement, Toshiba
shall continue, for a period of one year after the effective date
of such termination or expiration, to manufacture and sell to
Synergy, at mutually agreed prices, existing Synergy Products
which Toshiba is then manufacturing as production Products for
Synergy for existing Synergy customers. The parties shall discuss
such prices in good faith.
15. GOVERNMENT APPROVALS
--------------------
Toshiba shall use its best efforts to obtain all required approvals from
the Japanese government in a timely fashion, and Synergy shall use its best
efforts to obtain all required approvals from the United States government
in a timely fashion, as shall be required to consummate the transactions
contemplated by this Agreement. This Agreement (other than this Section 15)
is subject to all required governmental approvals and such approvals shall
be in form and substance, not limiting the transactions contemplated
hereby, as shall be agreeable to the parties.
16. GENERAL PROVISIONS
------------------
16.1 This Agreement and any rights or licenses granted herein shall be
binding upon and inure to the benefit of the parties hereto and
their Affiliates and their respective successors and assigns.
Neither party shall assign any of its rights or privileges
hereunder without the prior written consent of the other party.
Any attempted assignment in derogation of the foregoing shall be
null and void. Unless terminated by Toshiba pursuant to Section
14.4, this Agreement will be assumed by a successor to all or
substantially all of the assets and business of Synergy by
purchase of assets, merger or otherwise. Synergy shall
-12-
<PAGE>
notify of any such transaction not less than 20 days prior to the
consummation thereof.
16.2 Nothing contained in this Agreement shall be construed as
conferring by implication, estoppel or otherwise upon either
party hereunder any license or other right except the licenses
and rights expressly granted hereunder to a party hereto.
16.3 All notices required or permitted to be given hereunder shall be
in writing and shall be valid and sufficient if dispatched by
registered or certified airmail, postage prepaid, in any post
office in the United States or Japan, addressed as follows:
If to Synergy:
Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, CA 95051
U.S.A.
Attn: President & CEO
Facsimile: 408-737-0831
If to Toshiba:
Toshiba Corporation
1-1, Shibaura 1-chome
Minato-ku, Tokyo 105-01
Japan
Attention: Senior Manager, America Department,IOEC
Facsimile:
Toshiba America Electronics Components Inc. 9775 Toledo way,
Irvine, CA 92718
U.S.A.
Attn: Senior Vice President, Semiconductor Group
Facsimile:
Either party may change its address by a notice given to the
other party in the manner set forth above. A notice herein
provided shall be construed to have been given seven(7) days
after the mailing thereof.
16.4 This Agreement and the obligations and performance of the parties
hereto and of the Affiliates of the parties shall be subject to
all laws, both present and future, of any Government having
competent jurisdiction over the parties hereto or the Affiliates
of the parties, and to orders, regulations, licenses, directions
or requests of any such Government, or any department, agency or
-13-
<PAGE>
corporation thereof and contingencies as a result of war, acts of
public enemies, strikes or other labor disturbances, fires,
floods, acts of God, or any causes of like or different kind
beyond the control of the parties, and the parties hereto shall
be excused from any failure to perform any obligation hereunder
to the extent such failure is caused by any such law, order,
regulation, direction, request or contingency.
16.5 Synergy agrees not to export or reexport, or cause to be exported
or reexported, any technical data (including any technical
information) furnished by Toshiba hereunder or the direct product
of such technical data to any destination, person or firm in
violation of the Japanese laws and regulations governing the
export of Japanese commodities and technical data.
16.6 Toshiba hereby agrees to comply with all export laws and
restrictions and regulations of the Department of Commerce or
other United States or foreign agency or authority, and not to
export, or allow the export or re-export of any proprietary
information or Licensed Process or copy or any direct product
thereof in violation of any such restrictions ,laws or
regulations, or to Afghanistan, the People's Republic of China or
any Group Q, S, W, Y or Z country specified in the then current
Supplement No. 1 to Section 770 of the U.S. Export Administration
Regulations(or any successor supplement or regulations); Synergy
shall obtain any necessary licenses and/or exemptions with
respect to the export from the U.S. of all Synergy proprietary
information and shall demonstrate to Toshiba compliance with all
applicable laws and regulations prior to delivery.
16.7 Nothing contained herein or done in pursuance of this Agreement
shall constitute either party hereto the agent for the other
party for any purpose or in any sense whatsoever.
16.8 The applicable law governing any course of action arising out of
this Agreement, or the performance by either party hereto, shall
be governed by the laws of Japan.
16.9 If disputes, controversies or differences which may arise between
the parties, out of or in relation to or in connection with this
Agreement are unable to be settled between the parties, such
disputes, controversies or differences shall be referred to and
finally settled by arbitration under the Rules
-14-
<PAGE>
of Conciliation and Arbitration of the International Chamber of
Commerce, Tokyo.
16.10 The captions used in this Agreement are for convenience of
reference only and are not to be used in interpreting the
obligations of the parties under this Agreement.
16.11 In the event of any conflict or inconsistencies between the
provisions of this Agreement and the provisions of any exhibits
attached hereto or the provisions of any documents incorporated
by reference, the provisions of this Agreement shall prevail.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have respectively caused this Agreement
to be duly executed by their authorized representatives as of the date first
below written.
SYNERGY SEMICONDUCTOR
By_____________________________
Date___________________________
TOSHIBA CORPORATION
By_____________________________
Date___________________________
TOSHIBA AMERICA ELECTRONICS
COMPONENTS INC.
By_____________________________
Date___________________________
-16-
<PAGE>
(P)Exhibit A
------------
Mask Price $1,750/Plate
Exhibit B
---------
(to be determined)
-17-
<PAGE>
EXHIBIT 10.13
Translation of Notarial Deed No. 42/1993
dated January 23, 1993
QUOTAHOLDER AGREEMENT
___________________________________________________________________________
Made in Berlin on January 23, 1993
Before me the undersigned notary Dr. Wolfgang Rosener appeared today
1. Jorg Stein [personal data not translated]
2. Dr. H.-M. Giesen [personal data not translated]
The person appearing at No. 2 declared to make the following declarations not in
his own name but in the name and on behalf of
Synergy Semiconductor Corporation, a Californian corporation with its
registered office in Santa Clara, California, United States of
America.
With regard to his authorization the person at No. 2 presented a copy of an
advance telecopy of a power of attorney and a certificate of secretary of
December 15, 1992 which is attached as Attachment A. He undertook to hand in the
------------
originals later.
The persons appearing requested the notarization of the following:
<PAGE>
2
QUOTAHOLDER AGREEMENT
This Quotaholder Agreement ("Agreement") is made by and between:
Jorg Stein, Esq. with the law firm of Stein, Held, Hunnekuhl, Textor and
Pawlak, KaiserstraBe 4, W-7410
Reutlingen, Germany, ("Trustee")
and
Synergy Semiconductor Corporation , a Californian corporation with its
principal place of business at 3450 Central Expressway, Santa Clara,
California 95051, U.S.A. ("Synergy"),
with reference to the following facts:
A. HalbleiterElektronik Frankfurt (Oder) GmbH ("HEG") is a German limited
liability company with a registered capital of German Marks 50,000 and its
registered seat in Frankfurt (Oder), Germany. An increase in the registered
capital by DM 50,000 to DM 100,000 has been resolved but not yet registered
in the Commercial Register. HEG is engaged in the research, development,
production and distribution of microelectronic products of various kinds,
including but not limited to integrated circuits.
B. Trustee owns quotas in the nominal amount of DM 50,000 and DM 1,000 of the
registered capital of HEG. He intends to dispose of his quotas to other
participants or to third parties in accordance with the master plan agreed
upon among the participants and wishes to insure the cooperation of Synergy
in the further privatization of HEG.
<PAGE>
3
C. Synergy owns a quota in the nominal amount of DM 49,000 of the registered
capital of HEG. Synergy is interested in acquiring from Trustee the option
to purchase a portion of his quotas under certain conditions, and Trustee
is willing to grant such an option.
D. Trustee and Synergy each wishes to limit its discretion in exercising its
voting rights as a Co-owner of HEG in order to achieve certain pre-
determined objectives. In this context, the parties specifically
acknowledge that, during the first 18 months of HEG's commercial activity,
Synergy will assume the industrial leadership and that thereafter, unless a
majority ownership position has been acquired, it will exercise a
significant influence over HEG.
Synergy and Trustee (collectively the "Parties") agree as follows:
Section 1 - Management and Control of HEG
- -----------------------------------------
1.1 Corporate Bodies. HEG will have the Management Board, the Supervisory Board
----------------
and the Quotaholders' Meeting pursuant to the terms and conditions set
forth in HEG's Articles of Association.
1.2 Nomination Rights of Synergy. As long as Synergy will own an HEG quota of
----------------------------
not less than DM 49,000 Synergy shall have the right to nominate:
(a) two of the three contemplated Managing Directors ("Geschaftsfuhrer")
of HEG;
<PAGE>
4
(b) and one half of the Supervisory Board members to be elected by the
quotaholder group, and among these,
(c) the chairman of the Supervisory Board.
The Trustee shall consent to the nominations by Synergy, unless there is a
compelling reason for the rejection. of the nomination. If the nomination
of any Managing Director, any Supervisory Board member or the chairman of
the Supervisory Board nominated by Synergy is rejected, Synergy shall have
the right to nominate alternative candidates until one of its nominees is
appointed. Trustee hereby acknowledges that there are no objections against
the appointment of Mr. George Brown as executive Managing Director of HEG
or against the election of Mr. Thomas Mino as the chairman of HEG's
Supervisory Board.
1.3 Removal of Synergy Representatives. Synergy furthermore shall have the
----------------------------------
right to propose at any time the removal of any Managing Director or
Supervisory Board member nominated by it. Trustee shall insofar vote in
accordance with the proposals of Synergy, unless there is a compelling
reason for Trustee to reject such proposal. Notwithstanding the foregoing,
Synergy shall retain the unlimited right to remove Mr. George Brown as
Managing Director. In each case the removal of any Managing Director
nominated by Synergy requires that Synergy nominates a substitute and that
such substitute Managing Director is appointed.
<PAGE>
5
Section 2 - Relationship between HEG and Quotaholders
- -----------------------------------------------------
2.1 Arm's Length Transactions. All commercial transactions between HEG and its
--------------------------
quotaholders or their affiliates shall be at arm's length or, if such is
not possible, subject to adequate disclosure to the Quotaholders' Meeting
prior to any such transactions occurring. Further transfer pricing policies
and methodologies of HEG for transactions with affiliates or quotaholders
will be described in the annual budgets of HEG and subject to the approval
of the Quotaholders' Meeting.
2.2 Books and Records. The parties will cause HEG to keep and maintain at its
-----------------
principal office a complete and accurate set of books and records [on an
accrual basis] in accordance with generally accepted accounting principles
consistently applied. HEG's books and records shall be audited at HEG's
expense each fiscal year by such firm of accountants as the Quotaholders'
Meeting may select.
2.3 Reporting. The Parties shall cause HEG's Management to provide them with
---------
such other reports regarding HEG's operations as Trustee or Synergy may
reasonably request. Such reports shall include, but not be limited to,
monthly statements of profit and loss, balance sheets and changes in cash
position.
Section 3 - Privatization of HEG
- --------------------------------
3.1 Cooperation in Privatization. It is the mandate and the objective of
----------------------------
Trustee to fully privatize HEG as soon as possible. Synergy hereby
acknowledges that the privatization may include the sale of all or a
<PAGE>
6
portion of the HEG quota(s) owned by Trustee or -- in the case of an
increase in the stated capital of HEG -- a dilution of Trustee's ownership
percentage Synergy will cooperate with Trustee's privatization efforts and,
subject to the master plan agreed upon among the participants, it will
exercise its approval and voting rights under Articles 14 and 16 of the
Articles of Association of HEG accordingly.
3.2 Information Obligations. Subject to non-disclosure obligations reasonably
-----------------------
requested by any investor, each party will use its best efforts to keep the
other promptly and fully informed about the objectives, activities and
progress made in connection with the privatization of HEG and the
negotiations conducted with any such investor. Each party will further
provide the other with reasonable opportunities to present its views and
preferences before making any commitments to any such investor and, if and
when appropriate, permit the other party to participate directly in the
negotiations with any such investor.
3.3 Participation of MBO/MBI Group. Synergy hereby declares its agreement that
------------------------------
the Trustee will transfer one or more quotas in the aggregate nominal
amount of DM 12,000 to a group of present and future management staff of
HEG. The HEG Shareholders' Meeting will select the management members
participating and the scope of their entitlements upon proposal by the
management. The consideration to be made by such management staff and other
detail will be agreed pursuant to the MBO/MBI Guidelines of Treuhandanstalt
Berlin and the Federal Ministry of Economic Affairs.
3.4 Protection of Synergy's Interests. The parties agree that it is in their
---------------------------------
mutual interest that all the industrial quotaholders of HEG fit to each
other and
<PAGE>
7
that their business strategies must be harmonious and complementary.
Synergy which -- being the first industrial quotaholder of HEG and the
licensor of valuable technology -- has a special interest to be protected
in this regard, assumes the primary responsibility for any negotiations
with other investors concerning their acquisition, from Trustee of HEG
quotas before February 28, 1994. Synergy will use its best efforts to
present a reasonably acceptable industrial partner to Trustee. Except for
compelling reasons, Trustee must not withhold its consent to any investor
presented by Synergy before February 28, 1994, who is willing to acquire an
equity interest in HEG. A compelling reason shall be deemed to exist
primarily if the presented investor would not contribute to the
strengthening and to the long-term protection of HEG's viability in
accordance with the master privatization plan.
3.5 Second Investor. In case of its consent, the Trustee agrees to transfer a
---------------
quota in the nominal amount of up to DM 19,500 to the investor presented by
Synergy. Synergy agrees that in this case it will consent to the transfer
of the quota. This assumes that the second investor will undertake to make
such contributions to HEG (cash, services or other advantages) whose value
proportionately equals the Entry Value of HEG.
Should the second investor make its investment dependent upon acquiring a
larger participation than a quota in the nominal amount of DM 19,500,
Synergy will not withhold its consent without compelling reasons even
though this may limit its purchase option ((S)5).
<PAGE>
8
3.6 Entry Value and Fair Market Value. Entry Value of HEG shall be the net book
---------------------------------
value of HEG as of March 1, 1993 minus the book value (i) of the technology
license HEG has acquired from Synergy, (ii) the rights of HEG vis-a-vis MTG
mbH as to the sales proceeds of finished products pursuant to the
Contribution Agreement (roll of deeds No. 32/1993 of the acting notary),
and (iii) the financing obligations of Treuhandanstalt pursuant to the
Financial Assistance Agreement (roll of deeds No. 39/1992 of the acting
notary). The Fair Market Value of HEG shall - disregarding the net asset
value -only be the earnings value of the Company as determined using
applicable economic principles and such rules customarily applied by
certified accountants in this context (see in particular HFA 2/1983 and any
possible later guidelines). The parties will attempt to agree on the Fair
Market Value. Should the parties not have agreed within 30 days they will
appoint a neutral certified accountant to determine the Fair Market Value
on the basis of the above rules as arbitral expert. Should the parties not
have agreed on a neutral certified accountant within the above period the
arbitral expert will be appointed by the President of the Chamber of
Certified Accountants in Dusseldorf, TersteegenstraBe, which appointment
shall be binding upon the parties. The arbitral expert shall, on the above
basis, also select the appropriate method of calculation. He will also
allocate the costs of its involvement pursuant to the provisions of SS 91
et seq. German Code of Civil Procedure.
Section 4 Put Option and Purchase Obligation
- --------------------------------------------
4.1 Disposition at Trustee's Option. If Synergy does not succeed to find a
-------------------------------
second investor under the
<PAGE>
9
conditions described in (S) 3.5 who takes over a quota in HEG in the
nominal amount of DM 19,500 by February 28, 1994, the Trustee has the right
to sell such HEG quota either to another investor determined solely by the
Trustee or to Synergy. Should a second investor found by Synergy acquire
only a HEG quota in the nominal amount of less than DM 19,500, Trustee has
the right to sell with respect to the difference. This decision must be
made by February 28, 1996. Synergy hereby agrees to the transfer [to the
second Investor) or the sale to itself in advance.
4.2 Purchase Price for Sold quota. Notwithstanding S 3.5 the Trustee is free to
-----------------------------
negotiate the purchase price for the sale of the quota to an investor
selected by the Trustee [pursuant to (S) 4.1]. If the Trustee sells the
quota to Synergy the purchase price is equal to the Fair Market Value of
the sold quota at the time of sale but not less than the proportionate
Entry Value of HEG [(S) 3.6]. The purchase price is payable within 30 days
after the declaration of the Trustee against assignment of the quota.
Section 5 - Purchase Option of Synergy
- --------------------------------------
5.1 Grant of Purchase Option. Trustee hereby grants to Synergy the option to
------------------------
purchase from Trustee a quota in the nominal amount of not less than DM
2,000 and up to DM 19,500 in the aggregate; this purchase option is
contingent upon Synergy having presented a second investor in accordance
with the terms specified in (S) 3.5, who has acquired an HEG quota in the
nominal amount of German Marks 19,500 by February 28, 1994. Synergy accepts
this purchase option.
<PAGE>
10
5.2 Exercise Period and Procedure. The purchase option can be exercised on
-----------------------------
March 1, 1994, at the earliest and on February 28, 1996, at the latest; it
shall be exercised in notarial form. Synergy may exercise its purchase
option in whole or in part and once or in several parts ,provided that the
purchase option in the aggregate shall be limited to the extent to which
Synergy did not become obligated to purchase pursuant to (S) 4.1. Upon
exercise by Synergy of the purchase option, Trustee will promptly assign
the applicable quota to Synergy or its nominee before a German notary.
5.3 Purchase Price and Payment. The purchase price payable by Synergy to
--------------------------
Trustee upon the exercise of the option shall correspond to the
proportionate Entry Value of HEG Synergy shall pay the purchase price by
check or wire transfer in exchange for the notarial assignment of the
quota.
5.4 Post-Exercise Obligations. After Synergy's exercise of the option, Trustee
-------------------------
will exercise its (voting) rights as quotaholder, and use its best efforts
to cause its representatives, if any, on the Management and/or Supervisory
Board or in the Quotaholders' Meeting, to exercise their voting rights in
accordance with Synergy's requests. Trustee shall not, directly or
indirectly, approve any payment of dividends, bonuses or other
distributions to the quotaholders, agents, employees or consultants of HEG
without Synergy's prior consent after the exercise of the option.
5.5 Waiver or Non-Exercise of Option. To the extent the condition pursuant to
--------------------------------
(S)5.1 is not satisfied or
<PAGE>
11
Synergy waives the exercise of the option or the period for exercise
passes, the Trustee is entitled to sell the quota to which the purchase
option relates without restriction. Synergy will in this case grant its
consent to the sale.
Section 6 - Put Option of Trustee
- ---------------------------------
6.1 Purchase Obligation. Synergy hereby agrees to acquire, upon request by the
-------------------
Trustee, a quota in the same proportionate amount as the quota of the other
remaining shareholders out of the quota remaining with the Trustee on March
1, 1996.
6.2 Exercise Period and Procedure. The Trustee may request Synergy in notarial
-----------------------------
form to acquire such quota from March 1, 1996 up until February 28, 1997.
After such a request by the Trustee Synergy has to accept the assignment of
such quota without delay before a German notary.
6.3 Purchase Price and Payment. The purchase price payable by Synergy to the
--------------------------
Trustee by such quota is equivalent to the proportionate Fair Market Value
of HEG, but in no event less than the proportionate Entry Value of HEG [(S)
3.6]. Synergy has to pay the purchase price by cheque or via transfer in
exchange for the notarial assignment of the quota.
Section 7 - Operation of HEG
- ----------------------------
7.1 Conduct of Business. The Parties acknowledge that the Management of HEG
-------------------
will be instructed to use its best efforts to run an efficient and
profitable business and to make HEG a competitive semi-conductor
<PAGE>
12
manufacturer on the world market. The Parties further acknowledge that
under the provisions of the Financial Assistance Agreement between HEG, the
THA and the quotaholders, HEG is obligated to employ 550 employees and to
invest not less than German Marks 45 million in fixed assets, excluding
financial assets, through December 31, 1995.
7.2 Non-Interference. The Parties agree that they will not exercise their
----------------
voting rights under HEG's Articles of Association or this Agreement in
order to frustrate or to prevent the compliance by HEG of its obligations
under the Financial Assistance Agreement, including its obligation to
refund monies to THA upon its breach thereof. In addition the parties will
not withhold any consent that may be required in this context.
7.3 Winding-Up and Liquidation. The Parties agree that the occurrence of any
--------------------------
bankruptcy, creditor composition or similar proceeding concerning HEG would
be very detrimental to the interests of either Party. They will use their
best efforts to cause the Management Board of HEG to notify them
immediately in writing if the Management Board determines, in the exercise
of its best business judgment, that despite all of its efforts it is highly
unlikely that HEG will become or remain an economically viable business. If
the Parties concur with the determination of the Management Board, they
will without undue delay enter into discussions concerning the
reorganization or the orderly winding-up and liquidation of HEG, in order
to save the operations of HEG in whole or in part, if feasible, or to
achieve a separate liquidation otherwise. It is expressly agreed that no
third party shall have any rights resulting from this Agreement.
<PAGE>
13
Section 8 - Term and Termination
- --------------------------------
8.1 Effective Date and Duration. This Agreement shall take effect as of March
---------------------------
1, 1993 and shall continue to be in force and effect until either party
ceases to be a quotaholder of HEG. The latter does not apply if the present
trustor (THA) replaces the Trustee; in this case Synergy will consent to
the transfer of this Agreement to the new trustee under release of the old
trustee.
8.2 Termination. Either Party may terminate this Agreement in writing upon the
-----------
occurrence of any one or more of the following events:
(a) bankruptcy, insolvency or liquidation of the other Party (except for
the purpose of amalgamation or reconstruction) or the appointment of
any receiver or liquidator for all or substantially all of the assets
of the other Party;
(b) the attachment, sequestration, execution or seizure of all or
substantially all of the assets of the other Party, provided that such
attachment, sequestration, execution or seizure is not discharged
within thirty days from the institution thereof; or
(c) substantial breach by the other Party of any terms of this Agreement,
if such breach is not rectified within sixty calendar days following
the receipt of written notice of breach.
<PAGE>
14
8.3 Non-Exclusive Remedy. The rights of termination contained in this Section 8
--------------------
shall be in addition to and not in substitution for any and all other
remedies that may be available to the Parties.
Section 9 - Supplemental Agreement
- ----------------------------------
The declarations made by the parties in the Supplemental Agreement, which
is attached hereto as Exhibit 1, are part of this Quotaholder Agreement.
---------
Section 10 - Costs
- ------------------
Each of the parties bears half of the costs of this Agreement. In case of
non-consummation of this Agreement the Trustee bears the costs.
Section 11 - General Provisions
- -------------------------------
11.1 Non-Severability. If any part of this Agreement shall become invalid or
----------------
unenforceable or if there are any gaps in the Agreement, the enforceability
of the remaining provisions shall not be affected. In lieu of any invalid
or unenforceable provision a provision shall be deemed to be agreed upon,
the purpose and objective and the economic consequences of which shall come
as close as possible to those of the invalid provision. In the case of
gaps, the Parties shall be deemed to have agreed upon a provision which
corresponds to what the Parties, under principles of
<PAGE>
15
good faith and fair dealing, would have agreed upon had they considered the
issue in the beginning.
11.2 Amendments. Except where otherwise expressly provided herein, this
----------
Agreement, HEG's Articles of Incorporation and the Subscription Agreement,
together with all Exhibits thereto, sets forth the entire understanding and
agreement between the Parties with respect to the subject matter herein and
therein and supersedes and cancels any and all prior or contemporaneous,
oral or written agreements or representations, if any, between the Parties.
This Agreement shall not be amended, modified, altered or changed in any
way except by a writing executed by both Parties. This applies equally to a
waiver of this requirement.
11.3 Governing Law. This Agreement shall be governed by the laws of the Federal
-------------
Republic of Germany, excluding its rules on conflicts of laws.
11.4 Dispute Resolution. Any and all disputes in connection with this Agreement
------------------
shall, to the extent possible, be settled amicably between the Parties.
Unless another court has exclusive jurisdiction under statutory law, the
courts of Berlin, Germany, shall have jurisdiction over any dispute arising
between the Parties which cannot be settled amicably.
This protocol, including attachments, was read by the notary, approved by the
participants and executed by them in their own hand as follows:
s/Jorg Stein
s/H.-M. Giesen
5/Rosener, notary
<PAGE>
Attachment A
------------
POWER OF ATTORNEY BY SYNERGY
----------------------------------------------------------
[not provided)
<PAGE>
EXHIBIT 1
---------
SUPPLEMENTAL AGREEMENT
- -------------------------------------------------------------------------------
[See Exhibit 1 to Contribution Agreement]
<PAGE>
APOSTILLE
(Convention de La Haye du 5 octobre 1961)
1. Country: United States of America
This public document
2. has been signed by BEVERLLY A. LIPTON
3. acting in the capacity of Notary Public, State of California
4. bears the seal/stamp of BEVERLY A. LIPTON Notary Public,
State of California
CERTIFIED
5. at Sacramento, California 6. the 5Th DAY OF FEBRUARY 1993
7. by Deputy Secretary of State, State of California
8. No. np324870
9. Seal/Stamp 10. Signature:
___________________________
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT No.5193
================================================================================
State of California ) ==== OPTIONAL SECTION ====
----------------- )
County of Santa Clara ) CAPACITY CLAIMED BY SIGNER
---------------- ) Though statue does not
require this Notary to fill
in the date below, doing
so may prove invaluable
to persons relying on the
document.
On 2-3-93 before me, Beverly A. Lipton, Notary ,
---------- -----------------------------
DATE NAME, TITLE OF OFFICER [_] INDIVIDUAL
E.G., JANE DOE NOTARY PUBLIC
[X] CORPORATE OFFICER(S)
personally appeared Edward Leonard Secretary
---------------------------------, ---------------------
NAME(S) OF SIGNER(S) TITLE(S)
[X] personally known to me - OR - [_] proved to me
the basis of [_] PARTNER(S) [_] LIMITED
satisfactory evidence [_] GENERAL
to be the person whose [_] ATTORNEY-IN-FACT
name is subscribed to
the within instrument [_] TRUSTEE(S)
and acknowledged to me
that he executed the [_] GUARDIAN/CONSERVATOR
same in his authorized
capacity, and that by [_] OTHER: _______________
his signature on the
instrument the ______________________
person(s), or the
entity upon behalf ______________________
of which the person
acted, executed the
instrument.
[SEAL APPEARS HERE] SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR
ENTITY(IES)
WITNESS my hand and
official seal.
_________________________
/s/ Beverly A. Lipton
---------------------- _________________________
SIGNATURE OF NOTARY
================================ OPTIONAL SECTION ==============================
THIS CERTIFICATE MUST BE TITLE OR TYPE OF DOCUMENT POWER OF ATTORNEY
-------------------------
ATTACHED TO THE DOCUMENT
DESCRIBED AT RIGHT:
________________________ NUMBER OF PAGES 1 DATE OF DOCUMENT 12-15-92
----- --------------
THOUGH THE DATA REQUESTED
HERE IS NOT REQUIRED BY SIGNER(S) OTHER THAN NAMED ABOVE SVEN SIMONSEN
-----------------
LAW, IT COULD PREVENT
FRAUDULENT REATTACHMENT OF
THIS FORM.
================================================================================
<PAGE>
APOSTILLE
(Convention de La Haye du 5 octobre 1961)
1. Country: United States of America
This public document
2. has been signed by BEVERLY A. LIPTON
3. acting in the capacity of Notary Public, State of California
4. bears the seal/stamp of BEVERLY A. LIPTON Notary Public,
State of California
CERTIFIED
5. at Sacramento, California 6. the 5Th DAY OF FEBRUARY 1993
7. by Deputy Secretary of State, State of California
8. No...np#24871
9. Seal/Stamp 10. Signature:
_______________________________
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT No.5193
================================================================================
State of California ) ==== OPTIONAL SECTION ====
----------------- )
County of Santa Clara ) CAPACITY CLAIMED BY SIGNER
---------------- ) Though statue does not
require this Notary to fill
in the date below, doing
so may prove invaluable
to persons relying on the
document.
On 2-3-93 before me, Beverly A. Lipton ,
---------- -----------------------------
DATE NAME, TITLE OF OFFICER [_] INDIVIDUAL
E.G., JANE DOE NOTARY PUBLIC
[X] CORPORATE OFFICER(S)
personally appeared Sven Simonsen Chairman of the Board
---------------------------------, ---------------------
NAME(S) OF SIGNER(S) TITLE(S)
[_] personally known to me - OR - [X] proved to me
the basis of [_] PARTNER(S) [_] LIMITED
satisfactory evidence [_] GENERAL
to be the person whose [_] ATTORNEY-IN-FACT
name is subscribed to
the within instrument [_] TRUSTEE(S)
and acknowledged to me
that he executed the [_] GUARDIAN/CONSERVATOR
same in his authorized
capacity, and that [_] OTHER: _______________
by his signature on
the instrument the ______________________
person(s), or the ______________________
entity upon behalf
of which the person
acted, executed the
instrument.
[SEAL APPEARS HERE] SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR
ENTITY(IES)
WITNESS my hand and
official seal.
_________________________
/s/ Beverly A. Lipton
---------------------- _________________________
SIGNATURE OF NOTARY
================================ OPTIONAL SECTION ==============================
THIS CERTIFICATE MUST BE TITLE OR TYPE OF DOCUMENT POWER OF ATTORNEY
-------------------------
ATTACHED TO THE DOCUMENT
DESCRIBED AT RIGHT:
________________________ NUMBER OF PAGES 1 DATE OF DOCUMENT 12-15-92
----- --------------
THOUGH THE DATA REQUESTED
HERE IS NOT REQUIRED BY SIGNER(S) OTHER THAN NAMED ABOVE Edward Leonard
-----------------
LAW, IT COULD PREVENT
FRAUDULENT REATTACHMENT OF
THIS FORM.
================================================================================
<PAGE>
[LOGO OF SYNERGY APPEARS HERE] [LETTER HEAD APPEARS HERE]
POWER OF ATTORNEY
THE UNDERSIGNED SYNERGY SEMICONDUCTOR CORPORATION, 3450 CENTRAL EXPRESSWAY,
SANTA SANTA CLARA, CA 95051, USA, HEREBY GRANTS POWER OF ATTORNEY WITH
INDIVIDUAL SIGNING POWER, RELEASE FROM THE RESTRICTIONS OF 181 GERMAN CIVIL CODE
AND THE RIGHT TO GRANT SUBPOWER TO EACH OF THE FOLLOWING:
THOMAS D. MINO, WITH BUSINESS ADDRESS AT: 3450 CENTRAL EXPRESSWAY, SANTA
CLARA, CA 95051, USA, AND
GEORGE W. BROWN, WITH BUSINESS ADDRESS AT: 3450 CENTRAL EXPRESSWAY, SANTA
CLARA, CA 95051, USA, AND
DR. HANS-MICHAEL GIESEN, WITH BUSINESS ADDRESS AT: DO BRUCKHAUS WESTRICK
STEGEMANN, FRIEDRICHSTR. 95, D-1086 BERLIN
TO REPRESENT SYNERGY SEMICONDUCTOR CORPORATION IN CONNECTION WITH THE
ACQUISITION OF A PARTICIPATION IN HALBLEITERELEKTRONIK FRANKFURT (ODER) GMBH,
WILDBAHN, D-1201 FRANKFURT/ODER-MARKENDORF, REGISTERED IN THE COMMERCIAL
REGISTER OF THE LOWER COURT FRANKFURT/ODER UNDER HRB 2687 (IN PARTICULAR TO
SUBSCRIBE TO A SHARE IN THIS COMPANY) AND TO EXERCISE ALL SHAREHOLDER RIGHTS IN
THIS COMPANY (IN PARTICULAR APPOINTMENT AND REMOVAL OF MANAGING DIRECTOR,
REVISION AND AMENDMENTS OF THE ARTICLES OF ASSOCIATION) AND TO ENTER INTO
ADDITIONAL AGREEMENTS (IN PARTICULAR A FINANCIAL ASSISTANCE AGREEMENT, A
SHAREHOLDERS AGREEMENT AND A GENERAL FRAMEWORK AGREEMENT) WITH THE OTHER
PARTICIPANTS AND TO ENTER INTO ANY ADDITIONAL CONTRACTS NECESSARY OR ADVISABLE,
MAKE DECLARATIONS OR TAKE ACTS IN THIS CONTEXT.
SANTA CLARA, DECEMBER 15, 1992
________________________________ _________________________
NAME: SVEN SIMONSEN NAME: EDWARD LEONARD
TITLE: CHAIRMAN OF THE BOARD TITLE: SECRETARY
<PAGE>
APOSTILLE
(Convention de La Haye du 5 octobre 1961)
1. Country: United States of America
This public document
2. has been signed by BEVERLY A. LIPTON
3. acting in the capacity of Notary Public, State of California
4. bears the seal/stamp of BEVERLY A. LIPTON Notary Public,
State of California
CERTIFIED
5. at Sacramento, California 6. the 5Th DAY OF FEBRUARY 1993
7. by Deputy Secretary of State, State of California
8. No...NP#24872
9. Seal/Stamp 10. Signature:
_________________________________
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT No.5193
================================================================================
State of California ) ==== OPTIONAL SECTION ====
----------------- )
County of Santa Clara ) CAPACITY CLAIMED BY SIGNER
---------------- ) Though statue does not
require this Notary to fill
in the date below, doing
so may prove invaluable
to persons relying on the
document.
On 2-3-93 before me, Beverly A. Lipton Notary ,
---------- -----------------------------
DATE NAME, TITLE OF OFFICER [_] INDIVIDUAL
E.G., JANE DOE, NOTARY PUBLIC
[X] CORPORATE OFFICER(S)
personally appeared Edward Leonard Secretary
---------------------------------, ---------------------
NAME(S) OF SIGNER(S) TITLE(S)
[X] personally known to me - OR - [_] proved to me
the basis of [_] PARTNER(S) [_] LIMITED
satisfactory evidence [_] GENERAL
to be the person whose [_] ATTORNEY-IN-FACT
name is subscribed to
the within instrument [_] TRUSTEE(S)
and acknowledged to me
that he executed the [_] GUARDIAN/CONSERVATOR
same in his authorized
capacity, and that by [_] OTHER: _______________
his signature on the
instrument the ______________________
person(s), or the
entity upon behalf ______________________
of which the person
acted, executed the
instrument.
[SEAL APPEARS HERE] SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR
ENTITY(IES)
WITNESS my hand and
official seal.
_________________________
/s/ Beverly A. Lipton
---------------------- _________________________
SIGNATURE OF NOTARY
================================ OPTIONAL SECTION ==============================
THIS CERTIFICATE MUST BE TITLE OR TYPE OF DOCUMENT Secretary Certificate
-------------------------
ATTACHED TO THE DOCUMENT
DESCRIBED AT RIGHT:
________________________ NUMBER OF PAGES 1 DATE OF DOCUMENT 2-5-93
----- --------------
THOUGH THE DATA REQUESTED
HERE IS NOT REQUIRED BY SIGNER(S) OTHER THAN NAMED ABOVE Edward Leonard
-----------------
LAW, IT COULD PREVENT
FRAUDULENT REATTACHMENT OF
THIS FORM.
================================================================================
<PAGE>
[LOGO OF SYNERGY APPEARS HERE] [LETTER HEAD APPEARS HERE]
SECRETARY CERTIFICATE
THE UNDERSIGNED EDWARD LEONARD, SECRETARY OF SYNERGY SEMICONDUCTOR CORPORATION,
3450 CENTRAL EXPRESSWAY, SANTA CLARA, CA 95051, HEREBY CERTIFIES THAT:
- MESSRS. SVEN SIMONSEN AND EDWARD LEONARD IN THEIR RESPECTIVE CAPACITY
AS CHAIRMAN OF THE BOARD AND SECRETARY OF SYNERGY SEMICONDUCTOR
CORPORATION HAVE BEEN AND ARE AUTHORIZED BY THE BOARD OF DIRECTORS
UNDER THE APPLICABLE LAWS AND REGULATIONS AND THE INTERNAL CORPORATE
RULES OF SYNERGY SEMICONDUCTOR CORPORATION TO EXECUTE AND DELIVER THE
ATTACHED POWER OF ATTORNEY DATED AS OF DECEMBER 15,1992.
- THE UNDERSIGNED IS THE DULY AUTHORIZED SECRETARY OF SYNERGY
SEMICONDUCTOR CORPORATION, THAT AS SUCH HE IS AUTHORIZED TO ISSUE THIS
CERTIFICATE AND THAT ALL RULES AND REQUIREMENTS FOR ISSUING THIS
CERTIFICATE HAVE BEEN OBSERVED.
- SYNERGY SEMICONDUCTOR CORPORATION WITH ITS PRINCIPAL ADDRESS AS SHOWN
ABOVE IS A CORPORATION DULY INCORPORATED, VALIDLY EXISTING AND IN GOOD
STANDING UNDER THE LAWS OF THE STATE OF CALIFORNIA.
MADE IN SANTA CLARA THIS 3RD DAY OF FEBRUARY, 1993
/s/ Edward Leonard
----------------------------------------------
NAME: EDWARD LEONARD
TITLE: SECRETARY
<PAGE>
EXHIBIT 10.14
DEVELOPMENT AGREEMENT
---------------------
This Agreement is made this 14th day of November, 1990 by and between Synergy
Semiconductor Corporation, a California corporation having its principal office
at 3450 Central Expressway, Santa Clara, CA 95051, U.S.A. ("Synergy") and
Toshiba Corporation, a Japanese corporation having its principal office at 1-1,
Shibaura 1-chome, Minato-ku, Tokyo 1051 Japan ("Toshiba").
WHEREAS, Synergy and Toshiba each possesses certain technology and intellectual
property rights concerning the design and manufacture of semiconductor products;
WHEREAS, Synergy and Toshiba desire to jointly develop certain Bipolar and
BiCMOS ASIC products;
NOW THEREFORE, IT IS AGREED as follows:
ARTICLE 1. DEFINITIONS
- ----------------------
1.1. "Phase I Development Project" means the development efforts by the parties
through the ASIC Organization to accomplish the objectives set forth in Exhibit
A.
1.2. "Phase II Development Project" means the development efforts by the parties
through the ASIC Organization to accomplish the objectives set forth in Exhibit
B.
1.3. "Development Projects" means Phase I Development Project and Phase II
Development Project and such other development efforts as approved by the
Management Committee pursuant to Article 2, it being understood, however, that
the targeted completion date of each Development Project shall be prior to
December 31, 1995.
*Confidential treatment requested. Confidential portion has been filed
separately with the Securities and Exchange Commission.
- 1 -
<PAGE>
1.4. "Technology" means all developments, ideas (whether or not patentable),
designs, inventions and technical information and intellectual property rights
relating thereto (including, but not limited to, trade secrets, patents,
copyright and maskworks).
1.5. Synergy Technology" means Technology owned or developed by or for Synergy
before or during the term of this Agreement independent of Development Projects
including improvements and derivatives of Jointly Developed Technology made by
Synergy during the term of this Agreement.
1.6. "Toshiba Technology" means Technology developed by Toshiba before or during
the term of this Agreement independent of Development Projects including
improvements and derivatives of Jointly Developed Technology made by Toshiba
during the term of this Agreement.
1.7. "Jointly Developed Technology" means Technology developed by Synergy and/or
Toshiba during the course of performance of the Development Projects.
1.8. "Synergy Patents" means all classes or types of patents, utility models,
and design patents (hereafter collectively referred to as "patents") of all
countries of the world, arising out of inventions made by employees or
consultants of Synergy, the applications for which have a first effective filing
date in any country prior to the date of expiration or termination of this
Agreement and under which and to the extent to which and subject to the
conditions under which Synergy or any successor may have, as of the effective
date of this Agreement, or at the date of acquisition with respect to patents
acquired by Synergy after the effective date of this Agreement, the right to
grant licenses of the scope granted herein without the payment of royalties or
other consideration to third persons, except for payments to third persons for
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<PAGE>
inventions made by said persons while employed by Synergy, and which patents are
essential to the reasonable practice or exercise of any rights grants hereunder.
1.10. "Toshiba Patents" means all classes or types of patents, utility models,
and design patents (hereafter collectively referred to as "patents") of all
countries of the world, arising out of inventions made by employees or
consultants of Toshiba, the applications for which have a first effective filing
date in any country prior to the date of expiration or termination of this
Agreement and under which and to the extent to which and subject to the
conditions under which Toshiba or any successor may have, as of the effective
date of this Agreement, or at the date of acquisition with respect to patents
acquired by Toshiba after the effective date of this Agreement, the right to
grant licenses of the scope granted herein without the payment of royalties or
other consideration to third persons, except for payments to third persons for
inventions made by said persons while employed by Toshiba, and which patents are
essential to the reasonable practice or exercise of any rights grants hereunder.
1.11. "Subsidiary" means a corporation, company or other entity:
i) more than fifty percent (50%) of whose outstanding shares of
securities (representing the right to vote for the election of
directors or other managing authority) are;
ii) which does not have outstanding shares or securities, as may be the
case in a partnership, joint venture, or unincorporated association,
but more than fifty percent (50%) of the ownership interest
representing the right to make the decisions for such corporation,
company or other entity is;
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<PAGE>
now or hereafter, owned or controlled, directly or indirectly, by a party
hereto, but such corporation, company or entity shall be deemed a Subsidiary
only so long as such ownnership or control exists.
1.12. "ASIC Organization" means a organization to be established within Synergy
pursuant to Section 3.1 in order to perform actual Development Projects under
this Agreement.
1.13. "Developed Products" means ASIC products resulting from the Development
Projects and any product designed with or manufactured with the use of any
Jointly Developed Technology.
1.14. "Net Sales" means the actual selling price of Developed Products subject
to royalty payments under this Agreement as invoiced to customers. For
computation of the royalties the Net Sales is to be reduced by deduction of
freight charges, packing costs, insurance, taxes and other duties directly to be
paid on sale, allowance for return of such Developed Products, all on such
Developed Products previously invoiced.
In the case of supplies to Subsidiaries or within a party for internal use of
such Developed Products, Net Sales is the Fair Market Value. The term "Fair
Market Value" shall mean the price at which such Developed Products would be
sold by a party or its Subsidiaries in arms' length transaction to independent
customers in the ordinary course of business.
ARTICLE 2. SCOPE OF JOINT DEVELOPMENT
- -------------------------------------
2.1. Synergy and Toshiba agrees to jointly undertake the Development Projects in
accordance with the procedures specified in this Agreement.
- 4 -
<PAGE>
2.2. Immediately after the effective date of this Agreement, Synergy and Toshiba
shall establish the Management Committee which shall be comprised of six (6)
representatives; three (3) of which shall be appointed by Synergy and three (3)
of which shall be appointed by Toshiba, which appointments shall have been
approved by both parties.
Each party reserves the right to remove and appoint, subject to the other
party's approval, successors to its members by written notice to the other
party. The total number of the representatives may be changed as mutually agreed
upon.
2.3. The Management Committee shall be responsible for:
a. Approving and reviewing the Development Projects in accordance with
the manner as specified in Section 2.4;
b. Reviewing progress against a plan, coordinating the preparation of the
Development Projects modification for any significant changes to scope
or schedules of the original plan;
c. Discussing the evaluations of the Development Projects and
potential actions resulting therefrom;
d. Resolving any differences between the parties which may arise
during the course of the Development Projects;
e. Determining the budget in accordance with Section 6.2;
f. Valuing the non-cash contributions of synergy and Toshiba for purposes
of Section 2.5; and
g. Any other matters as specified in this Agreement.
All decisions by the Management Committee shall be made unanimously and shall be
set forth in writing. If any matter is not determined by unanimous consent of
the Management Committee, such matter shall be referred to senior executives of
Synergy and Toshiba for their final determination.
- 5 -
<PAGE>
2.4. In order to approve the Development Projects, the Management Committee
shall review and approve a Development Project proposal to be submitted by the
ASIC Organization, which proposal shall consist of:
a. A full description of the Development Projects and work to be
undertaken;
b. A detailed schedule for conduct of the Development Projects;
c. An estimate of cost and man-months of personnel effort required
for the Development Projects; and
d. A schedule for funding by the parties.
2.5. To reflect the nature of the parties' overall cooperation, the Management
Committee shall approve the Development Projects as provided in Section 2.4
above, in such a way as to ensure that the nature and the level of the work to
be carried out, the costs involved, the number of people necessary, and the
resources required for implementation of the Development Projects shall be
totally equal for each of the parties.
2.6. The Management Committee shall have at least quarterly meetings
alternatively in the U.S. and in Japan, or other places as mutually agreed upon
between the parties. Each party shall be responsible for its own cost.
ARTICLE 3. DEVELOPMENT ACTIVITIES
- ---------------------------------
3.1. Within thirty (30) days after the effective date of this Agreement,
Synergy shall commence establishment of the ASIC Organization in accordance with
the plan approved by the Management Committee. The ASIC Organization shall be
responsible for the actual work for the Development Project in accordance with
the Development Project proposal approved by the Management Committee specified
in ARTICLE 2 of this Agreement.
3.2. The ASIC Organization will be divided into subteams, such as design,
modeling, tool development,
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<PAGE>
software integration and test & package and that total number of personnel shall
be from ten (10) to fifteen (15) persons in the initial stage. The Management
Committee will decide detailed structure and number of personnel within the ASIC
Organization on the basis of the Development Projects.
3.3. The ASIC Organization shall prepare written progress technical reports
summarizing the work conducted and results obtained by it in performing each
Phase I and Phase. II Development Project and a formal final technical report
detailing such work and results. The progress technical reports shall be
submitted to the Management Committee on a monthly basis. The final technical
report shall be submitted to the Management Committee within ninety (90) days
following completion of each Development Project.
ARTICLE 4. SYNERGY'S RESPONSIBILITIES
- -------------------------------------
4.1. Synergy shall be responsible for the staffing and operational management
of the ASIC Organization in compliance with the decisions made by the Management
Committee.
4.2. In case that Synergy Technology is necessary for performing the
Development Projects by the ASIC Organization and upon request of the Management
Committee, Synergy agrees to transfer Synergy Technology to the ASIC
Organization for the purpose of performing the Development Projects.
ARTICLE 5. TOSHIBA'S RESPONSIBILITIES
- -------------------------------------
5.1. In case that Toshiba Technology is necessary for performing the
Development Projects by the ASIC Organization and upon request of the Management
Committee, Toshiba agrees to transfer Toshiba Technology to the ASIC
Organization for the purpose of performing the Development Projects.
- 7 -
<PAGE>
5.2. To assist the development at the ASIC Organization, Toshiba agrees to
send approximately three (3) engineers to the ASIC Organization on a resident
basis. All the cost of the visits by these Toshiba engineers including salary,
travel and living expense shall be at Toshiba's expense but such expense shall
be considered as Toshiba's contribution specified in Section 2.5 as approved by
the Management Committee.
ARTICLE 6. FUNDING
- ------------------
6.1. Synergy and Toshiba currently estimate that the total cost for the
Development Projects is approximately Eight Million U.S. Dollars (US$8,000,000)
to Ten Million U.S. Dollars (US$10,0000,000). The cost for the Development
Projects shall be equally shared by Synergy and Toshiba, it being understood,
however, that Synergy's contribution would be primarily in the form of
personnel, office and equipment.
6.2. The Management Committee shall approve the budget for each Development
Project and for the whole ASIC Organization, which shall be determined and
submitted quarterly by General Manager of the ASIC Organization. Based upon
such quarterly review, the Management Committee shall approve the budget for the
next quarter.
6.3. Toshiba's contribution in the form of cash will be made in accordance
with the following:
6.3.1. Toshiba shall pay to Synergy One Million U.S. Dollars (US$1,000,000)
within fourteen (14) days after the effective date of this Agreement.
6.3.2. Based upon the budget for the next quarter as defined in Section 6.2.,
the Management Committee shall approve the funding to be made
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<PAGE>
by Toshiba for such quarter. Toshiba shall make such cash contributions
as required for a quarter within thirty (30) days after the end of the
immediately previous quarter.
6.3.3. Neither Synergy nor Toshiba is obligated to pay more than Five Hundred
Thousand U.S. Dollars (US$500,000) as contribution in the form of cash
for in any quarter. In case it is reasonably forecasted that either
party will be required to pay more than Five Hundred Thousand U.S.
Dollars (US$500,000) for continuation of the Development Projects, both
parties will immediately discuss appropriate solution or
countermeasures.
6.4. Synergy warrants that cash contribution made by Toshiba shall be used
only for the purpose of performance of the Development Projects, including
overhead costs.
6.5. Except as provided in Section 6.3, contribution by both parties in the
form of cash will be made in the staged basis based upon the decision by the
Management Committee.
6.6. Neither party is obligated to pay more than Five Million U.S. Dollars
(US$5,000,000) as contribution in the form of cash. In case it is reasonably
forecasted that either party will be required to pay more than Five Million U.S.
Dollars (US$5,000,000) for completion of the Development Projects, both parties
will immediately discuss appropriate solution or countermeasures.
ARTICLE 7. TRANSFER OF TECHNOLOGY
- ---------------------------------
7.1. Synergy and Toshiba may at any time access to all Jointly Developed
Technology developed either by Synergy employees or Toshiba employees to the
extent that such access does not unreasonably interfere with the development
activities for Development Projects.
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<PAGE>
7.2. Synergy shall transfer to Toshiba one set of documents of Jointly
Developed Technology generated by people who performed Development Projects in
such manner as agreed at the Management Committee on a quarterly basis after
such documents are generated. Such documents shall include at least all software
(in object and source code form) and the related documentation.
7.3. Synergy and Toshiba shall hold two or three day technical meetings at
least on a semiannual basis alternatively in the U.S. and in Japan to review and
discuss any technical issues on Development Projects and to respond to questions
raised by either party with regard to Jointly Developed Technology transferred
to such party. Any expenses incurred by either party for technical meetings
shall be borne by such party.
ARTICLE 8. OWNERSHIP OF JOINTLY DEVELOPED TECHNOLOGY
- ----------------------------------------------------
8.1. Any title, interest in and right to Jointly Developed Technology shall be
jointly owned by Synergy and Toshiba. Synergy and Toshiba each has the right to
use, disclose or otherwise dispose of such Jointly Developed Technology for any
purpose, but subject only to royalty payment as specified in Article 10, except
that each party shall not license Jointly Developed Technology to any third
party except for its Subsidiaries without the prior written approval by the
other party and shall comply with the confidentiality obligation set forth in
Article 11 with regard to Jointly Developed Technology. Provided, however, each
party may disclose or license Jointly Developed Technology to its customers for
the purpose of designing Developed Products by and for such customers.
8.2. In the case of each development of Jointly Developed Technology, the
parties shall mutually determine whether an application or applications for
patent should
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<PAGE>
be filed on the same, the party which will prepare and file such application(s),
and the country or countries in which the same is to be filed. Subject to the
provisions of Section 8.5, if the parties disagree on filing in one or more
countries, the party wishing to file in such country(ies) may do so
independently of the other party. In any event, each party, at its own expense,
shall cooperate fully with the filing party as may be necessary for the proper
preparation, filing and prosecution of each such patent application and the
maintenance and renewal of each patent covering such Jointly Developed
Technology.
The expense for preparing, filing and prosecuting each joint application, and
for issuance of the respective patent shall be shared equally by both parties.
Where such joint application for patent is filed by either party in a country
which requires the payment of annual taxes or annuities on a pending application
or on an issued patent, the filing party, prior to filing, shall notify the
other party, requesting the other party to indicate whether it will agree to pay
one-half (1/2) of such annual taxes or annuities. If, within sixty (60) days
after receiving such notice, the non-filing party fails to assume in writing the
obligation to pay its one-half (1/2) share of such annual taxes or annuities, or
if either party subsequently fails, within sixty (60) days of demand, to
continue such payments, it shall forthwith relinquish to the other party,
providing said other party continues such payments, its right, title and
interest to such application and patent, subject, however, to retention of a
paid-up, nonexclusive, nonassignable and irrevocable license, in favor of the
relinquishing party and its Subsidiaries, to make, have made, use, lease, sell
or otherwise dispose of apparatus and/or methods under said application and
patent.
8.3. In the event that the filing party shall determine to abandon, or
otherwise not to prosecute, any jointly owned patent application, or not to
maintain, defend or
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<PAGE>
renew any jointly owned patent, it shall notify the other party thereof, in
writing, at the earliest practicable date, and such other party shall have the
right, at its expense, to prosecute such application or to take up such
maintenance or defense, or prosecute such renewal, as the case may be. The
original filing party agrees, at the other party's expense, to cooperate fully
with the other party and to assist the other party in obtaining, maintaining,
defending and renewing such patent right hereunder. Thenceforth, the party
exercising its right under this Section 8.3 shall be deemed "the filing party"
for purposes of Sections 8.2 and 8.3.
8.4. Notwithstanding the provision of Section 8.1., each party shall have the
right to grant to any third party nonexclusive licenses under jointly owned
patent applications or patents resulting from inventions made by employees of
such party solely or jointly with employees of the other party, provided that it
shall have fulfilled its obligation, if any, to pay its share of taxes or
annuities imposed on such pending applications or patents on any terms; and such
party shall retain any consideration that it may receive therefore without
having to account to the other joint owner. Each party consents to the granting
of such nonexclusive licenses by the other party, and agrees not to assert any
claim with respect to any such patent or application licensed by the other party
against the licensee or licensees thereof for the term of any such license. The
granting party shall indemnify and hold harmless the other party for any damages
or expenses incurred by such other party resulting from grant of licenses by
such granting party pursuant to this Section 8.4.
8.5. Notwithstanding any other provisions of Article 8, a patent application
on Jointly Developed Technology in any country of the world shall be filed only
if both parties agree that such Technology should be patented.
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<PAGE>
ARTICLE 9. LICENSE
- ------------------
9.1. Toshiba hereby grants to Synergy and its Subsidiaries, a nonexclusive,
nonassignable, perpetual, fully-paid, worldwide right and license,. without the
right to grant sublicenses, to make, have made, use, sell and otherwise dispose
of Developed Products under Toshiba Technology transferred to Synergy pursuant
to Section 5.1 and Toshiba Patents.
9.2. Synergy hereby grants to Toshiba and its Subsidiaries, a nonexclusive,
nonassignable, perpetual, fully-paid, worldwide right and license, without the
right to grant sublicenses, to make, have made, use, sell and otherwise dispose
of Developed Products under Synergy Technology transferred to Toshiba pursuant
to Section 4.2 and Synergy Patents.
ARTICLE 10. ROYALTIES
- ---------------------
10.1. In consideration of the right and license granted to and acquired by
Toshiba hereunder, Toshiba shall pay to Synergy a royalty of _____*______ of
all Net Sales of Developed Products used, sold, leased or other-wise disposed
of by Toshiba or its Subsidiaries.
10.2. In consideration of the right and license granted to and acquired by
Synergy hereunder, Synergy shall pay to Toshiba a royalty of _____*______ of
all Net Sales of Developed Products used, sold, leased or otherwise disposed of
by Synergy or its Subsidiaries.
10.3. Both parties agree to make a written report to the other party within
ninety (90) days after the end of each calendar year, describing and stating all
Net Sales of Developed Products used, sold, leased or otherwise disposed of
during the respective calendar year. Concurrent with the submission of each
report, each party
*Confidential treatment requested. Confidential portion has been filed
separately with the Securities and Exchange Commission.
- 13 -
<PAGE>
shall pay to the other party the royalties on Developed Products covered by the
report.
10.4. Each party and its Subsidiaries will keep detailed records and books of
account as may be necessary to determine the royalty payments in accordance with
their standard practices. Each party is entitled at its own expense to have such
records and books of the other party inspected by an independent public
accountant.
10.5. The royalties due under this Agreement shall be paid without deduction
for taxes; provided, however, that withholding taxes imposed under the law of
U.S.A. on amounts payable to Toshiba and paid by Synergy to the account of
Toshiba or withholding taxes imposed under the law of Japan on amounts payable
to Synergy and paid by Toshiba to the account of Synergy shall be deductable
according to the Tax Treaty between Japan and the U.S. for the avoidance of
double taxation. The parties will furnish each other with certified statements
or receipts evidencing the payment of such withholding taxes.
10.6. Neither party shall be obligated to pay the royalty with respect to the
Developed Products sold to the other party.
10.7. All royalties shall be paid in U.S. dollars. If the conversion from
Japanese Yen into U.S. dollars are necessary, it shall be made at the exchange
rate established by Bank of Tokyo in Tokyo on the date of payment.
10.8. The obligation of the royalty payment of either party under this Article
10 shall cease:
i) on December 31, 1995 or
ii) when the cumulative amount of the royalty paid by such party reaches
Five Million U.S. Dollars (US $5,000,000), whichever comes earlier.
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<PAGE>
10.9. For the purpose of this Article, the Developed Products subject to
royalty payments hereunder shall, notwithstanding any other provision of this
Agreement, be calculated on (i) with regard to gate arrays, all products using
any master array developed under this Agreement and (ii) with regard to standard
cells, all products designed using any cell developed under this Agreement.
ARTICLE 11. CONFIDENTIALITY
- ---------------------------
11.1. Any information disclosed or exchanged in the framework of this Agreement
as proprietary or confidential is hereinafter referred to as "Data". For the
purpose of this Article, all Jointly Developed Technology shall be deemed Data.
Both parties agree that any such Data disclosed by one party to the other shall
be maintained as proprietary information and will be disclosed only to such of
its employees or independent contractors who have a need to know such particular
Data in furtherance of their duties and are bound to an enforceable written
agreement prohibiting them from disclosing any such Data to any other party.
11.2. Except as provided above, each party further agrees and covenants that it
will maintain any Data in confidence and will not disclose it to any third party
Data and only such Data as:
1. is in the possession of the receiving party as of the effective
date of this Agreement, independently of any disclosure by the disclosing party,
as evidenced by written documents in existence prior to the date of any
disclosure of such Data to the receiving party by the disclosing party;
2. is or becomes available to the public, separate and apart from any
disclosures by the receiving party;
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<PAGE>
3. is learned by the receiving party from a third party entitled to
disclose such Data, provided the receiving party complies with all restrictions
imposed by the third party; or
4. is independently developed by the receiving party.
11.3. The obligations set forth in the Article 11 shall expire at fifth (5th)
anniversary of receipt of information with regard to each piece of Data and
survive termination of this Agreement for such period. After expiration of such
period for each piece of Data, the receiving party may sublicense that Data to
third parties, provided that such third parties are bound to confidentiality
restrictions similar to the provisions of this Article 11.
ARTICLE 12. TERM AND TERMINATION
- --------------------------------
12.1. This Agreement shall become effective as of (i) the last signature hereto
or the date on which this Agreement is approved by the Japanese Government,
whichever is later, or (ii) such other later date as mutually agreed upon, and
shall continue in effect until December 31, 1995 or until the Development
Projects approved by the Management Committee pursuant to Section 2.3. have
completed, whichever is longer, unless sonner terminated by a party hereto in
accordance with this Article 12.
12.2. If either party defaults in the performance of its material obligations
hereunder and if any such default is not corrected within ninety (90) days after
it shall have been called to the attention of the defaulting party, in writing,
by the other party, then the other party, at its option, may, in addition to any
other remedies it may have, thereupon terminate this Agreement by giving written
notice of termination to the other party.
- 16 -
<PAGE>
12.3. This Agreement may be terminated by either party on notice, (i) upon the
institution by the other party of insolvency, receivership or bankruptcy
proceedings or any other proceedings for the settlement of the debts, (ii) upon
the institution of such proceedings against the other party, which are not
dismissed or otherwise resolved in such party's favor within sixty (60) days
thereafter, (iii) upon the other party's making an assignment for the benefit of
creditors, or (iv) upon the other party's dissolution or ceasing to do business
in the normal course.
12.4. (a) In the event of termination or expiration of this Agreement, the
licenses granted to each party specified in Sections 9.1 and 9.2
shall survive such termination, provided that if this Agreement is
terminated by either party for the default of the other party
pursuant to Section 12.2 above, then the licenses granted to the
defaulting party shall thereupon terminate. Notwithstanding such
termination or expiration, the defaulting party may dispose of
existing inventory subject to royalty payment. In the case of
termination for default, all confidential information and other
materials of the terminating party, and all complete or partial
copies thereof, shall be promptly returned to the terminating party.
(b) If this Agreement is terminated or expires and a party's license
survives such termination or expiration, then such party shall
continue to be bound by the surviving restrictions and related
obligations (e.g., limitations on the license grants,
confidentiality obligations), and such party's licenses may
thereafter be terminated by the other party for material default of
those restrictions or obligations, in accordance with the provisions
set forth herein.
- 17 -
<PAGE>
(c) In any event the confidentiality provisions of Article 11 shall
survive termination or expiration of this Agreement for such period
as set forth in such Article 11.
12.5. No failure or delay on the part of either party in exercising its right
of termination hereunder for any one or more causes shall be construed to
prejudice its right of termination for any other or subsequent cause.
ARTICLE 13. WARRANTIES
- ----------------------
13.1. Synergy and Toshiba each represents that it has the right to grant the
rights granted hereunder, to transfer its Technology, and that the terms and
conditions do not violate its Articles of Incorporation or By-Laws and do not
conflict with any other agreement to which it is a party or by which it is
bound.
13.2. Nothing contained in this Agreement shall be construed as a warranty or
representation that the manufacture, sale, lease, use or other disposition of
products by either party will be free from infringement of intellectual property
rights of third parties, or that the recipient party will successfully
manufacture or develop product's based upon the Technology transferred to it
hereunder.
13.3. EXCEPT AS EXPRESS PROVIDED IN SECTION 13.1, NEITHER PARTY GRANTS TO THE
OTHER ANY WARRANTIES, EITHER EXPRESS OR IMPLIED, AS TO ANY TECHNOLOGY
TRANSFERRED BY SUCH PARTY TO SUCH OTHER PARTY HEREUNDER, INCLUDING ALL IMPLIED
WARRANTIES OR MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT.
13.4. EXCEPT FOR A BREACH OF ARTICLE 11 ABOVE, NEITHER PARTY SHALL BE LIABLE
UNDER ANY CONTRACT, STRICT LIABILITY, NEGLIGENCE OR OTHER LEGAL OR EQUITABLE
THEORY
- 18 -
<PAGE>
FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS,
LOST DATA OR COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.
ARTICLE 14. PROHIBITED SUBJECT MATTER
- -------------------------------------
Under no circumstances. shall the parties hereto exchange or discuss with
one another marketing policies or activities, or pricing information relative to
the subject matter of this Agreement.
ARTICLE 15. PUBLICATION
- -----------------------
All notices to third parties and all other publicity concerning the terms
and conditions of this Agreement shall be jointly planned and coordinated by and
between the parties. Neither party shall act unilaterally in this regard without
the prior written approval of the other party, which approval, however, shall
not be unreasonably withheld.
ARTICLE 16. ARBITRATION
- -----------------------
All disputes, controversies or differences which may arise between the
parties out of or in relation to or in connection with this Agreement shall be
settled by senior executives of both parties. If senior executives of both
parties are unable to settle such dispute, then, such dispute shall be referred
to and finally settled by arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce. The arbitration shall be
conducted in English and take place in Tokyo if it is initiated by Synergy or in
San Francisco, California if it is initiated by Toshiba. The award of
arbitration shall bind the both parties, and judgment on the award may be
entered in any court having jurisdiction thereof.
- 19 -
<PAGE>
ARTICLE 17. GENERAL PROVISIONS
- ------------------------------
17.1. No amendment or modification to this Agreement shall be valid or binding
upon the parties unless made in writing and signed by representatives of both
parties. This Agreement and the Exhibits attached hereto and made a part hereof
embody the entire understanding of the parties with respect to the subject
matter contained herein and shall supersede all previous communications,
representations or understandings, either oral or written, between the parties
relating to the subject matter hereof. This Agreement shall not affect or alter
any other agreement heretofore entered into between Synergy and Toshiba.
17.2. This Agreement and any rights or licenses granted herein shall be binding
upon and inure to the benefit of the parties hereto and their Subsidiaries and
their respective successors and assigns, provided that, a successor or assignee
shall have agreed in writing to be bound by all terms and conditions of this
Agreement, and that neither party shall assign any of its rights or privileges
hereunder without the prior written consent of the other party. Any attempted
assignment in derogation of the foregoing shall be null and void.
Notwithstanding the foregoing, if either party is merged into, or acquired by, a
third party (i) which is not engaged in semiconductor business, or (ii) which is
engaged in semiconductor business and whose annual sales of semiconductor
products is no more than Five Hundred Million U.S. Dollars (US$500,000,000),.
the other party shall not unreasonably withhold the consent to the proposed
assignment by such party to such party.
17.3. Nothing contained in this Agreement shall be construed as conferring by
implication, estoppel or otherwise upon either party hereunder any license or
other right except the licenses and rights expressly granted hereunder to a
party hereto.
- 20 -
<PAGE>
17.4. Nothing contained in this Agreement shall be construed as:
17.4.1. conferring any rights to use in advertising, publicity or other
marketing activities any name, trademark, or other designation of
either party hereto, including any contraction, abbreviation, or
simulation of any of the foregoing, and each party hereto agrees not
to use the existence of this Agreement in any marketing activity
without the express written approval of the other party; or
17.4.2. limiting the rights which either party has outside the scope of the
licenses granted hereunder.
17.5. All notices required or permitted to be given hereunder shall be in
writing and shall be valid and sufficient if dispatched by registered or
certified airmail, postage prepaid, in any post office in the United States or
Japan, addressed as follows:
If to Synergy:
Synergy Semiconductor Corporation
3450 Central Expressway
Santa Clara, CA 95051
U. S. A.
Attention: President and CEO
Facsimile: 408-737-0831
If to Toshiba:
Toshiba Corporation
1-1, Shibaura 1-chome
Minato-ku
Tokyo 105-01, Japan
Attention: General Manager,
International Agreements Negotiations and
Legal Services Division
Facsimile: 03-798-3649
- 21 -
<PAGE>
Either party may change its address by a notice given to the other party in
the manner set forth above. Notice given as herein provided shall be construed
to have been given seven (7) days after the mailing thereof.
17.6. This Agreement and the obligations and performance of the parties hereto
and of their respective Subsidiaries shall be subject to all laws, both present
and future, of any Government having competent jurisdiction over the parties
hereto or their respective Subsidiaries and to orders, regulations, licenses,
directions or requests of any such Government, or any department, agency or
corporation thereof and contingencies as a result of war, acts of public
enemies, strikes or other labor disturbances, fires, floods, acts of God, or any
causes of like or different kind beyond the control of the parties, and the
parties hereto shall be excused from any failure to perform any obligation
hereunder to the extent such failure is caused by any such law, order,
regulation, direction, request or contingency.
17.7. (a) Toshiba hereby agrees to comply with all export laws and restrictions
and regulations of the Department of Commerce or other United States. or foreign
agency or authority, and not to export, or allow the export or reexport of any
proprietary information or copy or any direct product thereof in violation of
any such restrictions, laws or regulations, or to Afghanistan, the People's
Republic of China or any Group Q, S, W, Y or Z country specified in the then
current Supplement No. 1 to Section 770 of the U.S. Export Administration
Regulations (or any successor supplement or regulations); Synergy shall obtain
any necessary licenses and/or exemptions with respect to the export from the
U.S. of all Synergy proprietary information and shall demonstrate to Toshiba
compliance with all applicable laws and regulations prior to delivery.
- 22 -
<PAGE>
(b) Synergy hereby agrees that it shall not export or reexport, directly or
indirectly, any technical data received from Toshiba hereunder or direct product
thereof in violation of any export control laws and regulations of the U.S. and
Japan.
17.8. No failure or delay on the part of either party in the exercise of any
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or privilege preclude other or further
exercise thereof or of any other right or privilege.
17.9. Nothing contained herein or done in pursuance of this Agreement shall
constitute either party hereto the agent for the other party for any purpose or
in any sense whatsoever.
17.10 Toshiba agrees not to solicit any Synergy employees for hire without prior
consent of Synergy during the term of this Agreement and for six (6) months
thereafter.
17.11. The applicable law governing any course of action arising out of this
Agreement, or the performance by either party hereto, shall be governed by the
laws of the state of California.
17.12. The captions used in this Agreement are for convenience of reference only
and are not to be used in interpreting the obligations of the parties under this
Agreement.
- 23 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date first above written.
Synergy Semiconductor Toshiba Corporation
Corporation
By: /s/ Kenneth G. Wolf By: /s/ Hideharu Egawa
-------------------------- -----------------------
Name: KENNETH G. WOLF Name: HIDEHARU EGAWA
------------------------ ---------------------
VICE PRESIDENT &
Title: PRESIDENT & CEO Title: GROUP EXECUTIVE
----------------------- --------------------
- 24 -
<PAGE>
Exhibit A
1. Target: ECL Gate Array
- Master Arrays
- Library
- CAD
- Total Design Tools for Developed Products
2. Milestone:
1991 1992
lQ 2Q 3Q 4Q 1Q 2Q 3Q 4Q
------------------------------------------------------------------------
-------------------------------------.--------------.
Modeling
-------------------------------------.--------------.
Master Arrays
-------------------------------------.--------------.
Library
-------------------------------------.--------------.
CAD
Alpha-Release Beta-Release
----------------------------------------
Total design Tools
-----------------------------------------------------
Definition Development Verification/
Improvement/
Enhancement
"Alpha-Release" means the first release of CAD, Library and Master Arrays which
are intended to be capable of designing Developed Products; it being understood,
however that the Alpha-Release is made primarily for verification of the
commercial use thereof and would contain some buggs. Alpha-Release CAD, Library
and Master Arrays should be verified by both parties.
"Beta-Release" means release of CAD, Library and Master Arrays which are
intended to be used for commercial use and which are modified or improved in
accordance with the result of the verification of Alpha-Release.
<PAGE>
Exhibit B
(To be defined by the Management Committee by the second quarter of 1992.)
<PAGE>
EXHIBIT 10.15
[LOGO OF SYNERGY SEMICONDUCTOR]
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
THIS AGREEMENT dated and effective July 1, 1991, is between SYNERGY
------------
SEMICONDUCTOR CORPORATION, a California corporation, with its principal place of
business located at 3450 Central Expressway, Santa Clara California 95051 and H.
--
Y. Associates Co, Ltd. ("Representative"), having its principal place of
- ----------------------
business at 1-10 Sekimachi-Kita Chome, Nerima-Ku Tokyo 177 Japan.
----------------------------------------------------
WHEREAS, SYNERGY manufactures and sells certain integrated circuit products; and
WHEREAS, ___________________________________________________ Representative
desires to act as an authorized manufacturer's stocking representative for such
products to be sold to customers within the territory defined in Exhibit A;
NOW THEREFORE, SYNERGY and Representative agree as follows:
ARTICLE I - TERRITORY, CUSTOMERS AND PRODUCTS
1.1 Definitions. For purpose of this Agreement, the following terms shall be
defined as follows:
1.1.1 "CUSTOMER" shall mean any purchaser or prospective purchaser of any
Product, who is located in the Territory, but is not a House Account or
Resale Account. For purposes of determining the purchaser's location,
SYNERGY shall refer to the applicable point of sale report.
1.1.2 "HOUSE ACCOUNT" shall mean those Customers identified as House
Accounts in Exhibit A as it may be amended from time to time.
1.1.3 "PRODUCTS" shall mean all SYNERGY products (including special orders)
other than those products specifically excluded from this Agreement in
Exhibit A.
1
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
1.1.4 "NET SALES" shall mean amounts owed by a Customer and actually
collected by Synergy during the term of this Agreement for sale of
Products, less deductions for any sales and other similar taxes, cash
discounts, transportation costs, import and/or export duties, insurance
charges, adjustments, refunds, returns, settlement of claims, collections
costs, and/or allowances
1.1.5 "SCHEDULED BACKLOG" shall mean Products ordered by Customers and/or
Representative, for which there exist customer documentation SYNERGY
acceptance and shipments scheduled within a twelve (12) month time frame.
1.1.6 "STANDARD TERMS AND CONDITIONS OF QUOTATION OR SALE" shall mean
SYNERGY's current standard Terms and Conditions of sale which is attached
hereto as Exhibit C; and as may be amended from time to time and made a
part hereof any terms and conditions in any purchase orders placed with
SYNERGY hereunder shall be disregarded.
1.1.7 "TERRITORY" shall mean the geographic area described in Exhibit A in
which Representative shall promote the design in and sales of Products.
1.1.8 "RESALE ACCOUNT" shall mean any purchaser or prospective purchaser
of any Product, who: (i) is located in the Territory; (ii) deals directly
with the Representative; Product shipped from the Representative's
inventory and (iii) receives billings that are generated by the
Representative; and (iv) purchases an amount of Product which is below the
amount which SYNERGY has designated (at its sole discretion) as the maximum
amount allowable for Resale Accounts.
1.2 MODIFICATIONS TO AGREEMENT. SYNERGY may add to or delete items from this
Agreement or otherwise modify this Agreement, by giving the Representative
thirty (30) days prior written notice; provided however, that SYNERGY may add or
delete House Accounts from the Agreement by giving Representative a minimum of
six (6) months notice thereof.
ARTICLE 2 - APPOINTMENT AND ACCEPTANCE
2.1 APPOINTMENT. SYNERGY appoints Representative to act as its nonexclusive
stocking representative within the Territory for the purposes of designing in
and obtaining orders for Products from Customers and Resale Accounts. Nothing in
this Agreement shall be
2
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
construed as limiting in any manner SYNERGY's marketing and distribution
activities in the Territory during the term of this Agreement.
2.2 ACCEPTANCE. Representative hereby accepts the appointment as a nonexclusive
stocking representative of SYNERGY within the Territory, and agrees to use best
efforts to promote the design-in and sales of Products to all Customers.
2.3 GENERAL RELATIONSHIP. Representative shall, in all matters relating to this
Agreement, act as an independent contractor. In all matters, Representative (or
any of its employees) shall not act as, or represent itself to be an agent,
partner or co-venturer of SYNERGY and shall have no right or authority to assume
or create any obligation, liability, responsibility whatsoever, express or
implied, or to bind SYNERGY in any way whatsoever unless expressly authorized in
writing by SYNERGY. Representative shall not act as an employee of SYNERGY under
the meaning of or application of any United States federal or state laws or any
[country) laws relating to unemployment insurance, old age benefits, social
security, worker's compensation, or any regulations which may impute any
obligation or liability to SYNERGY by reason of an employment relationship.
2.3.1 Representative shall not pledge the credit of SYNERGY nor hold
itself out as an agent of SYNERGY, other than as SYNERGY's sales
representative.
2.3.2 Representative agrees to indemnify and hold SYNERGY harmless from
any and all damages, costs, and claims resulting from Representative's
unauthorized statements or actions, including without limitation, costs of
investigation, legal proceedings, and SYNERGY's attorneys' fees.
ARTICLE 3 - DUTIES OF THE REPRESENTATIVE
3.1 GENERAL. In connection with its appointment. Representative shall:
(a) Use its best efforts to actively promote the sale of the Products to
Customers and Resale Accounts in the Territory as prescribed in
Exhibit A.
(b) Maintain an adequate and aggressive sales organization to assure
maximum solicitation of sales and distribution of the Products in the
Territory.
(c) Participate in training courses and SYNERGY-sponsored seminars
conducted to inform and acquaint Customers with the characteristics,
use or application of the
3
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
Products. Cost of transportation and living expenses shall be borne by
Representative.
(d) Promote at its own expense, promote SYNERGY Products through all
appropriate trade media, including but not limited to technical
magazines, press releases, editorial articles, advertising, catalogs,
direct mailings, trade shows, technical conferences and cooperate with
SYNERGY in such
promotional plans as SYNERGY may from time to time devise.
(e) Maintain a sufficient inventory of all SYNERGY Products at all
appointed locations as determined by SYNERGY so that Customer and
Resale Account demands will be reasonably satisfied without undue
delay. The Representative also agrees that an initial stocking
order, which may be detailed in Exhibit A, Item 7, will be placed
as part of this agreement. Representative shall maintain a
minimum aggregate inventory equal to its average unit sales for a
ninety (90) day period. Representative agrees initially to stock
at least the minimum recommended inventory quantities for a]l new
Products, as they are introduced by SYNERGY from time to time.
(f) Provide technical liaison between SYNERGY and the customer in
development and analysis of specifications and in language
interpretation of tenders and bids.
(g) Maintain regular contact with accounts within the Territory and
shall keep them advised of new developments respecting SYNERGY's
Products. Representative shall arrange for applications
engineering assistance by SYNERGY when required by said accounts.
(h) Keep SYNERGY fully informed of all governmental, commercial and
industrial activities and plans which do or could affect the sale
of Products in the Territory.
(i) Render commercial and engineering services, whenever requested by
SYNERGY, in connection with presentation of bids to customers in
the Territory.
4
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
(j) Provide technical liaison between SYNERGY and the customer in the
development and analysis of specifications and in language
interpretation of tenders and bids.
(k) Not sell Products to customers located outside the Territory
except with SYNERGY's prior written approval.
3.2 REPORTS AND SALES INFORMATION.
3.2.1 Representative agrees to assist SYNERGY in obtaining, upon request,
information as to the credit standing of Customers in connection with
extending such credit or approving potential sales of Products.
Representative shall furnish SYNERGY with monthly sales activity reports
and other market-related information as SYNERGY may reasonably require.
Representative shall adhere to SYNERGY
and product packaging created in support of the Product shall bear the
copyright, trade mark, and any other proprietary rights notices of SYNERGY.
Upon termination of this Agreement for any reason, Representative agrees to
immediately discontinue all uses of SYNERGY's name, trademark(s) and
logo(s).
3.3.2 On a monthly basis, Representative shall supply SYNERGY with a list
of its Customers.
3.3.3 Representative shall receive and use all information received by it
from SYNERGY or any Customer or any of SYNERGY's other customers in writing
and marked "Propriety", "Confidential" or the like, oral information
subsequently reduced to writing and so marked, and all other confidential
information and trade secrets relating to the Products or SYNERGY's
business, including but not limited to, methods of manufacture, secret
processes, price lists and Customer lists acquired by Representative in
connection with the performance of this Agreement (hereafter referred to as
"Confidential Information") for its internal uses only and shall not
disclose such Confidential Information to any person or persons who are not
employees of Representative or SYNERGY. Representative shall take such
reasonable actions as are necessary to insure compliance with sections
3.3.3 and 3.3.4 by its agents and employees. Representative's obligations
under this section shall survive the termination or expiration of this
Agreement. Upon termination or expiration of this Agreement, Representative
shall promptly return all Confidential Information in its possession.
5
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
3.3.4 Duplication of SYNERGY materials is strictly forbidden unless
permission is granted by SYNERGY in writing. Representative's obligations
under this section shall survive the termination or expiration of this
Agreement.
3.3.5 Representative agrees to permit any agent designated by SYNERGY,
including but not limited to SYNERGY employees or independent contractors
to audit Representative's inventory and sale/resale records of SYNERGY
Products at SYNERGY's discretion upon reasonable advance notification. All
such records shall be maintained by Representative and made available for
audit for a period of three (3) years after the close of each of
Representative's fiscal years during which this Agreement is in effect.
This provision and SYNERGY's rights hereunder shall survive the termination
or expiration of this agreement.
ARTICLE 4 - PRODUCT ORDERS; SOLICITATIONS AND ACCEPTANCE
4.1 PRICING. Representative shall actively solicit orders within the
Territory for the purchase of Products at the prices submitted to
Representative by SYNERGY. The prices will be quoted by Representative
based on:
(a) SYNERGY's published price lists as revised from time to time;
and
(b) Special price quotations from SYNERGY for large production
volumes.
Prices set by SYNERGY do not include transportation charges; any tax or
governmental charge on the transportation, sales, use or delivery of Products;
return of Products previously delivered; or trade, cash discounts allowed or
paid; or export or import fees or duties. Representative shall in all cases be
solely responsible for obtaining all licenses, consents or other documents
necessary to permit the importation and/or exportation of the Products or
technical assistance or information relating to the Products into the Territory.
4.2 SYNERGY STANDARD TERMS AND CONDITIONS OF QUOTATION OR SALE. Unless
otherwise specified in this Agreement or in Exhibit A attached hereto, the terms
and conditions for sales of Products and for all quotations for sales of
Products shall be as stated in SYNERGY's Standard Terms and Conditions of
Quotation or of Sale attached hereto as Exhibit C. Representative has no
authority whatsoever to alter by implication or otherwise, verbally or in
writing, such Standard Terms and Conditions. SYNERGY reserves the right of final
approval of all quotations for Products made to Customers by Representatives.
6
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
4.3 ORDER OR CONTRACT ACCEPTANCE. All orders or contracts for Products shall be
subject to approval and acceptance by SYNERGY's Vice President of Marketing and
Sales. Decisions regarding acceptance, credit, billings and shipments shall be
made by SYNERGY. Without limiting any other rights of SYNERGY hereunder, SYNERGY
reserves the right to take any of the following actions: to accept or reject any
such order; to discontinue sales of any Products; to allocate the supply of
Products during period of shortages; to cancel any Customer order whether in
whole or in part at any time after acceptance without liability to pay
Commissions to the Representative for such orders. SYNERGY shall incur no
liability to Representative or Customer for any delays in delivery of Products,
whatever the cause.
4.4 RETURN MATERIALS AUTHORIZATIONS.
4.4.1 Products may only be returned to SYNERGY via a Returned Materials
Authorization, (hereinafter "RMA") in the form attached hereto as Exhibit
D.
4.4.2 Representative shall make no allowances or adjustment in accounts,
or return any Products or authorize any Customer to return any Products to
SYNERGY, unless given specific advance authorization by SYNERGY pursuant to
a RMA.
4.4.3 In all cases of returns, final determination by SYNERGY as to credit
or replacement shall depend on inspection and/or testing of the returned
Product by SYNERGY. No credit or replacement will be given for returned
Product which is not in the same condition and packaging as shipped or
which has been altered in any manner from the original form and design.
Such Product will be returned to Representative, freight collect.
4.4.4 Credit will be allowed for Products returned from customers if
approved by SYNERGY based on the standard distributor costs in effect on
the day such products are received by SYNERGY or the standard distributor
cost actually paid by the Representative, less any prior credits, whichever
is lower.
4.5 PAYMENT. All transactions shall be made in U.S. Dollars. Freight, import
tax, license and other fees shall be assumed by the Representative. All
exchange, interest, banking, collection, and other charges shall be at the sole
expense of Representative. payments for Products shipped shall be due in full
thirty (30) days from the date of invoice therefore. Partial shipments will be
billed as made, and payments therefore are subject to the above terms. SYNERGY
may cancel or delay delivery of Products in the event Representative fails to
make prompt payment for Products previously invoiced.
7
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
4.6 DELIVERY. After acceptance of an order, SYNERGY will use reasonable
efforts to ship Products to Representative in accordance with a mutually agreed
upon delivery schedule. All orders of Representative are subject to SYNERGY's
right to allocate the whole or any portion of its inventories or current
production for the use or disposition in any manner which it deems necessary or
desirable. SYNERGY shall not be liable for delay in supplying Products or for
making only partial shipments against any order placed by Representative and
accepted by SYNERGY.
4.7 CUSTOMS. On all sales, Representative shall arrange for the transportation
of the Products from the port of entry to the customer within the Territory.
Representative shall perform all functions necessary to clear the Products
through all non-United States customs and similar controls. Representative shall
be responsible for obtaining any and all non-U.S. government authorizations and
approvals, including, without limitation, import licenses and foreign exchange
permits. Failure to obtain any such required authorization or approval shall
Constitute a material breach of this Agreement if such failure interferes with
Representative carrying out its obligations hereunder.
ARTICLE 5 - COMMISSIONS
5.1 COMPENSATION. Subject to the terms of this Agreement, Synergy shall pay
Representative commissions when acting in the capacity of SYNERGY's sales
Representative based on Net Sales as set forth in Exhibit A attached hereto. as
amended from time to time (the "Commissions").
5.1.1 DIRECT SALES. Commissions for direct sales to Customers in any month
with respect to Products shall be paid to Representative within thirty (30)
days after the calendar month-end in which such amounts are actually
received by SYNERGY. However, SYNERGY may, in its sole discretion, without
penalty, withhold payment of Commissions to the extent that they arise from
payments that are, or that SYNERGY reasonably believes may become, the
subject of dispute or litigation or are paid under protest, until such time
as the dispute is finally settled or resolved in SYNERGY's favor.
5.1.2 RESALE. Margin for resales to Resale Accounts ("Margins") in any
month with respect to Products not in compliance with current published
resale prices require prior written approval of SYNERGY's Vice President of
Marketing and Sales.
5.1.3 Commissions shall only be paid with respect to sale of Products
shipped to Customers and no Commissions shall be paid with respect to sales
to House Accounts
8
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
or where Scheduled Backlog exclusions listed in Exhibit A or any
modification thereof apply.
5.1.4 SYNERGY reserves the right to exclude in Exhibit A to this
Agreement, at its sole discretion, from payment of Commissions certain
items with respect to Products shipped to Customers. The following shall be
a guide to such items, but shall not be limited to:
Qualifications Charges
Replacement or Spare Parts
Special Services
Non-Recurring Engineering Services
5.3 ALLOCATION OF COMMISSIONS AND MARGINS. If Commissions or Margins relate to
Products in which the design-in, the placement by the Customer, or sales to
Customers of an order, product qualification, or the receipt of such Products
was accomplished in more than one Territory, the following schedule shall be
used as a guide to allocate the Commissions or Margins among representatives of
the Territories involved. The actual split will be determined in the sole
discretion of SYNERGY and shall not be limited to any specific formula.
AFTER SYNERGY ACCEPTS FIRST (1ST) ORDER
<TABLE>
<CAPTION>
GREATER THAN
l8-MONTHS
FIRST 18-MONTHS COMMISSION COMMISSION
COMMISSION ALLOCATION ALLOCATION FOR ALLOCATION FOR
TERRITORY FOR NON-PROPRIETARY NON-PROPRIETARY PROPRIETARY
INVOLVED PRODUCTS PRODUCTS PRODUCTS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
LOCATION
Design-In 25% 25% 50%
Product
Qualification 25% 0% 10%
Order
Placement 25% 50% 30%
Product
Shipment 25% 25% 10%
TOTAL 100% 100% 100%
</TABLE>
9
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
The decision of the Vice President of Marketing and Sales of SYNERGY will be
final and binding on all parties in regard to any dispute as to the allocation
of commissions.
ARTICLE 6 TERM AND TERMINATION
6.1 TERM. The term of this Agreement shall he one (1) year commencing on the
date hereof and continuing in force through _____________ 19 __, ("Expiration
Date") unless terminated at an earlier date pursuant to Article 6. Unless this
Agreement has been terminated pursuant to this Article 6 or a party has notified
the other party in writing of its intention not to enter into a renewal
agreement, this Agreement shall continue to govern the relationship of the
parties until the earlier of (a) twelve (12) months from the Expiration Date;
(b) sixty (60) days from the date SYNERGY submits the renewal contract to
Representative for signature; or (c) an earlier date pursuant to this Article 6.
Representative agrees to use its best efforts to execute a renewal Agreement
within sixty (60) days of receipt thereof.
6.2 TERMINATION FOR CAUSE. This Agreement shall immediately terminate upon
written notice of termination by either party to the other party, without the
necessity of prior advance notice: (a) in the event such other patty breaches a
material obligation of this Agreement; (b) in the event of such other party's
voluntary or involuntary bankruptcy or insolvency; (c) in the event that such
other party shall make an assignment for the benefit of creditor(s); or (d) in
the event that a petition shall have been filed against such other party under a
bankruptcy law, or other law for relief of debtors, or other law similar in
purpose or effect, the effect of which is to cause such other party to have its
business effectively discontinued. SYNERGY shall have no obligation to pay
Commissions after termination in accordance with this Section 6.2 except for
Commissions relating to sales made and accepted prior to the date of termination
for which SYNERGY actually receives payment as described in Section 5.1.1.
SYNERGY reserves the right to withhold payment of Commissions as pursuant to
Article 5 of this Agreement.
6.3 TERMINATION WITHOUT CAUSE BY SYNERGY.
6.3.1 This Agreement may be terminated at any time for any reason by
SYNERGY, evidenced by a written notification, in accordance with section
10.1 of this Agreement.
6.3.2 In the event of termination by SYNERGY without cause, the
Representative shall be paid Commissions (upon receipt of payment therefore
by SYNERGY) on Scheduled Backlog for Customers with respect to orders in
existence at the time of
10
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
notice of termination, expiration, or non-renewal if such Products are
shipped within the following applicable time period:
<TABLE>
<CAPTION>
Commissions on Scheduled Backlog
for orders in existence on the date
Completed Number of of notice of expiration or non-renewal for
Years as Representative shipments within the period set forth below
- ----------------------- -------------------------------------------
<S> <C>
Less than or equal to 90 days
one (1) year
Greater than one (1) but 120 days
less than or equal to
three (3) years
Greater than three (3) 150 days
years
</TABLE>
For the first two (2) months following termination under this Section 6.3,
Representative agrees to assist SYNERGY in the transition required and
cooperate with SYNERGY or its representatives with respect to sales of
Products in the Territory.
6.3.3 Upon termination for any reason, no new orders for Products will be
accepted by SYNERGY without the prior written approval of SYNERGY's Vice-
President of Marketing and Sales.
6.3.4 Upon any termination without cause hereunder, each party shall
perform all obligations incurred prior to, or undischarges as of the
effective date of such termination and all indebtedness of each party to
the other shall become immediately due and payable.
6.3.5 SYNERGY in good faith, will commit to use its best efforts to ship
on-time, Scheduled Backlog which occurs in the course of the agreed upon
termination payment schedule as noted in this Section.
6.4 REPRESENTATIVE TERMINATION. In the event Representative initiates
termination, expiration or non-renewal of this Agreement, Commissions will be
limited to
11
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
commissions on Net Sales made on or prior to the date of termination.
SYNERGY reserves the right to withhold payment of Commissions as pursuant to
Article 5 of this Agreement.
6.5 TERMINATION BY MUTUAL AGREEMENT. If at the sole discretion of SYNERGY, it
has been determined that termination is reached through mutual agreement,
Commissions paid will be in accordance with Article 6.3.2 of this Agreement.
6.6 RIGHT OF TERMINATION ABSOLUTE. The rights of termination herein contained
are absolute. Neither party shall be liable to the other for any loss, damage or
liability by reason of the exercise of the rights of termination and any and all
claims of such liability and the right to make such claims are hereby expressly
waived.
6.7 DISPOSAL OF MATERIALS. Upon expiration or termination of this Agreement for
any reason, the Representative shall deliver to SYNERGY all price lists, sales
aides, advertising matter, Product samples, other materials furnished by SYNERGY
and all Customer records/correspondence with regard to sales of SYNERGY's
Products in the manner directed by SYNERGY; and Representative shall immediately
cease any further use of SYNERGY's name, trademark(s), logo(s), part numbers and
similar identifying symbols to which SYNERGY may have previously consented
hereunder.
ARTICLE 7 - COMPETITION
7.1 It is the intention of the parties that Representative will not sell
products which directly compete with SYNERGY's Products. Representative shall
notify SYNERGY immediately of any competitive products which Representative
desires to stock, handle, sell, license, or offer for sale or license, and shall
give SYNERGY thirty (30) days prior written notice prior to stocking, handling,
selling, licensing, or offering products competitive with the Products offered
by SYNERGY. SYNERGY has the sole discretion to determine what it considers to be
competitive products. SYNERGY shall have the right to approve Representatives
stocking, handling, selling, licensing, or offering competitive products or to
terminate this Agreement pursuant to Section 6.2 hereof.
7.1.1 Representative agrees to provide upon request a listing of current
accounts for which they are stocking, handling, selling, licensing or
offering products.
ARTICLE 8 - FORCE MAJEURE
In the event that either party hereto shall be rendered wholly or partly unable
to carry Out its obligations under this Agreement by reason of causes beyond its
control, including but not limited to fire, flood, explosion, action of the
elements, acts of God, accidents, epidemics,
12
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
strikes, lockouts or other labor trouble or shortage, inability to obtain, or
shortage of materials, equipment or transportation, insurrections, riots or
other civil commotion, war, enemy action, acts, demands or requirements of any
government, United States or otherwise, or by any other cause which it could not
reasonably be expected to avoid, then the performance of the obligations of
either party or both as they are affected by such causes shall be excused during
the continuance of any inability so caused, but such inability shall, as far as
possible, be remedied within a reasonable period of time, provided, however,
that the provisions of this Article 8 shall not apply to payment of monies due
and owing from one party to the other.
ARTICLE 9 - NON-ASSIGNMENT
The rights granted to Representative under this Agreement are personal in
character, and are not assignable without the written consent of SYNERGY. Any
attempted assignment without the written consent of SYNERGY shall be void.
Representative shall inform SYNERGY of its underlying ownership structure at
every level and shall give SYNERGY prior notification of all changes in excess
of five percent (5%) in any calendar year at any level of its ownership
structure in a manner such that SYNERGY will at all times be fully aware of the
actual ownership and control of Representative at each tier in any ownership
hierarchy which may exist.
ARTICLE 10 - GENERAL
10.1 NOTICES. All notices required or permitted hereunder shall be in writing
and shall be effective and deemed received upon personal delivery or three (3)
business days after deposit in the U.S. mail, certified mail, return receipt
requested, postage fully prepaid, and addressed as follows:
If to SYNERGY If to Representative
SYNERGY Semiconductor Corporation H. Y. Associates Co., Ltd.
3450 Central Expressway 1-10 Sekimachi-kita 3-Chome
Santa Clara, CA 95051 Nerima-ku Tokyo 177
Attn: Vice President Attn: Hiromi Yoshida
Marketing and Sales President
10.2 GOVERNING LAW JURISDICTION AND VENUE. This Agreement shall be construed and
governed by the laws of the State of California, United States of America
without giving effect to the conflicts of law provisions thereof. The patties
hereto consent to the jurisdiction
13
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
of all federal and state courts in California, and agree that venue shall lie
exclusively in Santa Clara County, California.
The obligation of SYNERGY to supply the Products shall be, at all times, subject
to any applicable export and import control laws and regulations of the United
States of America. It shall be the responsibility of the Representative to
comply with all such laws and regulations and to not take any action contrary
thereto. It shall also be the Representative's responsibility to obtain any
necessary licenses, including but not limited to import and/or export licenses.
The Representative understands that SYNERGY is subject to regulation by agencies
of the US Government, including the US Department of Commerce, which may
prohibit export or diversion of SYNERGY's Products to certain countries. To
facilitate the furnishings of the technical data and the export of SYNERGY's
Products to the Representative, the Representative agrees that it will not re-
export, directly or indirectly, any of the technical data or Products outside
the Territory without clearance under applicable regulations. The
Representative will comply with all US export requirements, including without
limitation, record keeping and inspection requirements, organization and trends
to transfer products within its offices in the Territory.
10.3 WAIVER; AMENDMENT. No waiver, amendment, or modification of any provisions
of this Agreement shall be effective unless in writing and signed by the patty
against whom such waiver, amendment or modification is sought to be enforced. No
failure or delay by either patty in exercising any right, power or remedy under
this Agreement, except as specifically provided herein, shall operate as a
waiver of any such right, power or remedy.
10.4 SEVERABILITY. If any provisions of this Agreement shall be held by a court
of competent jurisdiction to be invalid, the remaining provisions of this
Agreement shall remain in full force and effect.
10.5 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto constitute the
entire Agreement between the parties concerning the subject matter hereof and
supersedes all prior or contemporaneous offers, negotiations and agreements,
written or oral, as to such subject matter. All exhibits to this Agreement are
incorporated into and made part of this Agreement by this reference.
10.6 COUNTERPARTS: This Agreement may be executed in counterpart, each of which
shall be deemed to be an original.
14
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the year and day first above written.
SYNERGY SEMICONDUCTOR CORPORATION REPRESENTATIVE
By ________________________________ By: _____________________________
Title: Vice President Hiromi Yoshida
Marketing and Sales President
EXHIBIT A
DEFINITIONS EXCLUSIONS, AND EXCEPTIONS
1. PRODUCTS:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
TERRITORY:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
15
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
3. HOUSE ACCOUNTS:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
4. COMMISSION SCHEDULE:
5. COMMISSION RATE EXCEPTIONS:
SYNERGY reserves the right to establish the Commissions from time to time
for sales of (to) the following Products and or Customers:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
16
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
6. EXCLUSION OF EXISTING BACKLOG:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
7. INITIAL STOCKING ORDER:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
17
<PAGE>
SYNERGY SEMICONDUCTOR INTERNATIONAL STOCKING REPRESENTATIVE AGREEMENT
EXHIBIT B
RESPONSIBILITY OF REPRESENTATIVE
In connection with Article 3 hereof, Representative will be responsible for
providing total sales in the Territory. SYNERGY expects that at a minimum, sales
coverage is to include the following:
1. PERSONNEL. Representative shall be responsible for providing adequate
personnel to meet the sales needs of SYNERGY, as determined by SYNERGY. The
determination of what constitutes "adequate personnel" shall include, but
not limited to technical aptitude/education, Product knowledge, and sales
performance.
2. SALES ACHIEVEMENTS. Representative will be responsible for achieving sales
goals established by SYNERGY. These goals will include but not limited to
total sales revenues, sales revenue by Product line, designs by major
accounts and distribution sales.
3. FACILITIES. Representative shall provide and maintain, solely at
Representative's expense, a suitable place of business in the Territory.
4. INVENTORY. Representative shall maintain a sufficient inventory of all
SYNERGY Products at all appointed locations as determined by SYNERGY.
5. BOOKS AND RECORDS. Representative shall maintain and make available to
SYNERGY accurate books, records and accounts relating to business of
Representative with respect to the Products. Representative shall also
maintain a record of any customer complaints regarding either the Products
of SYNERGY and immediately forward to SYNERGY the information regarding
those complaints.
6. PRODUCT PROMOTION. Representative shall at its own expense, promote
SYNERGY Products through all appropriate trade media, including but not
exclusive to technical magazines, periodicals, press releases, editorials,
advertising, catalogs, direct mailings, trade shows, technical conferences
and co-op promotional plans.
7. AUDITS. Representative shall assist any agent designated by SYNERGY,
including but not limited to SYNERGY employees or independent contractors
to audit Representative's inventory and sale/resale records of SYNERGY
Products.
18
<PAGE>
EXHIBIT 10.16
SYNERGY SEMICONDUCTOR CORPORATION
3450 Central Expressway
Santa Clara CA 95051
December 2, 1991
Mr. Thomas D. Mino
815 Pollus Drive
Colorado springs, CO 80906
Dear Tom:
On behalf of the Company's Board of Directors, I wish to welcome you
as the Company's new President and Chief Executive Officer. We at Synergy are
quite pleased that you have accepted our offer letter of November 22, 1991 and
look forward to working with you in making the Company a successful and
prosperous enterprise.
The purpose of this current letter is to set forth the terms of your
employment with the Company, including your compensation level and benefit
entitlements. Part One of this letter contains the specific terms and
conditions governing your employment relationship, and Part Two contains a
series of more general terms and conditions applicable to such relationship.
PART ONE - - TERMS AND CONDITIONS OF EMPLOYMENT
The terms and conditions governing your employment with the Company
will be as follows:
1. Employment and Duties.
---------------------
A. The Company will employ you as President and Chief Executive
Officer, commencing not later than December 16, 1991, and you will accordingly
make yourself available on a full-time basis to assume the positions of
President and Chief Executive Officer on or before such date As President and
Chief Executive Officer, you will report directly to the Board of Directors, and
the Company will use its best efforts to have you elected and reelected as a
member of the Company's Board of Directors each year during your period of
service in such positions.
B. You will perform the duties inherent in your positions as
President and Chief Executive Officer in good faith and to the best of your
ability and will render all services which may be reasonably required of you in
such positions. While you are employed as President and Chief Executive Officer,
you
<PAGE>
Mr. Thomas D. Mino Page 2
November __, 1991
will devote your full time and effort to the business and affairs of the
Company. Your principal place of operations will be at the Company's corporate
offices, which are presently located in Santa Clara, California. You may,
however, be required to travel periodically to Company facilities in other
geographic locations in connection with your duties.
2. Compensation.
------------
A. For service in the 1992 calendar year, your base salary
will be at the rate of $170,000.00 per year. For any service rendered during
December 1991, you will be entitled to a prorated base salary on the basis of
your 1992 salary level. Your base salary will be subject to adjustment by the
Company's Board of Directors for each calendar year of service following the
1992 calendar year.
B. Your base salary will be paid at periodic intervals in
accordance with the Company's payroll practices for salaried employees.
C. Commencing with the 1992 calendar year, you will be
entitled to a bonus in the amount of $10,000.00 each quarter, provided the
performance goals you establish for the Company for that quarter are achieved.
The specific performance goals you designate for the Company are to be based
primarily on revenue and profit and will be subject to approval by the Company's
Board of Directors. In any event, your quarterly bonus payments for the 1992
calendar year are guaranteed, whether or not the designated performance goals
for the 1992 calendar quarters are achieved.
D. If you begin full-time employment as President and Chief
Executive Officer on or before December 16, 1991, you will be paid a special
one-time bonus in the amount of
$18,000.00.
E. The Company will deduct and withhold, from the base salary
and bonuses payable to you hereunder, any and all applicable Federal, State and
local income and employment withholding taxes and any other amounts required to
be deducted or withheld by the Company under applicable statute or regulation.
<PAGE>
Mr. Thomas D. Mino Page 3
November __, 1991
3. Short-Term Loan. The Company will loan you the amount of
---------------
$75,000.00 upon the following terms and conditions:
(i) The loan will bear interest, payable annually
in arrears, at the minimum rate required under the Federal tax laws
in order to avoid the imputation of interest income to the Company
and compensation income to you.
(ii) Principal will become payable in four equal
annual installments, beginning on the second anniversary of the date
the loan is made.
(iii). All unpaid principal and accrued interest will,
however, become immediately due and payable in full upon the
earliest of the following events to occur: the Company effects an
initial public offering of its securities, the Company is acquired
by merger or sale of its outstanding capital stock or substantially
all of its assets, or your employment with the Company terminates
for any reason other than death or disability.
(iv). Should you acquire any shares of Synergy stock,
whether upon the exercise of your stock immediately pledge those
shares with the Company as options or through private purchases, you
will collateral for the unpaid balance of your loan.
4. Employee Stock Options. As soon as possible after you join the
----------------------
Company as President and Chief Executive Officer, you will be granted an
incentive stock option for 750,000 shares of Synergy common stock. The option
will have an exercise price equal to 100% of the fair market value of the
Synergy stock on the grant date and will have a maximum term of 10 years,
subject to earlier termination upon your cessation of employment with the
Company. The option shares will vest over a four-year period, with 25% of the
option shares to vest one year after your date of hire and the balance to vest
in 36 equal monthly installments thereafter. However, in the event the Company
should be acquired during the first year of your employment, your option will
become exercisable shares for each full or partial month your option remains for
15,625 shares for each full or partial month your option remains outstanding
prior to the effective date of such acquisition. All vesting under your option
will cease upon your
<PAGE>
Mr. Thomas D. Mino Page 4
November __, 1991
termination of employment. The remaining terms and conditions of your option
will be in accordance with the standard provisions utilized for incentive stock
option grants under the Company's 1987 Stock Option Plan.
5. Housing Assistance.
------------------
A. The Company will reimburse you for any temporary housing
costs (rent, utilities and general housekeeping expenses) you incur during your
first year of employment with the Company, up to a maximum of $1500.00 per
month, and will provide you with a rental car during that period. Until you
obtain a permanent residence in the Bay Area, the Company will also reimburse
you for your airfare for 2 trips to Colorado per month during the first year of
your employment with the Company.
B. The Company will reimburse you for the normal selling costs
(real estate commission and other closing costs) you incur in effecting the sale
of your current residence in Colorado Springs, Colorado, but the Company will
not be responsible for any loss you incur in such sale. The Company will also
reimburse you for the normal closing costs (other than loan origination fees,
prepaid interest, points or other financing costs), such as title fees, document
preparation costs, title insurance and escrow costs, you incur in purchasing a
new residence in the Bay Area and for your reasonable moving expenses from
Colorado.
C. All reimbursements will be paid within 5 days after your
submission of appropriate vouchers and other statements evidencing your costs
and expenses. Taxes will be withheld on such reimbursements to the extent
required by applicable law.
D. The Company will provide you with financial assistance in
purchasing a home in the Bay Area. Such assistance may be provided through
mortgage assistance payments, a loan secured by a second deed of trust on your
new residence or a Company guaranty of the purchase-money loan on your home. The
exact manner in which such financial assistance will be made available, the
maximum amount of financial assistance the Company will make available and the
period for which such financial assistance will be provided will be determined
by mutual agreement between you and the Company at the time you enter into
negotiations to purchase your new home.
<PAGE>
Mr. Thomas D. Mino Page 5
November __, 1991
6. Expense Reimbursement. You will be entitled to reimbursement
---------------------
from the Company for all customary, ordinary and necessary business expenses
incurred by you in the performance of your duties hereunder, provided you
--------
furnish the Company with vouchers, receipts and other details of such expenses
within thirty (30) days after they are incurred.
7. Fringe Benefits. You will be eligible to participate in any
---------------
group life insurance plan, group medical and/or dental insurance plan,
accidental death and dismemberment plan, short-term disability program and other
employee benefit plans, including the Section 401(k) plan, the 1987 Stock Option
Plan and any cafeteria benefit program offering the opportunity to purchase
benefits on a pre-tax basis, which are made available to executive officers of
the Company and for which you otherwise qualify.
8. Vacation. You will earn three (3) weeks of paid vacation for each
--------
year of service you complete as President and Chief Executive Officer from and
after January 1, 1992. However, you may not accrue more than four and one-half
(4 1/2) weeks of unused vacation. Accordingly, once four and one-half (4 1/2)
weeks of unused vacation have been accrued, no further vacation benefits will be
earned by you until such time as you use part or all of the unused vacation
accrued to date, thereby reducing the balance of your unused vacation to below
four and one-half (4 1/2) weeks.
9. Death or Disability.
-------------------
A. Upon your death or disability while in the Company's employ,
the employment relationship created pursuant to this agreement will immediately
terminate, and no additional compensation under Paragraph 2 and no further
benefits under Paragraph 5 will become payable to you. In connection with such
termination, the Company will only be required to pay you (or your estate) any
unpaid compensation earned under Paragraph 2 for services rendered through the
date of your death or disability, together with a special termination payment
equal to the additional amount of base salary you would have earned hereunder
had your employment continued for an additional sixty (60) days. Payments of
principal and interest on any indebtedness you owe the Company (including any
outstanding balance on Paragraph 3 loan) will be suspended until the earlier of
-------
(i) the end of the
<PAGE>
Page 6
Mr. Thomas D. Mino
November __, 1991
twelve (12)-month period following the date of your death or disability or (ii)
December 31, 1996, and at such earlier date the entire unpaid balance of all
such indebtedness will become due and payable in full.
B. You will be deemed disabled if you are, in the Company's
reasonable opinion, unable to substantially perform the services required of you
hereunder either for a period in excess of sixty (60) consecutive days or for a
period of sixty (60) days in the aggregate during any ninety (90)-day period. In
such event, you will be deemed disabled as of such sixtieth (60th) day.
10. Restrictive Covenants. During the period of service as President
and Chief Executive Officer:
(i) you will devote your full working time and effort to
the performance of your duties as President and Chief Executive Officer;
and
(ii) you will not directly or indirectly, whether for
your own account or as an employee, consultant or advisor, provide services
to any business enterprise other the Company, unless otherwise authorized
by the Company in writing.
However, you will have the right to perform such incidental services
as are necessary in connection with (a) your private passive investments, (b)
your charitable or community activities, and (c) your participation in trade or
professional organizations, but only to the extent such incidental services do
not interfere with the performance of your services as President and Chief
Executive Officer.
11. Non-Competition. During any period for which you are receiving
---------------
compensation payments pursuant to Paragraph 2, you will not directly or
indirectly own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or be employed by or connected in any
capacity with, any enterprise which is engaged in any business activity
competitive with that of the Company. Such restriction, however, will not be
applicable to any purely passive investment representing two percent (2%) or
less of any outstanding class of publicly-traded securities of any corporation
or other enterprise engaged in one or more competitive lines of business.
<PAGE>
Mr. Thomas D. Mino Page 7
November __, 1991
12. Proprietary Information. Upon the commencement of your service as
-----------------------
President and Chief Executive Officer, you will sign and deliver to the Company
the standard-form Proprietary Information and Inventions Agreement required of
all key employees of the Company.
13. Termination of Employment.
-------------------------
A. Your employment as President and Chief Executive Officer
pursuant to this agreement will be entirely at will.
B. The Company may terminate your employment under this
agreement at any time for any reason, with or without cause, by providing you
with at least thirty (30) days prior written notice. However, such notice
requirement will not apply to the termination of your employment for cause
pursuant to subparagraph D below.
C. You may terminate your employment under this agreement at
any time for any reason upon thirty (30) days prior written notice to the
Company.
D. The Company may at any time, upon written notice, terminate
your employment hereunder for cause. Such termination will be effective
immediately upon such notice.
E. The following provisions shall govern the benefits, (if any)
to which you are entitled, and the repayment obligations to which you will
subject, upon the termination of your employment:
1. No additional compensation under Paragraph 2 and no
further benefits under Paragraph 5 will become payable to you following the
termination of your employment for any reason Except as otherwise provided
in subparagraphs 3 and 4 below, the Company will only be required to pay
you (i) any unpaid compensation earned by you pursuant to Paragraph 2 for
services rendered through the date your employment terminates and (ii) the
value of any unused vacation accrued through such termination date. Your
entitlement to expense reimbursement and vacation accrual and your
participation in all Company fringe benefit programs will cease immediately
upon your termination of
<PAGE>
Mr. Thomas D. Mino Page 8
November __, 1991
employment. In addition, you will only be entitled to any unpaid bonuses
earned through the end of the calendar quarter immediately preceding the
calendar quarter in which your employment terminates.
2. Except to the limited extent otherwise provided in Paragraph
9, all outstanding indebtedness which you owe to the Company (including any
outstanding balance on your Paragraph 3 loan) will become immediately due
and payable upon your termination of employment.
3. Should your employment terminate by reason of death or
disability, you will be entitled to the limited death or disability
benefits provided under Paragraph 9, and no other severance benefits or
other termination payments will be payable to you.
4. Should your employment be involuntarily terminated by the
Company for any reason other than for cause, the Company will provide you
with salary continuation payments, at the rate and frequency at which such
base salary is in effect for you at the time of such termination, and will
continue your coverage under the Company's health plan, until the earlier
-------
of (i) the date you obtain other employment or (ii) the end of the six (6)-
month period following your termination date.
5. Should your employment be involuntarily terminated for
cause, then you will not be entitled to any severance payment under
subparagraph 4, and your entitlements will be limited to any unpaid amounts
due you under subparagraph 1 above for services rendered through such
termination date.
F. For purposes of this agreement, your employment with the
Company will be deemed to have been involuntarily terminated for cause if your
services are terminated by the Company for one or more of the following reasons:
(i) acts of fraud or embezzlement or other intentional
misconduct which adversely affects the Company's business, or
(ii) failure to correct any material deficiency in the
performance of your services as President
<PAGE>
Mr. Thomas D. Mino Page 9
November __, 1991
and Chief Executive Officer within thirty (30) after written notification
of such deficiency from the Board, or
(iii). misappropriation or unauthorized disclosure of the
Company's proprietary information.
PART TWO -- MISCELLANEOUS PROVISIONS
1. General Creditor Status. All payments to which you may
-----------------------
become entitled under this agreement will be paid, when due, from the
general assets of the Company, and no trust fund, escrow arrangement or
other segregated account will be established as a funding vehicle for such
payments. Your right (or the right of the executors or administrators of
your estate) to receive any such payments will at all times be that of a
general creditor of the Company and will have no priority over the claims
of other general creditors.
2. General Provisions. The provisions of this letter agreement
------------------
will be binding upon the Company, its successors and assigns and will be
construed and interpreted under the laws of the State of California without
resort to the conflict-of-laws rules of such State. This agreement
incorporates the entire agreement between you and the Company with respect
to the terms of your employment and supersedes all prior agreements between
you and the Company relating to such subject matter. This agreement may
only be amended by written instrument signed by you and an authorized
officer of the Company.
3. Notices. Any notice required to be given or delivered to
-------
the Company under the terms of this agreement must be in writing and
addressed to the Company in care of the Chairman of the Board at the
Company/'/s principal corporate offices. Any notice required to be given or
delivered to you will be in writing and addressed to you at your last
recorded address in the Company's records. All notices will be deemed to
have been given or delivered upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be
notified.
4. Counterparts. This agreement may be signed in one or more
------------
counterparts, each of which will be deemed to
<PAGE>
Mr. Thomas D. Mino Page 10
November __, 1991
be an original, but all of which will constitute one and the same
instrument and agreement.
5. Arbitration. Any controversy which may arise between you
-----------
and the Company with respect to the construction, interpretation or
application of any of the terms, provisions, covenants or conditions of
this agreement or any claim arising from or relating to this agreement will
be submitted to final and binding arbitration in San Francisco, California
in accordance with the rules of the American Arbitration Association then
in effect.
Please indicate your acceptance of the foregoing provisions of
this employment agreement by signing the enclosed copy of this agreement and
returning it to the Company.
Very truly yours,
SYNERGY SEMICONDUCTOR CORPORATION
By _______________________________
Title: Member of the Board of
Directors
ACCEPTED BY AND AGREED TO
Signature: ____________________________
Dated: December 2, 1991
<PAGE>
[LOGO OF SYNERGY APPEARS HERE]
October 6, 1995
Thomas D. Mino
CEO & President
Synergy Semiconductor
Dear Tom:
This letter serves to outline the 1995/96 compensation plan that has been
approved for you by the Synergy Board of Directors. The plan is as follows:
Salary: Continue at $210,000 per year
Bonus: $20,000 immediate payment related to the first half of 1995.
Q3 and Q4 1995: 30% of base Or $15,750 each quarter assuming Synergy
attains P1(L) goals shown to underwriters in first week of October. If
goals not met, bonus will be determined at discretion of Board.
1996: TBD over next 60 days.
Stock: 100,000 options on common (exercise price: $2.00), as approved at the
9/19/95 Board Meeting.
Housing: An allowance of $2,200 per month will continue until 3/31/96 or until
a new residence is occupied, whichever comes sooner.
Loans: The existing Note dated 1/20/92 will be extended until September 30,
1997. Language in employment letter dated 12/2/91(3. iii) relating to
repayment upon initial public offering shall be amended to extend the
time to two years from IPO.
<PAGE>
An additional loan of up to $1 00,000 shall be provided at closing
pursuant to section 5.D of the 12/2/91 employment letter. This loan
shall be repaid within 2 years of a Synergy IPO. Detail justification
of the loan amount shall be provided by you. The loan shall be secured
by subordinated Deed of Trust.
Closing
Costs: Closing costs shall be reimbursed per 5.B & C of the 12/2/91 letter.
Sincerely,
Sven E. Simonsen Chairman
<PAGE>
EXHIBIT 10.17
AMENDMENT TO PROMISSORY NOTE
This Amendment to the Promissory Note dated January 20, 1992 between
Thomas D. Mino ("Maker") and Synergy Semiconductor Corporation (the "Company"),
whereby Maker promised to pay to the order of the Company the principal sum of
$75,000 plus interest thereon (the "Note"), is made as of the 20th day of
September, 1995.
RECITALS
--------
WHEREAS, Maker has not made any payments to date under the Note.
WHEREAS, Maker and the Company desire to amend the Note to grant extended
payment terms to Maker.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, Maker and the Company hereby agree as follows:
1. Amendment to Section 1 of the Note. Section 1 of the Note shall be
----------------------------------
amended to read in its entirety as follows:
"Subject to the acceleration events specified in Paragraph 4 below, the
principal balance of this Note shall become due and payable on September
30, 1997."
2. Amendment to Section 2 of the Note. Section 2 of the Note shall be
----------------------------------
amended to read in its entirety as follows:
"Interest shall accrue on the unpaid principal balance of this Note,
from the date of this Note until the principal balance is paid in full, at
the rate of 6.73% per annum compounded annually. Subject to the
acceleration events specified in Paragraph 4 below, interest so accrued
shall be due and payable on September 30, 1997."
3. Amendment to Section 4(D) of the Note. Section 4(D) of the Note shall
-------------------------------------
be amended to read in its entirety as follows:
"Two years from the effective date of the Company's initial
underwritten public offering of securities pursuant to an effective
registration statement filed under the federal securities laws; or"
<PAGE>
4. Amendment to Section 5 of the Note. Section 5 of the Note shall be
----------------------------------
amended to read in its entirety as follows:
"As Maker acquires shares of the Company's capital stock, the Maker
shall immediately pledge those shares to the Company until Maker has
pledged a total of 125,000 shares of stock, through a stock pledge
agreement in form satisfactory to the Company. The Maker, however, shall
remain personally liable for payment of this Note and the assets of the
Maker, in addition to the shares pledged as collateral under the stock
pledge agreement, may be applied to the satisfaction of Maker's obligations
hereunder."
5. Miscellaneous.
-------------
5.1 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Amendment shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Amendment, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Amendment,
except as expressly provided in this Amendment.
5.2 Governing Law. This Amendment shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
5.3 Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.4 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Amendment, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
5.5 Severability. If one or more provisions of this Amendment are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Amendment and the balance of the Amendment shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SYNERGY SEMICONDUCTOR CORPORATION
-----------------------------------------
T. Olin Nichols, Chief Financial Officer
Address: 3450 Central Expressway
Santa Clara, CA 95051
MAKER
-----------------------------------------
Thomas D. Mino
Address: 3450 Central Expressway
Santa Clara, CA 95051
3
<PAGE>
PROMISSORY NOTE
---------------
$75,000.00 January __, 1992
Santa Clara, California
FOR VALUE RECEIVED, the undersigned, Thomas D. Mino (the "Maker"),
promises to pay to the order of Synergy Semiconductor Corporation, a California
corporation (the "Company"), at its office at 3450 Central Expressway, Santa
Clara, California, the principal sum of Seventy-Five Thousand Dollars
($75,000.00), together with interest on the unpaid balance from time to time
outstanding under this Note. Payment of this Note shall be made in accordance
with the terms and conditions specified below.
1. Principal. Subject to the acceleration events specified in
---------
Paragraph 4 below, the principal balance of this Note shall become due and
payable in a series of four (4) equal and consecutive annual installments, with
the first such installment due two (2) years after the date of this Note.
2. Interest. Interest shall accrue on the unpaid principal balance
--------
of this Note, from the date of this Note until the principal balance is paid in
full, at the rate of 6.73% per annum, compounded annually. Subject to the
acceleration events specified in Paragraph 4 below, interest so accrued shall be
due and payable in successive annual installments, with the first such
installment due two years after the date of this Note. The first such
installment shall include all interest accrued from the date of this Note to the
date of such interest payment.
3. Form of Payment. Each payment shall be made in lawful tender of
---------------
the United States and shall be credited first to any accrued interest then due
and payable and the remainder applied to principal. Prepayment of principal,
together with accrued interest, may be made at any time without penalty.
4. Events of Acceleration. At the election of the holder of this
----------------------
Note evidenced by written notice delivered to the Maker, the entire unpaid
principal balance of this Note, together with all accrued and unpaid interest,
shall become immediately due and payable upon the occurrence of any of the
following events of acceleration:
A. the failure of the Maker to pay when due under this Note any
installment of principal or interest and the continuation of such default
for more than thirty (30) days; or
B. the insolvency of the Maker, the commission of any act of
bankruptcy by the Maker, the execution by the Maker of a general assignment
for the benefit of creditors, the filing by or against the Maker of any
petition in bankruptcy or any petition for relief under the provisions of
the federal bankruptcy act or any other state or federal law for the relief
of debtors and the continuation of such petition without dismissal for a
period of thirty (30) days or more, the appointment of a receiver or
trustee to take possession of any property or assets of the Maker, or the
attachment of or execution against any property or assets of the Maker; or
C. the thirtieth (30th) day following the date the
<PAGE>
Maker's employment with the Company terminates for any reason other than
death or permanent disability; or
D. the effective date of the Company's initial underwritten
public offering of securities pursuant to an effective registration
statement filed under the federal securities laws; or
E. the acquisition of the Company by merger, consolidation, sale
of all or substantially all of its assets or the sale of all or
substantially all of its outstanding voting securities.
5. Stock Pledge Agreement. As the Maker from time to time acquires
----------------------
shares of the Company's capital stock, whether pursuant to the exercise of one
or more employee stock options held by him or through direct purchases from the
Company or one or more Company shareholders, the Maker shall immediately pledge
those shares to the Company, through a stock pledge agreement in form and
substance reasonably satisfactory to the Company, as security for the payment of
this Note. The Maker, however, shall at all times remain personally liable for
payment of this Note, and assets of the Maker, in addition to the any shares
pledged as collateral under the stock pledge agreement, may be applied to the
satisfaction of the Maker's obligations hereunder.
6. Miscellaneous. If action is instituted to collect this Note, the
-------------
Maker promises to pay all costs and expenses, including reasonable attorney
fees, incurred in connection with such action. Except for such notice as may be
specifically required by this Note, the Maker hereby waives notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor
and all other notices or demands relative to this instrument.
7. Governing Law. This Note shall be construed in accordance with and
-------------
governed by the laws of the State of California.
-----------------------------
Thomas D. Mino, Maker
2
<PAGE>
EXHIBIT 10.18
STOCK PLEDGE AGREEMENT
----------------------
This Agreement is made as of September 20, 1995, by and between
Synergy Semiconductor Corporation, Inc., a California corporation (the
"Company"), and Thomas D. Mino, an individual ("Mino").
In order to provide security for payment of that certain promissory
note dated January 20, 1992, as amended, payable to the order of the Company in
the principal amount of $75,000 (the "Note"), Mino hereby grants to the Company
a security interest in, and assigns, transfers to and pledges with the Company,
the following securities and other property:
(i) 125,000 shares of Common Stock of the Company (the "Shares");
(ii) any and all new, additional or different securities or other
property subsequently distributed with respect to the Shares, which are to be
delivered to and deposited with the Company pursuant to the requirements of
Paragraph 3 of this Agreement;
(iii) any and all other property and money which is delivered to or
comes into the possession of the Company pursuant to the terms of this
Agreement; and
(iv) the proceeds of any sale, exchange or disposition of the
property and securities described in subparagraphs (i), (ii) or (iii) above.
All securities, property and money so assigned, transferred to and
pledged with the Company shall be herein referred to as the "Collateral." The
pledge of such Collateral is subject to the following terms and provisions:
1. DELIVERY OF SHARES. Simultaneous with the execution of this
------------------
Agreement, Mino shall deliver to a representative of Brobeck, Phleger & Harrison
a certificate or certificates representing the Shares.
2. WARRANTIES. Mino hereby warrants that he is the owner of the
----------
Collateral and has the right to pledge the Collateral and that the Collateral is
free from all liens, adverse claims and other security interests (other than
those created hereby and by the Note).
3. DUTY TO DELIVER. Any new, additional or different securities
---------------
or other property (other than regular cash dividends) which may now or hereafter
become distributable with respect to the Collateral by reason of (i) any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the Common Stock as a class without the
Company's receipt of consideration or (ii) any merger, consolidation or other
reorganization affecting the capital structure of the Company shall, upon
receipt by Mino be
<PAGE>
promptly delivered to and deposited with the Company as part of the Collateral
hereunder. Any such securities shall be accompanied by one or more properly-
endorsed stock power assignments.
4. PAYMENT OF TAXES AND OTHER CHARGES. Mino shall pay, prior to the
----------------------------------
delinquency date, all taxes, liens, assessments and other charges against the
Collateral, and in the event of Mino's failure to do so, the Company may at its
election pay any or all of such taxes and other charges without contesting the
validity or legality thereof. The payments so made shall become part of the
indebtedness secured hereunder and until paid shall bear interest at the minimum
per annum rate, compounded semi-annually, required to avoid the imputation of
interest income to the Company and compensation income to Mino under the Federal
tax laws.
5. SHAREHOLDER RIGHTS. So long as there exists no event of default
-------------------
under Paragraph 10 of this Agreement, Mino may exercise all shareholder voting
rights and be entitled to receive any and all regular cash dividends paid on the
Collateral and all proxy statements and other shareholder materials pertaining
to the Collateral.
6. RIGHTS AND POWERS OF COMPANY. The Company may, without obligation
----------------------------
to do so, exercise at any time and from time to time one or more of the
following rights and powers with respect to any or all of the Collateral:
(i) subject to the applicable limitations of Paragraph 9,
accept in its discretion other property of Mino in exchange for all or part
of the Collateral and release Collateral to Mino to the extent necessary to
effect such exchange, and in such event the other property received in the
exchange shall become part of the Collateral hereunder;
(ii) perform such acts as are necessary to preserve and protect
the Collateral and the rights, powers and remedies granted with respect to
such Collateral by this Agreement; and
(iii) transfer record ownership of the Collateral to the Company
or its nominee and receive, endorse and give receipt for, or collect by
legal proceedings or otherwise, dividends or other distributions made or
paid with respect to the Collateral, provided and only if there exists at
--------------------
the time an outstanding event of default under Paragraph 10 of this
Agreement. Any cash sums which the Company may so receive shall be applied
to the payment of the Note and any other indebtedness secured hereunder, in
such order of application as the Company deems appropriate. Any remaining
cash shall be paid over to Mino.
Any action by the Company pursuant to the provisions of this Paragraph
6 may be taken without notice to Mino. Expenses reasonably incurred in
connection with such action shall be payable by Mino and form part of the
indebtedness secured hereunder as provided in Paragraph 12.
2
<PAGE>
7. CARE OF COLLATERAL. The Company shall exercise reasonable care in the
------------------
custody and preservation of the Collateral. However, the Company shall have no
obligation to (i) initiate any action with respect to, or otherwise inform Mino
of, any conversion, call, exchange right, preemptive right, subscription right,
purchase offer or other right or privilege relating to or affecting the
Collateral, (ii) preserve the rights of Mino against adverse claims or protect
the Collateral against the possibility of a decline in market value or (iii)
take any action with respect to the Collateral requested by Mino unless the
request is made in writing and the Company determines that the requested action
will not unreasonably jeopardize the value of the Collateral as security for the
Note and other indebtedness secured hereunder.
Subject to the limitations of Paragraph 9, the Company may at any time
release and deliver all or part of the Collateral to Mino, and the receipt
thereof by Mino shall constitute a complete and full acquittance for the
Collateral so released and delivered. The Company shall accordingly be
discharged from any further liability or responsibility for the Collateral, and
the released Collateral shall no longer be subject to the provisions of this
Agreement.
8. TRANSFER OF COLLATERAL. In connection with the transfer or assignment
----------------------
of the Note (whether by negotiation, discount or otherwise), the Company may
transfer all or any part of the Collateral, and the transferee shall thereupon
succeed to all the rights, powers and remedies granted the Company hereunder
with respect to the Collateral so transferred. Upon such transfer, the Company
shall be fully discharged from all liability and responsibility for the
transferred Collateral.
9. RELEASE OF COLLATERAL. Provided all indebtedness secured hereunder
---------------------
(other than payments not yet due and payable under the Note) shall at the time
have been paid in full and there does not otherwise exist any event of default
under Paragraph 10, the Shares, together with any additional Collateral which
may hereafter be pledged and deposited hereunder, shall be released from pledge
and returned to Mino in accordance with the following provisions:
(i) Upon payment or prepayment of principal under the Note,
together with payment of all accrued interest to date, one or more of the
Shares held as Collateral hereunder shall (subject to the applicable
limitations of Paragraphs 9(iii) and 9(v) below) be released to Mino within
thirty (30) days after such payment or prepayment. The number of the
shares to be so released shall be equal to the number obtained by
multiplying (i) the total number of Shares held under this Agreement at the
time of the payment or prepayment, by (ii) a fraction, the numerator of
which shall be the amount of the principal paid or prepaid and the
denominator of which shall be the unpaid principal balance of the Note
immediately prior to such payment or prepayment. In no event, however,
shall any fractional shares be released.
(ii) Any additional Collateral which may hereafter be pledged and
deposited with the Company (pursuant to the requirements of Paragraph 3)
with respect to the Shares shall be released at the same time the
particular shares
3
<PAGE>
of Common Stock to which the additional Collateral relates are to be
released in accordance with the applicable provisions of Paragraph 9(i).
(iii) Under no circumstances, however, shall any Shares or any
other Collateral be released if previously applied to the payment of any
indebtedness secured hereunder. In addition, in no event shall any Shares
or other Collateral be released pursuant to the provisions of Paragraph
9(i) or 9(ii) if, and to the extent, the fair market value of the Common
Stock and all other Collateral which would otherwise remain in pledge
hereunder after such release were effected would be less than the unpaid
principal and accrued interest under the Note.
(iv) For all valuation purposes under this Agreement, the fair
market value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
(A) If the Common Stock is at the time traded on the Nasdaq
National Market, the fair market value shall be the closing selling price
per share of Common Stock on the date in question, as such prices are
reported by the National Association of Securities Dealers on its Nasdaq
system or any successor system. If there is no reported closing selling
price for the Common Stock on the date in question, then the closing
selling price on the last preceding date for which such quotation exists
shall be determinative of fair market value.
(B) If the Common Stock is at the time listed on the American
Stock Exchange or the New York Stock Exchange, then the fair market value
shall be the closing selling price per share of Common Stock on the date in
question on the securities exchange serving as the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common
Stock on such exchange on the date in question, then the fair market value
shall be the closing selling price on the exchange on the last preceding
date for which such quotation exists.
(C) If the Common Stock is at the time neither listed on any
securities exchange nor traded on the Nasdaq National Market, the fair
market value shall be determined by the Company's Board of Directors after
taking into account such factors as the Board shall deem appropriate.
(v) In the event the Collateral becomes in whole or in part
comprised of "margin securities" within the meaning of Section 207.2(i) of
Regulation G of the Federal Reserve Board, then no Collateral shall
thereafter be substituted for any Collateral under the provisions of
Paragraph 6(i) or be released
4
<PAGE>
under Paragraph 9(i) or (ii), unless there is compliance with each of the
following additional requirements:
(A) The substitution or release must not increase the
amount by which the indebtedness secured hereunder at the time of such
substitution or release exceeds the maximum loan value (as defined below)
of the Collateral immediately prior to such substitution or release.
(B) The substitution or release must not cause the amount
of indebtedness secured hereunder at the time of such substitution or
release to exceed the maximum loan value of the Collateral remaining after
such substitution or release is effected.
(C) For purposes of this Paragraph 9(v), the maximum loan
value of each item of Collateral shall be determined on the day the
substitution or release is to be effected and shall, in the case of the
shares of Common Stock and any additional Collateral (other than margin
securities), equal the good faith loan value thereof (as defined in Section
207.2(e)(1) of Regulation G) and shall, in the case of all margin
securities (other than the Common Stock), equal fifty percent (50%) of the
current market value of such securities.
10. EVENTS OF DEFAULT. The occurrence of one or more of the
-----------------
following events shall constitute an event of default under this Agreement:
(i) the failure of Mino to pay, when due under the Note, any
installment of principal or accrued interest; or
(ii) the occurrence of any other acceleration event specified
in the Note; or
(iii) the failure of Mino to perform any obligation imposed upon
Mino by reason of this Agreement; or
(iv) the breach of any warranty of Mino contained in this
Agreement.
Upon the occurrence of any such event of default, the Company may, at
its election, declare the Note and all other indebtedness secured hereunder to
become immediately due and payable and may exercise any or all of the rights and
remedies granted to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder.
5
<PAGE>
Any proceeds realized from the disposition of the Collateral pursuant to
the foregoing power of sale shall be applied first to the payment of expenses
incurred by the Company in connection with the disposition, then to the payment
of the Note and finally to any other indebtedness secured hereunder. Any
surplus proceeds shall be paid over to Mino. However, in the event such
proceeds prove insufficient to satisfy all obligations of Mino under the Note,
then Mino shall remain personally liable for the resulting deficiency.
11. OTHER REMEDIES. The rights, powers and remedies granted to the
--------------
Company pursuant to the provisions of this Agreement shall be in addition to all
rights, powers and remedies granted to the Company under any statute or rule of
law. Any forbearance, failure or delay by the Company in exercising any right,
power or remedy under this Agreement shall not be deemed to be a waiver of such
right, power or remedy. Any single or partial exercise of any right, power or
remedy under this Agreement shall not preclude the further exercise thereof, and
every right, power and remedy of the Company under this Agreement shall continue
in full force and effect unless such right, power or remedy is specifically
waived by an instrument executed by the Company.
12. COSTS AND EXPENSES. All costs and expenses (including reasonable
------------------
attorneys fees) incurred by the Company in the exercise or enforcement of any
right, power or remedy granted it under this Agreement shall become part of the
indebtedness secured hereunder and shall constitute a personal liability of Mino
payable immediately upon demand and bearing interest until paid at the minimum
per annum rate, compounded semi-annually, required to avoid the imputation of
interest income to the Company and compensation income to Mino under the Federal
tax laws.
13. APPLICABLE LAW. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of California without resort to that
State's conflict-of-laws rules.
14. SUCCESSORS. This Agreement shall be binding upon the Company and its
----------
successors and assigns and upon Mino and the executors, heirs and legatees of
Mino's estate.
15. SEVERABILITY. If any provision of this Agreement is held to be
------------
invalid under applicable law, then such provision shall be ineffective only to
the extent of such invalidity, and neither the remainder of such provision nor
any other provisions of this Agreement shall be affected thereby.
16. 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.
IN WITNESS WHEREOF, this Stock Pledge Agreement has been entered into on
the date first above written.
6
<PAGE>
--------------------------------------------
Thomas D. Mino
Address: 3450 Central Expressway
Santa Clara, CA 95051
SYNERGY SEMICONDUCTOR CORPORATION
By:
----------------------------------------
T. Olin Nichols, Chief Financial Officer
Address: 3450 Central Expressway
Santa Clara, CA 95051
7
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, Thomas D. Mino hereby assigns and transfers unto
414,200 shares of Common Stock of Synergy
- -----------------------------------
Semiconductor Corporation (the "Company") standing in Thomas D. Mino's name on
the books of said Company represented by Certificate No. and herewith and
--
does hereby constitute and appoint Brobeck, Phleger & Harrison to transfer such
Shares on the books of the within-named Company with full power of substitution
in the premises.
DATED: , 1995
--------------------
------------------------------
Thomas D. Mino
Address: 3450 Central Expressway
Santa Clara, CA 95051
<PAGE>
EXHIBIT 10.19
NOTE SECURED BY DEED OF TRUST
-----------------------------
$100,000 December 15, 1995
Santa Clara, California
FOR VALUE RECEIVED, the undersigned Maker promises to pay to the order
of Synergy Semiconductor Corporation (the "Company"), at its principal offices
at 3450 Central Expressway, Santa Clara, California 95051, the principal sum of
One Hundred Thousand Dollars ($100,000) upon the terms and conditions specified
below.
1. Principal. The entire principal balance of this Note shall become
---------
due and payable two years from the effective date of the Company's initial
underwritten public offering of securities pursuant to an effective registration
statement filed under the federal securities laws subject to the acceleration
events specified in Paragraph 5 below.
2. Interest. No interest shall accrue on this Note.
--------
3. Application of Payment. Payment shall be made in lawful tender of
----------------------
the United States. Prepayment of principal may be made at any time without
penalty.
4. Security. The proceeds of the loan evidenced by this Note shall
--------
be applied solely to the purchase of the Maker's principal residence in Los
Gatos, California. Payment of this Note shall be secured by a Deed of Trust on
such principal residence, as more particularly described in Exhibit "A" to the
Deed of Trust, a copy of which is attached hereto as Exhibit A. Maker, however,
shall remain personally liable for payment of this Note, and assets of the
Maker, in addition to the collateral under the Deed of Trust, may be applied to
the satisfaction of the Maker's obligations hereunder.
5. Events of Acceleration. The entire unpaid principal sum of this
----------------------
Note shall become immediately due and payable upon one or more of the following
events:
A. the date the Maker ceases employment with the Company or its
successor; or
B. the sale, transfer, mortgage, assignment, encumbrance or lease,
whether voluntarily or involuntarily or by operation of law or
otherwise of the property covered by the Deed of Trust, or any
portion thereof or interest therein without the prior written
consent of the Company; or
C. the insolvency of the Maker, the commission of any act of
bankruptcy by the Maker, the execution by the Maker of a general
assignment for the benefit of creditors, the filing by or against
the Maker of any petition in bankruptcy or any petition for
relief under the provisions of the federal bankruptcy act or any
other state or federal law for the relief of debtors and the
continuation of such petition without dismissal for a period of
thirty (30) days or more, the appointment of a receiver or
trustee to take possession of any property or assets of the
Maker, or the attachment of or execution against any property or
assets of the Maker; or
D. the occurrence of any event of default under the Deed of Trust
securing this Note or any obligation secured thereby.
<PAGE>
6. Employment Requirement. The benefits of the interest arrangements
----------------------
under this Note are not transferable by Maker and are conditioned on the future
performance of substantial services by the Maker.
For purposes of applying the provisions of this Note, the Maker shall
be considered to remain in the employ of the Company for so long as the Maker
renders services as a full-time employee of the Company or one or more of its
50%-or-more owned (directly or indirectly) subsidiaries.
Upon Maker's cessation of employment with the Company, interest shall
accrue on the unpaid balance of this Note at the minimum per annum rate,
compounded semi-annually, required to avoid the imputation of compensation
income to Maker under the Federal tax laws.
7. Certification. The Maker certifies that he reasonably expects to
-------------
be entitled to and will itemize deductions for Federal income tax purposes for
each year the Note is outstanding.
8. Collection. If action is instituted to collect this Note, the
----------
Maker promises to pay all costs and expenses (including reasonable attorney
fees) incurred in connection with such action.
9. Waiver. No previous waiver and no failure or delay by the
------
Company in acting with respect to the terms of this Note or the Deed of Trust
shall constitute a waiver of any breach, default, or failure of condition under
this Note, the Deed of Trust or the obligations secured thereby. A waiver of
any term of this Note, the Deed of Trust or of any of the obligations secured
thereby must be made in writing and shall be limited to the express terms of
such waiver.
The Maker waives presentment; demand; notice of dishonor; notice of
default or delinquency; notice of acceleration; notice of protest and
nonpayment; notice of costs, expenses or losses and interest thereon; notice of
interest on interest; and diligence in taking any action to collect any sums
owing under this Note or in proceeding against any of the rights or interests in
or to properties securing payment of this Note.
10. Conflicting Agreements. In the event of any inconsistencies
----------------------
between the terms of this Note and the terms of any other document related to
the loan evidenced by the Note, the terms of this Note shall prevail.
11. Governing Law. This Note shall be construed in accordance with
-------------
the laws of the State of California.
12. Due on Sale. If the Maker shall sell, convey or alienate the
-----------
property covered by the Deed of Trust, or any part thereof, or any interest
therein, or shall be divested of his title or any interest therein in any manner
or way, whether voluntarily or involuntarily, without the written consent of the
Company being first had and obtained, the Company, shall have the right, at its
option, except as prohibited by law, to declare an indebtedness or obligations
secured hereby, irrespective of the maturity date specified in any note
evidencing the same, immediately due and payable. Consent to one such
transaction shall not be deemed to be a waiver of the right to require such
consent to future successive transactions.
------------------------------
Maker: Thomas D. Mino
2
<PAGE>
Exhibit A
LEGAL DESCRIPTION:
All that real property situated in the Town of Los Gatos, County of Santa Clara,
State of California, described as follows:
REAL PROPERTY in the Town of Los Gatos, County of Santa Clara, State
of California, described as follows:
Beginning at the intersection of the Northeasterly line of Nicholson
Avenue with the Northwesterly line of Tait Avenue; thence running
North of 20 Degrees 10' East 42.9 feet to the intersection thereof
with the Northeasterly line of Lot 9 hereinafter referred to; thence
along the Northeasterly line of said Lot 9, North 61 Degrees 38' West
45.87 feet to the Easterly corner of that certain Parcel of land
conveyed by Washington Withrow, et ux, to Rose N. Cunningham by Deed
dated May 3, 1926 and recorded July 8, 1926 in Book 251, Official
Records, page 523, Santa Clara County Records; thence along the
Southeasterly line of said parcel of land conveyed to Rose N.
Cunningham, South 19 Degrees 24' West 42.98 feet to the Northeasterly
line of Nicholson Avenue; thence along the Northeasterly line of
Nicholson Avenue; South 61 Degrees 38' East 45.3 feet to the point of
beginning and being the Easterly portion of Lot 9 in Block 5, as shown
on the Map of the Almond Grove addition to the Town of Los Gatos,
which Map is now on file in the Office of the Recorder of the County
of Santa Clara, State of California, in Book "C" of Maps, page 3.
A.P.N. 510-17-009
Commonly known as: 203 Tait Avenue, Los Gatos, CA 95030
3
<PAGE>
EXHIBIT 11.1
SYNERGY SEMICONDUCTOR CORPORATION
COMPUTATION OF PRO FORMA NET INCOME PER SHARE
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1995 March 31, 1996
----------------- ------------------
<S> <C> <C>
Net income $2,652,694 $1,434,174
================= ==================
Weighted average common shares
outstanding 1,153,168 2,553,169
Common stock options, utilizing
treasury stock method when
dilutive 1,227,780 293,482
Preferred stock, utilizing as if
converted method when dilutive 10,580,893 11,520,574
Staff Accounting Bulletin No. 83
issuances and grants (1) 347,232 301,125
------------------ -----------------
Weighted average shares outstanding 13,309,073 14,668,350
================== =================
Net income per share $ 0.20 $ 0.10
================== =================
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, stock options and warrants granted with exercise prices below the
assumed IPO price during the 12-month period preceding the date of the initial
filing of the Registration Statement, have been included in the calculation of
weighted average common equivalent shares, using the treasury stock method and
the assumed IPO price, as if they were outstanding for all periods presented.
<PAGE>
EXHIBIT 23.1
REPORT ON SCHEDULE AND CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Synergy Semiconductor Corporation
The audits referred to in our report dated January 31, 1996, included the
related financial statement schedule as of December 31, 1995, and for each of
the years in the three-year period ended December 31, 1995, included in the
registration statement. This financial statement schedule is the
responsibility of Synergy Semiconductor Corporation's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein and to the references
to our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
San Jose, California
June 5, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 1,940 2,307
<SECURITIES> 0 0
<RECEIVABLES> 3,942 3,532
<ALLOWANCES> 500 200
<INVENTORY> 5,961 6,081
<CURRENT-ASSETS> 11,555 11,958
<PP&E> 15,894 16,043
<DEPRECIATION> 13,718 13,965
<TOTAL-ASSETS> 13,966 14,272
<CURRENT-LIABILITIES> 7,815 7,003
<BONDS> 0 0
0 0
7,297 7,297
<COMMON> 31,894 31,894
<OTHER-SE> (34,241) (32,807)
<TOTAL-LIABILITY-AND-EQUITY> 13,966 14,272
<SALES> 23,344 9,389
<TOTAL-REVENUES> 25,685 9,587
<CGS> 10,819 4,766
<TOTAL-COSTS> 10,819 4,766
<OTHER-EXPENSES> 11,703 3,295
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 511 92
<INCOME-PRETAX> 2,652 1,434
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 2,652 1,434
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,652 1,434
<EPS-PRIMARY> 0.20 0.10
<EPS-DILUTED> 0.20 0.10
</TABLE>
