<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1997
REGISTRATION NO. 333-20031
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NEOMAGIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3674 77-0344424
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3260 JAY STREET
SANTA CLARA, CA 95054
(408) 988-7020
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PRAKASH C. AGARWAL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEOMAGIC CORPORATION
3260 JAY STREET
SANTA CLARA, CA 95054
(408) 988-7020
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
ARTHUR F. SCHNEIDERMAN JOSHUA L. GREEN
MICHAEL J. DANAHER ROBERT V. W. ZIPP
ROBERT D. SANCHEZ GLEN R. VAN LIGTEN
WILSON SONSINI GOODRICH & ROSATI VENTURE LAW GROUP
PROFESSIONAL CORPORATION A PROFESSIONAL CORPORATION
650 PAGE MILL ROAD 2800 SAND HILL ROAD
PALO ALTO, CALIFORNIA 94304-1050 MENLO PARK, CA 94025
(415) 493-9300 (415) 854-4488
</TABLE>
---------------
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value................. 3,664,000 $9.00 $32,976,000 $9,993(2)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a).
(2) The Registrant previously paid a fee in the amount of $10,455.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued February 25, 1997
3,000,000 Shares
[LOGO OF NEOMAGIC CORPORATION APPEARS HERE]
COMMON STOCK
----------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $7 AND $9. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE SHARES OF COMMON
STOCK OFFERED HEREBY HAVE BEEN APPROVED FOR QUOTATION ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "NMGC" SUBJECT TO OFFICIAL NOTICE
OF ISSUANCE. THE COMPANY ANTICIPATES THAT, CONCURRENTLY WITH THE
CLOSING OF THIS OFFERING, MITSUBISHI INTERNATIONAL CORPORATION
AND MC SILICON VALLEY, INC. WILL PURCHASE DIRECTLY FROM THE
COMPANY ADDITIONAL SHARES OF COMMON STOCK HAVING AN
AGGREGATE PURCHASE PRICE OF $1,500,000. SEE "DIRECT
SALES."
----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 4 HEREOF.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total (3)................................... $ $ $
</TABLE>
- -----
(1) See "Underwriters" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $900,000.
(3) The Company and certain stockholders (the "Selling Stockholders") have
granted the Underwriters an option, exercisable within 30 days of the
date hereof, to purchase up to an aggregate of 350,000 and 100,000
additional Shares of Common Stock, respectively, at the price to public
less underwriting discounts and commissions for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions,
proceeds to Company and proceeds to Selling Stockholders will be
$ , $ , $ , and $ , respectively. See
"Underwriters."
----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Venture Law Group, A Professional Corporation, counsel for the Underwriters.
It is expected that delivery of the Shares will be made on or about , 1997
at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against
payment therefor in immediately available funds.
----------
MORGAN STANLEY & CO.
Incorporated
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY
, 1997
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued February 25, 1997
Shares
[LOGO OF NEOMAGIC CORPORATION APPEARS HERE]
COMMON STOCK
-----------
THIS PROSPECTUS RELATES TO SHARES OF COMMON STOCK TO BE SOLD TO CERTAIN
PURCHASERS PURSUANT TO STOCK PURCHASE AGREEMENTS WITH THE COMPANY. SEE
"DIRECT SALE".
-----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 4 HEREOF.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
, 1997
<PAGE>
[LOGO OF NEOMAGIC--MOBILIZING MULTIMEDIA APPEARS HERE]
NeoMagic has pioneered a new approach to providing multimedia semiconductor
solutions for portable PC's that it believes overcomes the limitations of
traditional architectures. The Company believes that it has developed the
first commercially available high performance, low power silicon technology
that integrates large DRAM memory with analog and logic circuitry on a single
chip. NeoMagic's system on a chip is designed to bring desktop multimedia
performance to mobile computers without compromising battery life or system
size, weight or cost.
[PICTURE OF 5 NOTEBOOK PC'S OPENED TO DISPLAY SCREEN]
Eight of the world's ten largest notebook PC manufacturers have designed or
are designing notebook PCs to include MagicGraph128 products. The Company's
products are currently used in notebook PC's sold by Acer, Compaq, Dell,
Digital Equipment, Fujitsu, Hewlett-Packard, Hitachi, Mitsubishi, NEC, Sharp
and Texas Instruments.
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING
STOCKHOLDER OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFERING
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS 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>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 4
The Company............................................................... 14
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Consolidated Financial Data...................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 26
Management................................................................ 36
Certain Transactions...................................................... 42
Principal and Selling Stockholders........................................ 46
Description of Capital Stock.............................................. 48
Shares Eligible for Future Sale........................................... 51
Direct Sales.............................................................. 52
Underwriters.............................................................. 53
Legal Matters............................................................. 54
Experts................................................................... 54
Additional Information.................................................... 55
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information. Upon completion of
the offering contemplated hereby, the Company will be subject to the
informational requirements of the Securities and Exchange Act of 1934, and in
accordance therewith, will be filing reports and other information with the
Securities and Exchange Commission.
----------------
The Company's logo, MagicWare and MagicGraph128 are trademarks of the
Company. All other trademarks or trade names referred to in this Prospectus
are the property of their respective owners.
----------------
Except as otherwise noted herein, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option and (ii)
reflects the conversion of all of the Company's outstanding shares of
Preferred Stock into Common Stock upon the closing of this offering. See
"Underwriters." As of January 1996, the Company adopted a fiscal reporting
period consisting of a fifty-two week period ending on the Sunday closest to
the January month end. Fiscal years 1995, 1996 and 1997 ended on January 31,
28, and 26, respectively. For convenience, in the financial statements and
other financial data included herein, fiscal periods have been shown as ending
on the last day of the calendar month.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT AND OTHER STABILIZING TRANSACTIONS. SEE
"UNDERWRITERS."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus.
THE COMPANY
NeoMagic Corporation ("NeoMagic" or the "Company") designs, develops and
markets multimedia accelerators for sale to notebook PC manufacturers. The
Company believes it has developed the first commercially available silicon
technology that integrates large DRAM memory with analog and logic circuitry to
provide high performance multimedia solutions on a single chip. The Company's
MagicGraph128 family of pin-compatible, multimedia accelerator products
incorporates a 128-bit memory bus. The Company believes these products enable
notebook PC manufacturers to deliver state-of-the-art multimedia capability
while decreasing power consumption, size, weight, system design complexity and
cost. Eight of the world's ten largest notebook PC manufacturers have designed
or are designing notebook PCs to include MagicGraph128 products. MagicGraph128
products are currently used in notebook PCs sold by Acer, Compaq, Dell, Digital
Equipment, Fujitsu, Hewlett-Packard, Hitachi, Mitsubishi, NEC, Sharp and Texas
Instruments.
NeoMagic's MagicGraph128 family of products ranges from accelerators designed
for notebook PCs that target cost-conscious consumers to fully-featured
multimedia systems designed for high-end notebook PCs. The Company introduced
its first MagicGraph128 product in March 1995, is currently in production with
three products and is sampling the fourth generation of its MagicGraph128
product family. NeoMagic has established strategic relationships with
Mitsubishi Electric Corporation and Toshiba Corporation to produce
semiconductor wafers for the Company's products. Pursuant to these strategic
relationships, NeoMagic designs the overall product, including the logic and
analog circuitry, and the manufacturing partner designs the DRAM module,
manufactures the wafers and performs memory testing and repair. NeoMagic is
focused on leveraging its core competencies in logic, analog and memory
integration, graphics/video multimedia technologies, driver and BIOS software,
and power management to continue developing solutions to further facilitate the
mobilization of multimedia applications.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.... 3,000,000 shares
Common Stock to be
outstanding after the
offering............... 23,332,205 shares(1)
Use of proceeds......... For general corporate purposes, including working capital and
capital expenditures
Proposed Nasdaq National
Market symbol.......... NMGC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
PERIOD FROM MAY 26, JANUARY 31,
1993 (INCEPTION) THROUGH -------------------------
JANUARY 31, 1994 1995 1996 1997
------------------------ ------- ------- -------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................. $ -- $ -- $ 243 $40,792
Gross profit............... -- -- 78 12,161
Loss from operations....... (773) (4,891) (7,072) (1,108)
Net loss................... $(757) $(4,791) $(6,869) $ (788)
Pro forma net loss per
share(2).................. $ (.04)
Shares used in computing
pro forma net loss
per share(2).............. 21,555
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1997
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $13,458 $34,878
Working capital.......................................... 1,398 22,818
Total assets............................................. 27,464 48,884
Long-term obligations.................................... 1,194 1,194
Total stockholders' equity............................... 4,200 25,620
</TABLE>
- -------
(1) Based on shares of Common Stock outstanding as of January 31, 1997.
Excludes shares to be sold in the Direct Sales. Also excludes 2,440,750
shares of Common Stock issuable upon the exercise of options under the
Company's Amended and Restated 1993 Stock Plan (the "Stock Plan"), 316,743
shares of Common Stock issuable upon the exercise of warrants outstanding
as of January 31, 1997, 2,427,387 shares reserved for future grant under
the Stock Plan as of January 31, 1997 and 500,000 shares of Common Stock
reserved for issuance under the Company's Employee Stock Purchase Plan. See
"Management--Employee Benefit Plans" and Note 6 of Notes to Consolidated
Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing pro forma net loss per
share.
(3) As adjusted to reflect the conversion of Preferred Stock to Common Stock
which will occur upon the closing of the offering and the sale by the
Company of 3,000,000 shares of Common Stock offered hereby at an assumed
offering price of $8.00 per share (after deducting estimated underwriting
discounts and commissions and offering expenses payable by the Company).
See "Use of Proceeds" and "Capitalization." Does not reflect the sale of
any shares pursuant to the Direct Sales.
3
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the following risk factors
as well as those discussed elsewhere in this Prospectus.
Fluctuations in Operating Results. NeoMagic's quarterly and annual results
of operations are affected by a variety of factors that could materially
adversely affect net sales, gross profit and income from operations. These
factors include, among others, demand for the Company's products; changes in
product or customer mix, (i.e., the portion of the Company's revenues
represented by the Company's various products and customers); fluctuations in
manufacturing yields; incorrect forecasting of future revenues; availability
and cost of manufacturing capacity; unanticipated delays or problems in the
introduction or performance of the Company's next generation of products; the
Company's ability to introduce new products in accordance with OEM design
requirements and design cycles; market acceptance of the products of the
Company's customers; changes in the timing of product orders due to unexpected
delays in the introduction of products of the Company's customers or due to
the life cycles of such customers' products ending earlier than anticipated;
new product announcements or product introductions by NeoMagic's competitors;
competitive pressures resulting in lower selling prices; the volume of orders
that are received and can be fulfilled in a quarter; the rescheduling or
cancellation of orders by customers which cannot be replaced with orders from
other customers; supply constraints for the other components incorporated into
its customers' notebook PC products; foreign exchange rate fluctuations; the
unanticipated loss of any strategic relationship; seasonality associated with
the tendency of PC sales to increase in the second half of each calendar year;
the level of expenditures for research and development and sales, general and
administrative functions of the Company; costs associated with future
litigation; and costs associated with protecting the Company's intellectual
property. Any one or more of these factors could result in the Company failing
to achieve its expectations as to future revenues. The Company may be unable
to adjust spending sufficiently in a timely manner to compensate for any
unexpected sales shortfall, which could materially adversely affect quarterly
operating results. Accordingly, the Company believes that period-to-period
comparisons of its operating results should not be relied upon as an
indication of future performance. In addition, the results of any quarterly
period are not indicative of results to be expected for a full fiscal year. In
certain future quarters, the Company's operating results may be below the
expectations of public market analysts or investors. In such event, the market
price of the Common Stock would be materially adversely affected.
Risks Associated with Dependence on the Notebook PC Market. The Company's
products are used only in notebook PCs. The notebook PC market is
characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and significant price competition,
resulting in short product life cycles and regular reductions of average
selling prices over the life of a specific product. Although the notebook PC
market has grown substantially in recent years, there is no assurance that
such growth will continue. A reduction in sales of notebook PCs, or a
reduction in the growth rate of such sales, would likely reduce demand for the
Company's products. Moreover, such changes in demand could be large and
sudden. Since PC manufacturers often build inventories during periods of
anticipated growth, they may be left with excess inventories if growth slows
or if they have incorrectly forecast product transitions. In such cases, the
PC manufacturers may abruptly suspend substantially all purchases of
additional inventory from suppliers such as the Company until the excess
inventory has been absorbed. Any reduction in the demand for notebook PCs
generally, or for a particular product that incorporates the Company's
multimedia accelerators, could have a material adverse impact on the Company's
business, financial condition and results of operations.
The Company's ability to compete in the future will depend on its ability to
identify and ensure compliance with evolving industry standards. Unanticipated
changes in industry standards could render the Company's products incompatible
with products developed by major hardware manufacturers and software
developers, including Intel Corporation and Microsoft Corporation. The Company
could be required, as a result, to invest significant time and effort to
redesign the Company's products to ensure compliance with relevant standards.
If the Company's products are not in compliance with prevailing industry
standards for a significant period of time,
4
<PAGE>
the Company could miss opportunities to achieve crucial design wins, which
could result in a material adverse change in the Company's business, financial
condition and results of operations. In addition, the Company's products are
designed to afford the notebook PC manufacturer significant advantages with
respect to product performance, power consumption and size. To the extent that
future developments in other notebook PC components or subassemblies
incorporate one or more of the advantages offered by the Company's products,
the market demand for the Company's products may be negatively impacted, which
could result in a material adverse change in the Company's business, financial
condition and results of operations.
Product Concentration; Risks Associated with Multimedia Products. The
Company's revenues are entirely dependent on the market for multimedia
accelerators for notebook PCs and on the Company's ability to compete in that
market. Since the Company has no other product line, the Company's revenues
and results of operations would be materially adversely affected if for any
reason it were unsuccessful in selling multimedia accelerators. The notebook
PC market frequently undergoes transitions in which products rapidly
incorporate new features and performance standards on an industry-wide basis.
If the Company's products are unable at the beginning of each such transition
to support the new feature sets or performance levels being required by
notebook PC manufacturers, the Company would be likely to lose design wins
and, moreover, not have the opportunity to compete for new design wins until
the next product transition occurred. Thus, a failure to develop products with
required feature sets or performance standards or a delay as short as a few
months in bringing a new product to market could significantly reduce the
Company's net sales for a substantial period, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The notebook PC multimedia market is characterized by extreme price
competition. Leading-edge products may command higher average selling prices
but prices decline throughout the product life cycle as comparable and more
advanced products are introduced into the market. As a result, the Company's
ability to maintain average selling prices and gross margins depends
substantially on its ability to continue introducing new products. Its ability
to maintain gross margins is also dependent, but to a lesser extent, upon its
ability to reduce product costs throughout a product life cycle by instituting
cost reduction design changes and yield improvements, persuading customers to
adopt cost-reduced versions of its products and successfully managing its
manufacturing and subcontract relationships. The failure of the Company to
continue designing and introducing advanced products in a timely manner or to
continue reducing product costs would have a material adverse effect on the
Company's net sales, gross margins and results of operations.
Customer Concentration. The notebook PC market is highly concentrated, with
the top ten brand name OEMs by revenues accounting for more than 65% of unit
shipments during the third quarter of calendar 1996 (the most recent period
for which data is available). For this reason, the Company's sales are also
highly concentrated. Sales to the Company's top five customers accounted for
79.7% of the Company's total net sales for fiscal year 1997. The Company
expects that a small number of customers will continue to account for a
substantial portion of its net sales for the foreseeable future. As a result,
the Company's business, financial condition and results of operations could be
materially adversely affected by the decision of a single customer to cease
using the Company's products or by a decline in the number of notebook PCs
sold by a single customer or by a small number of customers.
Effects of Changes in DRAM Pricing. The Company's MagicGraph128 products
feature large DRAM memory integrated with analog and logic circuitry on a
single chip, while its competitors provide only the graphics/video analog and
logic circuitry on a separate chip to be used in conjunction with DRAMs
supplied by others. The prices of the Company's products reflect many factors,
including the prices of DRAM chips. As a result, the Company's business,
financial condition and results of operations may be materially adversely
affected by unanticipated changes in the price of DRAMs. Such changes are
typically sudden and dramatic and can extend over a significant period of
time. For example, the average price of 4-Mbit DRAMs declined by more than 80%
in 1996, and this decline affected the average selling prices of the Company's
products. A significant reduction in the price of DRAMs could cause the
Company's products to be less competitively priced, potentially affecting
ongoing product pricing as well as resulting in the loss of design wins for
new notebook PCs. In this
5
<PAGE>
circumstance, competitors without embedded DRAM could be potentially benefited
by DRAM price reductions, and the Company could be forced to respond to
pricing pressures precipitated by changes in the DRAM market by reducing the
average selling prices of its products to current and prospective system
manufacturer customers. Because the Company's product costs cannot be adjusted
as rapidly as changes in average selling prices to system manufacturers, the
Company's net sales and gross profit would be materially and adversely
impacted.
Dependence on Manufacturing Relationships. The Company's products require
wafers manufactured with state-of-the-art fabrication equipment and
techniques. All of the Company's products are currently manufactured by
Mitsubishi Electric Corporation ("Mitsubishi Electric") in Japan under the
terms of a five-year wafer supply agreement. Mitsubishi Electric is currently
producing six-inch wafers for the Company and expects to begin producing
eight-inch wafers utilizing Mitsubishi Electric's next generation of
manufacturing technologies for certain of the Company's new products in
calendar 1997. The Company also has entered into a five-year wafer supply
agreement with Toshiba Corporation ("Toshiba") in Japan to commence production
of the Company's next generation multimedia accelerator products. NeoMagic
does not expect that a significant portion of the Company's wafer requirements
will be met by Toshiba before calendar 1998. The Company expects that, for the
foreseeable future, each of its products will be single source manufactured.
Because the lead time needed to establish a strategic relationship with a new
DRAM partner is at least 12 months and the estimated time for Mitsubishi
Electric to switch to a new product line is four to six months, there is no
readily available alternative source of supply for any specific product. A
manufacturing disruption experienced by either of the Company's manufacturing
partners would impact the production of the Company's products for a
substantial period of time, which would have a material adverse effect on the
Company's business, financial condition and result of operations. Furthermore,
in the event that the transition to the next generation of manufacturing
technologies at Mitsubishi Electric or the relationship with Toshiba is
unsuccessful or delayed, the Company's business, financial condition and
results of operations would be materially and adversely affected.
There are many other risks associated with the Company's dependence upon
third party manufacturers, including: reduced control over delivery schedules,
quality assurance, manufacturing yields and cost; the potential lack of
adequate capacity during periods of excess demand; limited warranties on
wafers supplied to the Company; and potential misappropriation of NeoMagic
intellectual property. The Company is dependent on Mitsubishi Electric, and
expects in the future to be dependent upon Toshiba as well, to produce wafers
of acceptable quality and with acceptable manufacturing yields, to deliver
those wafers to the Company and its independent assembly and testing
subcontractors on a timely basis and to allocate to the Company a portion of
their manufacturing capacity sufficient to meet the Company's needs. On
occasion, the Company has experienced some of these difficulties. The
Company's wafer requirements represent a very small portion of the total
production of these companies. Although the Company's products are designed
using the process design rules of the particular manufacturer, there can be no
assurance that either Mitsubishi Electric or Toshiba will be able to achieve
or maintain acceptable yields or deliver sufficient quantities of wafers on a
timely basis or at an acceptable cost. Additionally, there can be no assurance
that either Mitsubishi Electric or Toshiba will continue to devote resources
to the production of the Company's products or continue to advance the process
design technologies on which the manufacturing of the Company's products are
based. Any such difficulties would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's products are assembled and tested by third party
subcontractors. The Company does not have long term agreements with any of
these subcontractors. Such assembly and testing is conducted on a purchase
order basis. As a result of its reliance on third party subcontractors to
assemble and test its products, the Company cannot directly control product
delivery schedules, which could lead to product shortages or quality assurance
problems that could increase the costs of manufacturing or assembly of the
Company's products. Due to the amount of time normally required to qualify
assembly and test subcontractors, product shipments could be delayed
significantly if the Company is required to find alternative subcontractors.
Any problems associated with the delivery, quality or cost of the assembly and
test of the Company's products could have a material adverse effect on the
Company's business, financial condition and results of operations.
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Inventory Risk. Under its wafer supply agreements with Mitsubishi Electric
and Toshiba, the Company is obligated to provide rolling 12-month forecasts of
anticipated purchases and to place binding purchase orders four months prior
to shipment. If the Company cancels a purchase order, it must pay cancellation
penalties based on the status of work in process or the proximity of the
cancellation to the delivery date. Forecasts of monthly purchases may not
increase or decrease by more than a certain percentage from the previous
month's forecast without the manufacturer's consent. Thus, the Company must
make forecasts and place purchase orders for wafers long before it receives
purchase orders from its own customers. This limits the Company's ability to
react to fluctuations in demand for its products, which can be unexpected and
dramatic, and from time-to-time will cause the Company to have an excess or a
shortage of wafers for a particular product. As a result of the long lead time
for manufacturing wafers, semiconductor companies such as the Company from
time-to-time must take charges for excess inventory. For example, the Company
booked charges totaling $1.5 million for excess inventory in fiscal 1997.
Significant write-offs of excess inventory could materially adversely affect
the Company's financial condition and results of operations. Conversely,
failure to order sufficient wafers would cause the Company to miss revenue
opportunities and, if significant, could impact sales by the Company's
customers, which could adversely affect the Company's customer relationships
and thereby materially adversely affect the Company's business, financial
condition and results of operations.
Manufacturing Yields. The fabrication of semiconductors is a complex and
precise process. Because NeoMagic's products feature the integration of large
DRAM memory with analog and logic circuitry on a single chip, a manufacturer
must obtain acceptable yields of both the memory and logic portions of such
products, compounding the complexity of the manufacturing process. As a
result, the Company may face greater manufacturing challenges than its
competitors. Minute levels of contaminants in the manufacturing environment,
defects in 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. Many of these problems are difficult to diagnose and time
consuming or expensive to remedy. As a result, semiconductor companies often
experience problems in achieving acceptable wafer manufacturing yields, which
are represented by the number of good die as a proportion of the total number
of die on any particular wafer. The Company purchases wafers, not die, and
pays an agreed price for wafers meeting certain acceptance criteria.
Accordingly, the Company bears the risk of final yield of good die. Poor
yields would materially adversely affect the Company's net sales, gross margin
and results of operations.
Semiconductor manufacturing yields are a function both of product design,
which is developed largely by the Company, and process technology, which is
typically proprietary to the manufacturer. Since low yields may result from
either design or process technology failures, yield problems may not be
effectively determined or resolved until an actual product exists that can be
analyzed and tested to identify process sensitivities relating to the design
rules that are used. As a result, yield problems may not be identified until
well into the production process, and resolution of yield problems would
require cooperation by and communication between the Company and the
manufacturer. For example, a design error that resulted in lower than expected
yields of finished products caused the Company to take a $1.2 million charge
for the three months ended July 31, 1996. This risk is compounded by the
offshore location of the Company's manufacturers, increasing the effort and
time required to identify, communicate and resolve manufacturing yield
problems. As the Company's relationships with Toshiba and any additional
manufacturing partners develop, yields could be adversely affected due to
difficulties associated with adopting the Company's technology and product
design to the proprietary process technology and design rules of each
manufacturer. Because of the Company's limited access to wafer fabrication
capacity from its manufacturers, any decrease in manufacturing yields could
result in an increase in the Company's per unit costs and force the Company to
allocate its available product supply among its customers, thus potentially
adversely impacting customer relationships as well as revenues and gross
profit. There can be no assurance that the Company's manufacturers will
achieve or maintain acceptable manufacturing yields in the future. The
inability of the Company to achieve planned yields from its manufacturers
could have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, the Company also faces the
risk of product recalls resulting from design or manufacturing defects which
are not discovered during the manufacturing and testing process. In the event
of a significant number of product returns, the Company's net sales and gross
profit could be materially adversely affected.
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Dependence on New Product Development; Rapid Technological Change. The
Company's business, financial condition and results of operations will depend
to a significant extent on its ability to maintain its position in the market
for multimedia accelerator products that integrate large DRAM with analog and
logic circuitry on a single chip. As a result, the Company believes that
significant expenditures for research and development will continue to be
required in the future. The notebook PC market for which the Company's initial
products are designed is intensely competitive and is characterized by rapidly
changing technology, evolving industry standards and declining average selling
prices. Notebook PC manufacturers demand products incorporating rich features
and functionality in order to achieve product differentiation. The Company
must anticipate the features and functionality that the consumer of notebook
PCs will demand, incorporate those features and functionality into products
that meet the exacting design requirements of the notebook PC manufacturers,
price its products competitively, and introduce the products to the market
within the limited window of market demand. The success of new product
introductions is dependent on several factors, including proper new product
definition, timely completion and introduction of new product designs, the
ability of Mitsubishi Electric, Toshiba and any additional strategic
manufacturing partners to effectively design and implement the manufacture of
new products, quality of new products, differentiation of new products from
those of the Company's competitors and market acceptance of NeoMagic's and its
customers' products. There can be no assurance that the products the Company
expects to introduce will incorporate the features and functionality demanded
by system manufacturers and consumers of notebook PCs, will be successfully
developed or will be introduced within the appropriate window of market
demand. The failure of the Company to successfully introduce new products and
achieve market acceptance for such products would have a material adverse
effect on the Company's business, financial condition and results of
operations.
The integration of large DRAM memory with analog and logic circuitry on a
single chip is highly complex and is critical to the Company's success.
Because of the complexity of its products, however, NeoMagic has experienced
delays from time to time in completing development and introduction of new
products. In the event that there are delays in the completion of development
of future products, including the products currently expected to be announced
over the next year, the Company's business, financial condition and results of
operations would be materially adversely affected. Although the development
cycles for the memory and logic portions of the Company's products have been
relatively synchronized to date, there can be no assurance that this
synchronization will continue in the future. In addition, there can be no
assurance that fundamental advances in either the memory or logic components
of the Company's products will not significantly increase the complexity
inherent in the design and manufacture of MagicGraph128 products, rendering
the Company's product technologically infeasible or uncompetitive. The
multiple chip solutions offered by the Company's competitors are less complex
to design and manufacture than the Company's integrated MagicGraph128
products. As a result, these competitive solutions may be less expensive,
particularly during periods of depressed DRAM prices. The time required for
competitors to develop and introduce competing products may be shorter and
manufacturing yields may be better than those experienced by the Company.
As the markets for the Company's products continue to develop and
competition increases, NeoMagic anticipates that product life cycles will
shorten and average selling prices will decline. In particular, average
selling prices and, in some cases, gross margin for each of the Company's
products will decline as such products mature. Thus, the Company will need to
introduce new products to maintain average selling prices. There can be no
assurance that the Company will successfully identify new product
opportunities and develop and bring new products to market in a timely manner,
that products or technologies developed by others will not render NeoMagic's
products or technologies obsolete or uncompetitive, or that the Company's
products will be selected for design into the products of its targeted
customers. The failure of the Company's new product development efforts would
have a material adverse effect on NeoMagic's business, financial condition and
results of operations.
Competition. The market for multimedia accelerators for notebook PCs in
which the Company competes is intensely competitive and is characterized by
rapid technological change, evolving industry standards and declining average
selling prices. NeoMagic believes that the principal factors of competition in
this market are
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performance, price, features, power consumption, size and software support.
The ability of the Company to compete successfully in the rapidly evolving
notebook PC market depends on a number of factors, including success in
designing and subcontracting the manufacture of new products that implement
new technologies, product quality, reliability, price, the efficiency of
production, design wins for NeoMagic's integrated circuits, ramp up of
production of the Company's products for particular system manufacturers, end-
user acceptance of the system manufacturers' products, market acceptance of
competitors' products and general economic conditions. There can be no
assurance that the Company will be able to compete successfully in the future.
NeoMagic competes with major domestic and international companies, most of
which have substantially greater financial and other resources than the
Company with which to pursue engineering, manufacturing, marketing and
distribution of their products. The Company's principal competitors include
Chips & Technologies, Inc. ("Chips & Technologies"), Cirrus Logic, Inc.
("Cirrus Logic"), S3 Incorporated ("S3"), and Trident Microsystems, Inc.
("Trident"). NeoMagic may also face increased competition from new entrants
into the notebook PC multimedia accelerator market including from companies
currently selling products designed for desktop PCs. Furthermore, the Company
expects that many of its competitors will seek to develop and introduce
products that integrate large DRAM with analog and logic circuitry on a single
chip. For example, Chips & Technologies and Trident have recently announced
separate programs to introduce in conjunction with Samsung Electronics Company
Ltd. ("Samsung"), the world's largest DRAM manufacturer, an integrated
multimedia accelerator solution for the notebook PC market that would compete
directly with the Company's products. Potential competition also could come
from manufacturers that integrate a microprocessor with a multimedia
controller. Although Intel has not announced any such product, Cyrix
Corporation ("Cyrix") recently announced such a product. To the Company's
knowledge, the Cyrix product does not eliminate the need for multimedia
accelerators in notebook PCs. The successful commercial introduction of such a
product that eliminates the need for a separate multimedia accelerator in
notebook PCs could have a material adverse effect on the Company's business,
financial condition and results of operations.
Some of the Company's current and potential competitors operate their own
manufacturing facilities. Since the Company does not operate its own
manufacturing facility and must make binding commitments to purchase products,
it may not be able to reduce its costs and cycle time or adjust its production
to meet demand as rapidly as companies that operate their own facilities,
which could have a material adverse effect on its business, financial
condition and results of operations. In addition, the prices of the Company's
products reflect many factors, including the prices of DRAM chips and non-
integrated graphics chips. Therefore, in some cases, the Company's products
may be more expensive than competitive multiple chip solutions. The Company in
the past has lost and in the future may lose design wins due to this price
difference. Furthermore, a significant reduction in the price of DRAMs could
cause the Company's products to be less competitively priced, potentially
affecting ongoing product pricing as well as resulting in the loss of design
wins for new notebook PCs.
History of Operating Losses; Limited History of Operations. The Company was
founded in May 1993 and had losses from operations of $773,000, $4.9 million,
$7.1 million and $1.1 million for the period from inception (May 26, 1993)
through January 31, 1994, and in fiscal years 1995, 1996 and 1997,
respectively, and had an accumulated deficit of approximately $13.2 million as
of January 31, 1997. Although the Company first achieved profitability on a
quarterly basis during the three months ended October 31, 1996, there can be
no assurance that the Company will remain profitable on a quarterly or annual
basis, if at all.
Uncertainty Regarding Patents and Protection of Proprietary Rights. The
Company relies in part on patents to protect its intellectual property. In the
United States, the Company has been issued two patents, each covering certain
aspects of the design and architecture of the Company's multimedia
accelerators. In addition, the Company has several patent applications pending
in the United States Patent and Trademark Office (the "PTO"). There can be no
assurance that the Company's pending patent applications or any future
applications will be approved, or that any issued patents will provide the
Company with competitive advantages or will not be challenged by third
parties, or that the patents of others will not have an adverse effect on the
Company's ability to do business. Furthermore, there can be no assurance that
others will not independently develop similar products, duplicate the
Company's products or design around any patents that may be issued to the
Company.
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<PAGE>
The Company also relies on a combination of mask work protection,
trademarks, copyrights, trade secret laws, employee and third-party
nondisclosure agreements and licensing arrangements to protect its
intellectual property. Despite these efforts, there can be no assurance that
others will not independently develop substantially equivalent intellectual
property or otherwise gain access to the Company's trade secrets or
intellectual property, or disclose such intellectual property or trade
secrets, or that the Company can meaningfully protect its intellectual
property. A failure by the Company to meaningfully protect its intellectual
property could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company in the past has been, and in the future may be, notified that it
may be infringing the intellectual property rights of third parties. For
example, in October 1996 the Company was notified by two of its customers that
they had received a letter from the holder of a United States patent asserting
that the video/graphics subsystem in such customers' notebook PCs, which use
the Company's MagicGraph128 and MagicGraph128V products, infringe certain
claims of the patent. The Company has certain indemnification obligations to
customers with respect to the infringement of third-party intellectual
property rights by its products. There can be no assurance that the Company's
obligation to indemnify such customers will not have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company believes, based upon advice rendered by its patent counsel, Townsend
and Townsend and Crew LLP, that the Company's MagicGraph128 and MagicGraph128V
products do not infringe any of the claims of the patent. Although there have
been no further communications regarding this matter since October 1996, there
can be no assurance that the holder of such patent will not file a lawsuit
against the Company or its customers, that the Company or such customers would
prevail in any such litigation, or that such customers will continue to
purchase the Company's products under the threat of potential litigation. Any
such litigation, whether or not determined in the Company's favor or settled
by the Company, would at a minimum be costly and could divert the efforts and
attention of the Company's management and technical personnel from productive
tasks, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
As a general matter, the semiconductor industry is characterized by
substantial litigation regarding patent and other intellectual property
rights. In November 1994, Cirrus Logic filed suit against the Company and
certain of its employees claiming, among other things, breach of fiduciary
duty, breach of and interference with contract and misappropriation of trade
secrets. The Company and Cirrus Logic settled the lawsuit in June 1996, but
the Company incurred an aggregate of $703,000 in expenses in connection with
such litigation during fiscal 1995 and fiscal 1996. This settlement did not
involve cash payments but did include a non-solicitation provision and certain
contingent cross-licensing provisions. There can be no assurance that
infringement claims by third parties or claims for indemnification by other
customers or end users of the Company's products resulting from infringement
claims will not be asserted in the future or that such assertions, if proven
to be true, will not materially adversely affect the Company's business,
financial condition and results of operations. In the event of any adverse
ruling in any such matter, the Company could be required to pay substantial
damages, which could include treble damages, cease the manufacturing, use and
sale of infringing products, discontinue the use of certain processes or to
obtain a license under the intellectual property rights of the third party
claiming infringement. There can be no assurance, however, that a license
would be available on reasonable terms or at all. Any limitations on the
Company's ability to market its products, or delays and costs associated with
redesigning its products or payments of license fees to third parties, or any
failure by the Company to develop or license a substitute technology on
commercially reasonable terms could have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on International Sales and Suppliers. Export sales are a critical
part of the Company's business. Sales to customers located outside the United
States (including sales to foreign operations customers headquartered in the
United States and foreign system manufacturers that sell to United States-
based OEMs) accounted for 90.0% and 96.2% of the Company's net sales for
fiscal 1996 and fiscal 1997, respectively. The Company expects that net sales
derived from international sales will continue to represent a significant
portion of its total net sales. Some of the Company's international sales are
supported by letters of credit issued by its customers. Because the Company's
international sales have to date been denominated in United States dollars,
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<PAGE>
increases in the value of 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. All of the Company's wafers are and for
the foreseeable future will be produced by foreign manufacturers. In addition,
many of the components used by the Company are procured from international
sources. Under the Company's wafer supply agreements with Mitsubishi Electric
and Toshiba, products are priced in Japanese yen. As a result, the Company's
cost of goods sold are subject to fluctuations in the yen-dollar exchange
rates. The Company has in the past hedged its exposure to fluctuations in such
foreign currency exchange rate by purchasing forward contracts and may
continue to do so in the future. However, there can be no assurance that such
hedging will be adequate. Significant wafer or component price increases,
fluctuations in currency exchange rates or the Company's hedging against
currency exchange rate fluctuations could have a material adverse effect on
the Company's business, financial condition and results of operations.
International sales and manufacturing operations are subject to a variety of
risks, including fluctuations in currency exchange rates, tariffs, import
restrictions and other trade barriers, unexpected changes in regulatory
requirements, longer accounts receivable payment cycles, potentially adverse
tax consequences and export license requirements. In addition, the Company is
subject to the risks inherent in conducting business internationally including
foreign government regulation, political and economic instability and
unexpected changes in diplomatic and trade relationships. Moreover, the laws
of certain foreign countries in which the Company's products may be developed,
manufactured or sold, including various countries in Asia, may not protect the
Company's intellectual property rights to the same extent as do the laws of
the United States, thus increasing the possibility of piracy of the Company's
products. There can be no assurance that one or more of these risks will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
Need for Additional Capital. The Company requires substantial working
capital to fund its business, particularly to finance inventories and accounts
receivable and for capital expenditures. The Company believes that the net
proceeds of this offering, together with its existing capital resources, will
be sufficient to meet the Company's capital requirements through the next 12
months, although the Company could be required, or could elect, to seek to
raise additional capital during such period. The Company's future capital
requirements will depend on many factors, including the rate of net sales
growth, the timing and extent of spending to support research and development
programs and expansion of sales and marketing, the timing of introductions of
new products and enhancements to existing products, and market acceptance of
the Company's products. The Company expects that it may need to raise
additional equity or debt financing in the future. There can be no assurance
that additional equity or debt financing, if required, will be available on
acceptable terms or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Management of Expanded Operations. The Company has experienced, and may
continue to experience, periods of rapid growth and expansion, which have
placed, and could continue to place, a significant strain on the Company's
limited personnel and other resources. To manage these expanded operations
effectively, the Company will be required to continue to improve its
operational, financial and management systems. Given its relatively early
stage of development, the Company is dependent upon its ability to
successfully hire, train, motivate and manage its employees, especially its
management and development personnel. If the Company's management is unable to
manage its expanded operations effectively, the Company's business, financial
condition and results of operations could be materially adversely affected.
Dependence on Qualified Personnel. The Company's future success depends in
part on the continued service of its key engineering, sales, marketing,
manufacturing, finance and executive personnel, and its ability to identify,
hire and retain additional personnel. There is intense competition for
qualified personnel in the semiconductor industry, and there can be no
assurance that the Company will be able to continue to attract and train
qualified personnel necessary for the development of its business. The
Company's anticipated growth is expected to place increased demands on the
Company's resources and will likely require the addition of new management
personnel and the development of additional expertise by existing management
personnel. Loss of
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the services of, or failure to recruit in a timely manner, key technical and
management personnel could be significantly detrimental to the Company's
product development programs or otherwise have a material adverse effect on
the Company's business, financial condition and results of operations.
Absence of Prior Public Market and Possible Volatility of Stock Price. Prior
to this offering, there has been no public market for the Common Stock and
there can be no assurance that an active trading market will develop or be
sustained. The initial public offering price for Common Stock to be sold by
the Company was determined by negotiations among the Company and the
Underwriters and may bear no relationship to the price at which the Common
Stock will trade after completion of this offering. See "Underwriting" for
factors considered in determining such offering price. The market price of the
Common Stock could be subject to significant fluctuations in response to
variations in the Company's anticipated or actual operating results,
announcements of new products, technological innovations or setbacks by the
Company or its competitors, conditions in the semiconductor and notebook PC
industries, the commencement of, developments in or outcome of litigation,
changes in estimates of the Company's performance by securities analysts, and
other events or factors. In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that have particularly
affected the market prices of many high technology companies and that have
often been unrelated or disproportionate to the operating performance of
companies. These fluctuations, as well as general economic and market
conditions, may adversely affect the market price of the Common Stock.
Concentration of Ownership. Following this offering, the Company's
directors, executive officers and principal stockholders and certain of their
affiliates will own beneficially approximately 65.0% of the outstanding shares
of Common Stock. Accordingly, these stockholders will have the ability to
influence significantly the election of the Company's directors as well as
most other stockholder actions.
Shares Eligible for Future Sale. Sales of a substantial number of shares of
Common Stock (including shares issued upon the exercise of outstanding options
and warrants) in the public market following this offering could adversely
affect the market price for the Common Stock. Such sales could also make it
more difficult for the Company to sell its equity or equity-related securities
in the future at a time and price that the Company deems appropriate. Upon
completion of this offering, the Company will have outstanding an aggregate of
23,332,205 shares of Common Stock assuming no exercise of the Underwriters'
over-allotment option, no exercise of outstanding options under the Stock Plan
and no issuance of shares pursuant to the Direct Sales. Of these outstanding
shares of Common Stock, the 3,000,000 shares sold in this offering and any
shares sold in the Direct Sales will be freely tradeable without restriction
or further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless purchased by "affiliates" of the Company as that
term is defined in Rule 144 under the Securities Act. The remaining 20,332,205
shares of Common Stock outstanding upon completion of this offering and held
by existing stockholders will be "restricted securities" as that term is
defined in Rule 144 under the Securities Act ("Restricted Shares"). The
holders of 20,134,705 Restricted Shares, including all officers and directors
of the Company, are subject to "lock-up" agreements with the Representatives
of the Underwriters and/or the Company providing that they will not offer,
sell, contract to sell or grant any option to purchase or otherwise dispose of
the shares of Common Stock owned by them or that could be purchased by them
through the exercise of options to purchase Common Stock of the Company for a
period of 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated and/or the Company, as
applicable. The Company has agreed with the Representatives of the
Underwriters not to release any holders from such agreements without the prior
consent of Morgan Stanley & Co. Incorporated. Such lock-up agreements may be
released at any time as to all or any portion of the shares subject to such
agreements at the sole discretion of Morgan Stanley & Co. Incorporated. Of the
20,134,705 shares of Common Stock that will first become eligible for sale in
the public market 180 days after the date of this Prospectus, 5,524,824 shares
will be immediately eligible for sale without restriction under Rule 144(k) or
Rule 701 under the Securities Act of 1933, as amended, and 14,609,881 shares
will be immediately eligible for sale subject to certain volume and other
restrictions pursuant to Rule 144. Shortly after the effectiveness of this
offering, the Company intends to register 4,868,137 shares of Common Stock
reserved for issuance under its stock option and stock purchase plans or
currently subject to outstanding options. See "Shares Eligible for Future
Sale."
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Anti-Takeover Provisions. Immediately after the closing of this offering,
the Board of Directors will have the authority to issue up to 2,000,000 shares
of Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any further
vote or action by the stockholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of holders of
any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock may delay, defer or prevent a change in control of the Company
as the terms of the Preferred Stock that might be issued could potentially
prohibit the Company's consummation of any merger, reorganization, sale of
substantially all of its assets, liquidation or other extraordinary corporate
transaction without the approval of the holders of the outstanding shares of
the Preferred Stock. Additionally, the issuance of Preferred Stock could have
a dilutive effect on shareholders of the Company. The Company has no present
plans to issue shares of Preferred Stock. In addition, Section 203 of the
Delaware General Corporation Law, to which the Company is subject, restricts
certain business combinations with any "interested stockholder" as defined by
such statute. The statute may delay, defer or prevent a change in control of
the Company.
Dilution. Purchasers of the Common Stock in this offering will suffer
immediate and substantial dilution of $6.90 per share in the net tangible book
value of the Common Stock from the initial public offering price. To the
extent that outstanding options to purchase the Common Stock are exercised,
there will be further dilution.
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THE COMPANY
NeoMagic Corporation ("NeoMagic" or the "Company") designs, develops and
markets multimedia accelerators for sale to notebook PC manufacturers. The
Company believes it has developed the first commercially available silicon
technology that integrates large DRAM memory with analog and logic circuitry
to provide high performance multimedia solutions on a single chip. The
Company's MagicGraph128 family of pin-compatible, multimedia accelerator
products incorporates a 128-bit memory bus. The Company believes these
products enable notebook PC manufacturers to deliver state-of-the-art
multimedia capability while decreasing power consumption, size, weight, system
design complexity and cost. Eight of the world's ten largest notebook PC
manufacturers have designed or are designing notebook PCs to include
MagicGraph128 products. MagicGraph128 products are currently used in notebook
PCs sold by Acer, Compaq, Dell, Digital Equipment, Fujitsu, Hewlett-Packard,
Hitachi, Mitsubishi, NEC, Sharp and Texas Instruments.
Advances in the multimedia capabilities and features of personal computers
and software applications have fueled the demand for personal computers and
enhanced the usefulness of the PC as a platform for work, entertainment,
communication and collaboration. In particular, the effectiveness of
multimedia for many applications, such as on-site presentations and training,
education, video conferencing, e-mail and entertainment, is maximized in a
mobile environment, giving rise to significant demand for multimedia-capable
notebook PCs.
Multimedia accelerators for desktop PCs traditionally use multiple chip
solutions involving separate DRAM and analog/logic chips. However, the non-
integrated multiple chip solution has disadvantages in the notebook PC
environment, where tolerance for power consumption, heat generation and size
is more limited, and has forced notebook PC manufacturers to compromise
multimedia performance in order to satisfy mobile system design requirements.
NeoMagic has recognized a significant opportunity to "mobilize multimedia" by
making desktop quality multimedia acceleration practical in the notebook PC
environment through the integration of large DRAM with analog and logic
circuitry on a single chip.
NeoMagic's MagicGraph128 family of products ranges from accelerators
designed for notebook PCs that target cost-conscious consumers to fully-
featured multimedia systems designed for high-end notebook PCs. The Company
introduced its first MagicGraph128 product in March 1995, is currently in
production with three products and is sampling the fourth generation of its
MagicGraph128 family. NeoMagic is focused on leveraging its core competencies
in logic, analog and memory integration, graphics/video multimedia
technologies, driver and BIOS software, and power management to continue
developing solutions that facilitate the mobilization of multimedia
applications.
NeoMagic has established strategic relationships with two leading DRAM
manufacturers, Mitsubishi Electric Corporation ("Mitsubishi Electric") and
Toshiba Corporation ("Toshiba"), to produce semiconductor wafers for the
Company's products. The Company has entered into five-year wafer supply
agreements with each of these companies. In each case, NeoMagic designs the
overall product, including the logic and analog circuitry, and the
manufacturing partner designs the DRAM module, manufactures the wafers and
performs memory testing and repair. Upon delivery of finished wafers by the
DRAM partner, the Company uses subcontractors to perform assembly, packaging
and final testing of its products. This manufacturing approach enables
NeoMagic to concentrate its resources on product design and development.
To meet customer requirements, NeoMagic's sales and marketing personnel work
closely with customers, business partners and key industry trend setters to
define product features, performance, price, and market timing of new
products. Additionally, the Company employs a highly trained team of
application engineers to assist customers in designing, testing and qualifying
system designs that incorporate NeoMagic products. The Company's experience
has been that the depth and quality of this design support are key to
improving customers' time-to-market, maintaining a high level of customer
satisfaction and encouraging customers to utilize subsequent generations of
NeoMagic's products.
The Company was incorporated in California in May 1993 and reincorporated in
Delaware in February 1997. The Company's executive offices are located at 3260
Jay Street, Santa Clara, California 95054, its telephone number at that
location is (408) 988-7020 and its Web site is located at
http:\\\\www.neomagic.com. Information contained in the Company's Web site is
not a part of this Prospectus.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,000,000 shares of Common
Stock being offered hereby, at an assumed initial public offering price of
$8.00 per share, are estimated to be approximately $21,420,000 (approximately
$24,024,000 if the Underwriters' over-allotment option is exercised in full),
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company. The net proceeds to the Company from
the Direct Sales, if concluded, are expected to be $1,500,000. The principal
purposes of this offering are to obtain additional capital, create a public
market for the Company's Common Stock and facilitate future access by the
Company to public equity markets. As of the date of this Prospectus, the
Company has no specific plans as to the use of the net proceeds of this
offering or the net proceeds from the Direct Sale. The Company ultimately
expects to use such net proceeds from this offering for general corporate
purposes, including working capital and capital expenditures. A portion of the
proceeds may also be used to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies; however,
there are no plans, negotiations or discussions with respect to any such
transactions at the present time. Pending use of the net proceeds for the
above purposes, the Company intends to invest such funds in short-term,
interest-bearing, investment grade obligations. In the event that the
Underwriters' over-allotment option is exercised, the Company will not receive
any proceeds from the sale of Common Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock or other securities. The Company currently anticipates that it will
retain all of its future earnings for use in the expansion and operation of
its business and does not anticipate paying any cash dividends in the
foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth current obligations under capital leases and
the total capitalization of the Company (i) as of January 31, 1997, and (ii)
as adjusted to reflect the automatic conversion of all outstanding shares of
Preferred Stock into Common Stock upon the closing of this offering and the
receipt by the Company of the estimated net proceeds from the sale of the
3,000,000 shares of Common Stock offered by the Company at an estimated
initial public offering price of $8.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
<TABLE>
<CAPTION>
JANUARY 31, 1997
------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Current obligations under capital leases................ $ 1,054 $ 1,054
======== =======
Long-term obligations................................... $ 1,194 $ 1,194
Stockholders' equity:
Noncumulative Convertible Preferred Stock, $.001 par
value, 12,868,315 shares authorized, 12,259,614 shares
issued and outstanding, actual; 2,000,000 shares
authorized, no shares issued and outstanding, as
adjusted(1)........................................... 12 --
Common Stock, $.001 par value, 60,000,000 shares
authorized, 8,072,591 shares issued and outstanding,
actual; 23,332,205 shares issued and outstanding, as
adjusted(1)........................................... 8 23
Additional paid-in capital............................. 18,207 39,624
Notes receivable from stockholders..................... (822) (822)
Accumulated deficit.................................... (13,205) (13,205)
-------- -------
Total stockholders' equity........................... 4,200 25,620
-------- -------
Total capitalization.............................. $ 5,394 $26,814
======== =======
</TABLE>
- --------
(1) Does not reflect the sale of any shares pursuant to the Direct Sales.
Excludes 2,440,750 shares of Common Stock issuable upon the exercise of
options under the Stock Plan, 316,743 shares of Common Stock issuable upon
the exercise of warrants outstanding as of January 31, 1997, 2,427,387
shares of Common Stock reserved for future grant under the Stock Plan as
of January 31, 1997 and 500,000 shares of Common Stock reserved for
issuance under the Employee Stock Purchase Plan. See "Direct Sales,"
"Management--Employee Benefit Plans" and Note 6 of Notes to Consolidated
Financial Statements.
16
<PAGE>
DILUTION
The net tangible book value of the Company as of January 31, 1997 was
$4,200,000 or $.21 per share of Common Stock. Net tangible book value per
share is determined by dividing the tangible book value of the Company (total
tangible assets less total liabilities) by the number of outstanding shares of
Common Stock at that date. After giving effect to the sale by the Company of
the 3,000,000 shares of Common Stock offered hereby (based upon an assumed
initial public offering price of $8.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company), the Company's net tangible book value at January 31, 1997
would have been $25,620,000 or $1.10 per share. This represents an immediate
increase in net tangible book value to existing stockholders of $.89 per share
and an immediate dilution to new public investors of $6.90 per share. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $8.00
Net tangible book value per share as of January 31, 1997......... $.21
Increase per share attributable to new public investors.......... .89
----
Net tangible book value per share after offering.................. 1.10
-----
Dilution per share to new public investors........................ $6.90
=====
</TABLE>
The following table sets forth on a pro forma basis as of January 31, 1997
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid, and the average price per share paid by
the existing stockholders and by the new public investors (based upon an
assumed initial public offering price of $8.00 per share before deduction of
estimated underwriting discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 20,332,205 87.1% $18,286,914 43.2% $.90
New public investors(1).... 3,000,000 12.9 24,000,000 56.8 8.00
---------- ----- ----------- -----
Total.................... 23,332,205 100.0% $42,286,914 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) The foregoing table does not reflect the sale of any shares pursuant to
the Direct Sales and assumes no exercise of stock options or warrants.
Excludes 2,440,750 shares of Common Stock issuable upon the exercise of
options under the Stock Plan and 316,743 shares of Common Stock issuable
upon the exercise of warrants outstanding as of January 31, 1997. Such
options and warrants were issued at a weighted average exercise price of
$3.86 per share and $1.32 per share, respectively. In addition, as of
January 31, 1997, an additional 2,427,387 shares of Common Stock were
reserved for future grant under the Stock Plan. Also excluded are 500,000
shares of Common Stock reserved for issuance under the Employee Stock
Purchase Plan. To the extent that any of these options or warrants are
exercised, there will be further dilution to new public investors. See
"Capitalization," "Management--Employee Benefit Plans" and Note 6 of Notes
Consolidated Financial Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by reference
to, and should be read in conjunction with, the Company's consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
The selected balance sheet data as of January 31, 1996 and 1997 and selected
consolidated statement of operations data for each of the three years in the
period ended January 31, 1997 have been derived from and should be read in
conjunction with the audited consolidated financial statements of the Company
and the notes thereto included elsewhere in this Prospectus. The selected
consolidated statement of operations data for the period from May 26, 1993
(inception) through January 31, 1994 and the selected consolidated balance
sheet data as of January 31, 1994 and 1995 have been derived from audited
consolidated financial statements and notes thereto not included in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 26, 1993
(INCEPTION) FISCAL YEAR ENDED
THROUGH JANUARY 31,
JANUARY 31, -------------------------------
1994 1995 1996 1997
----------------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales...................... $ -- $ -- $ 243 $ 40,792
Cost of sales.................. -- -- 165 28,631
------- --------- --------- ---------
Gross profit................... -- -- 78 12,161
Operating expenses:
Research and development...... 465 2,423 4,934 8,467
Sales, general and
administrative............... 308 968 1,606 6,305
Legal costs(1)................ -- 1,500 610 (1,503)
------- --------- --------- ---------
Total operating expenses..... 773 4,891 7,150 13,269
Loss from operations........... (773) (4,891) (7,072) (1,108)
Other income (expense), net:
Interest income and other .... 16 194 385 1,366
Interest expense.............. -- (94) (182) (1,046)
------- --------- --------- ---------
Net loss..................... $ (757) $ (4,791) $(6,869) $ (788)
======= ========= ========= =========
Pro forma net loss per
share(2)....................... $ (.04)
=========
Shares used in computing pro
forma net loss per share(2)... 21,555
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------
1994 1995 1996 1997
----- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 530 $4, 902 $6,877 $13,458
Working capital................................... 618 2,846 4,069 1,398
Total assets...................................... 1,039 5,956 8,749 27,464
Long-term obligations............................. 185 452 749 1,194
Total stockholders' equity........................ 753 3,313 4,542 4,200
</TABLE>
- -------
(1) Relates to amounts provided by the Company for estimated legal fees
associated with litigation which was dismissed in the second quarter of
fiscal 1997. The $1.5 million benefit in legal costs during the year ended
January 31, 1997 was due to the reversal of previously provided legal fees
as a result of such dismissal. See Note 8 of Notes to Consolidated
Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
NeoMagic designs, develops and markets multimedia accelerators for sale to
notebook computer manufacturers. The Company has developed the first
commercially available high performance silicon technology that integrates
large DRAM memory with analog and logic circuitry to provide a high
performance multimedia solution on a single chip. The Company's MagicGraph128
family of pin-compatible multimedia accelerators incorporates a 128-bit memory
bus. The Company believes these products enable notebook PC manufacturers to
deliver state-of-the-art multimedia capability while decreasing power
consumption, size, system design complexity and cost.
Since its inception in May 1993 through the end of fiscal 1996, NeoMagic was
in the development stage and was primarily engaged in product development,
product testing and the establishment of strategic relationships with
customers and suppliers. Accordingly, the majority of the Company's operating
expenses during such period were related to research and development
activities. Since inception, the Company has incurred losses in each fiscal
year. At January 31, 1997, the Company had an accumulated deficit of
approximately $13.2 million. The Company first recognized revenue on product
sales in the first quarter of fiscal 1996. Operating results to date in fiscal
1997 have benefited from increased market acceptance of the Company's
products. The Company generally recognizes revenue at the time of product
shipment. Although the Company has made no sales to distributors to date, the
Company's policy is to defer recognition of revenue on shipments to
distributors until the product is sold by such distributors.
All of the Company's net sales in fiscal 1996 and 1997 were derived from
sales of its multimedia accelerator products, and the Company expects this
trend to continue for the foreseeable future. Historically, a majority of the
Company's sales have been to a limited number of customers. Sales to the
Company's top five customers accounted for 100% and 79.7% of the Company's net
sales for fiscal 1996 and fiscal 1997, respectively. The Company expects that
a substantial portion of sales of its products will continue to be to a
limited number of customers for the foreseeable future. The customers
contributing significant amounts of net sales have varied and will continue to
vary depending on the timing and success of new product introductions by such
customers.
Export sales are a critical part of the Company's business. Sales to
customers located outside the United States (including sales to foreign
operations of customers headquartered in the United States and foreign system
manufacturers who sell to United States-based OEMs) accounted for 90.0% and
96.2% of the Company's net sales for fiscal 1996 and fiscal 1997,
respectively. The Company expects that the net sales derived from purchases by
international customers will continue to represent a significant portion of
its total net sales. All of the Company's sales are denominated in United
States dollars.
The Company's products require semiconductor wafers manufactured with state-
of-the-art fabrication equipment and technology. NeoMagic has established
strategic relationships with Mitsubishi Electric and Toshiba to produce its
semiconductor wafers and uses other independent contractors to perform
assembly, packaging and testing. The Company's relationships with Mitsubishi
Electric and Toshiba were recently formalized in separate five year wafer
supply agreements. NeoMagic does not expect that a significant portion of the
Company's wafer requirements will be met by Toshiba before calendar 1998.
These relationships enable the Company to concentrate its resources on product
design and development, where NeoMagic believes it has greater competitive
advantages, and to eliminate the high cost of owning and operating a
semiconductor wafer fabrication facility. The Company depends on these
suppliers to allocate to the Company a portion of their manufacturing capacity
sufficient to meet the Company's needs, to produce products of acceptable
quality and at acceptable manufacturing yields and to deliver those products
to the Company on a timely basis. The Company purchases wafers, not die, and
pays an agreed price for wafers meeting certain acceptance criteria. All of
the Company's products are assembled and tested by independent vendors. To
date, all of the Company's wafer purchases, which constitute a significant
part of its cost of goods sold, have been priced in Japanese yen. As a
19
<PAGE>
result, exchange rate fluctuations can affect the Company's gross margin. The
Company has in the past hedged its exposure to fluctuations in the exchange
rate between the Japanese yen and the United States dollar by purchasing
forward contracts and may continue to do so in the future.
Under its wafer supply agreements with Mitsubishi Electric and Toshiba, the
Company is obligated to provide rolling 12-month forecasts of anticipated
purchases and place binding purchase orders four months prior to shipment. If
the Company cancels a purchase order, the Company must pay cancellation
penalties based on the status of work in process or the proximity of the
cancellation to the delivery date. Forecasts of monthly purchases may not
increase or decrease by more than a certain percentage from the previous
month's forecast without the manufacturer's consent. Thus, the Company must
make forecasts and place purchase orders for wafers long before it receives
purchase orders from its own customers. This limits the Company's ability to
react to fluctuations in demand for its products, which can be unexpected and
dramatic and from time-to-time will cause the Company to have an excess or a
shortage of wafers for a particular product, which could cause the Company to
take charges for excess inventory or miss revenue opportunities.
Prior to fiscal 1997, the Company was primarily engaged in research and
development and testing of its products. Accordingly, the majority of its
operating expenses were related to research and development activities. In
fiscal 1997, in connection with the commencement of commercial sales of its
products, the Company accelerated its investment in sales, marketing,
manufacturing and administrative infrastructures. The Company expects to
continue to devote substantial resources to research and development efforts.
All of the Company's research and development costs have been expensed as
incurred.
The Company's fiscal year end is January 31. Any reference herein to a
fiscal year refers to the year ended January 31 of such year.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED JANUARY 31, 1995, 1996 AND 1997
Net Sales. Through fiscal 1995, the Company had no sales. Net sales for
fiscal 1996 and 1997 were $243,000 and $40.8 million, respectively. Prior to
fiscal 1997, the Company was in the development stage, primarily engaging in
product development, product testing, and the establishment of strategic
relationships with customers and suppliers. The substantial increase in net
sales from fiscal 1996 to 1997 was due to increased market acceptance of the
Company's products, the introduction by the Company of additional products in
its MagicGraph128 product family which expanded the portion of the market
addressed by NeoMagic's products, and the Company's investment in sales and
marketing personnel and activities. Although the Company achieved substantial
net sales growth between fiscal 1996 and 1997, the Company does not expect to
sustain this rate of sequential annual growth in future periods. The Company
expects that the average prices of its products will decline over the
respective lives of such products.
Gross Profit. Gross profit was $78,000 and $12.2 million for fiscal 1996 and
1997, respectively. The increase in gross profit from fiscal 1996 to fiscal
1997 was the result of the increase in net sales. The Company's future gross
profit will be affected by the overall level of sales, the mix of products
sold in a period, manufacturing yields and the Company's ability to reduce
product costs.
Research and Development. Research and development expenses include
compensation and associated costs relating to development personnel, operating
system software costs, and prototyping costs which are comprised of photomask
costs and pre-production wafer costs. Research and development expenses were
$2.4 million, $4.9 million and $8.5 million for fiscal 1995, 1996 and 1997,
respectively. The increases reflect increased personnel costs associated with
a general expansion in the Company's research and development activities and
higher prototype expenses. Research and development expenses as a percentage
of net sales declined substantially year to year due primarily to increases in
net sales. The market for the Company's products
20
<PAGE>
is characterized by frequent new product introductions and rapidly changing
technology and industry standards. As a result, the Company's success will
depend to a substantial degree upon its ability to develop and introduce in a
timely fashion new products, and enhancements to its existing products, that
meet changing customer requirements and emerging industry standards.
Accordingly, the Company expects to continue to make substantial investments
in research and development and anticipates that research and development
expenses will increase in absolute dollars in future periods.
Sales, General and Administrative. Sales, general and administrative
expenses were $968,000, $1.6 million and $6.3 million for fiscal 1995, 1996
and 1997, respectively. The increase from fiscal 1995 to 1996 resulted from
the addition of personnel in sales, marketing, and manufacturing
administration. The increase from fiscal 1996 to 1997 was due to increased
sales, marketing and administrative personnel and commission expense
associated with commencement of volume sales. Sales, general and
administrative expenses as a percentage of net sales declined substantially
year to year due primarily to increases in net sales. The Company expects
sales, general and administrative expenses to increase in absolute dollars in
future periods due to additional staffing in its marketing, sales and
administrative departments, continued expansion of its international
operations, and additional expenses related to being a public company.
Legal Costs. Legal costs consist of amounts provided by the Company for
estimated legal fees associated with the litigation with Cirrus Logic, which
was dismissed in the second quarter of fiscal 1997. In fiscal 1995, the
Company accrued $1.5 million for such legal costs. In fiscal 1996, an
additional accrual of $610,000 was recorded by the Company. In fiscal 1997,
based on the dismissal of such litigation, the remaining reserve balance of
$1.5 million was reversed. The settlement which gave rise to the dismissal did
not involve cash payments, but did include a non-solicitation provision and
certain contingent cross licensing provisions. The Company does not believe
that such settlement will have a material adverse effect on the Company's
future operations. See Note 8 of Notes to Consolidated Financial Statements.
Other Income (Expense), Net. The Company incurs interest expense on
borrowings under the Company's working capital line of credit and on lease
obligations used to finance certain equipment. The Company earns interest on
its cash and short-term investments. Other income (expense), net was $100,000,
$203,000, and $320,000 for fiscal 1995, 1996 and 1997, respectively. The
increase in other income (expense), net between fiscal 1995 and 1996 was due
to interest income on higher cash balances maintained during fiscal 1996. The
increase in other income (expense), net from fiscal 1996 to fiscal 1997 was
due to approximately $1.0 million in proceeds received for non-recurring
engineering services performed by NeoMagic, in addition to interest income
resulting from higher cash balances. Other income in fiscal 1997 was partially
offset by higher interest expense resulting from borrowings under the
Company's working capital line and additional lease obligations used to
finance certain equipment purchases. The Company does not anticipate
generating income from engineering services on a regular basis, if at all, in
future periods.
Provision for Income Taxes. The Company recorded no provision for federal or
state income taxes during fiscal 1995, 1996 or 1997. The Company expects to
record a provision for income taxes in fiscal 1998, the amount of which will
depend on several factors, including the availability of net operating loss
carryforwards, research and development tax credits and the portion of the
Company's business conducted through non-United States subsidiaries. As of
January 31, 1997, the Company had available net operating loss carryforwards
for federal and state tax purposes of approximately $13.2 million and $4.8
million, respectively. The Company's ability to utilize its net operating
losses may be limited in the future due to a deemed change of control as a
result of this offering. See Note 5 of Notes to Consolidated Financial
Statements.
21
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth the consolidated statements of operations
data, both in absolute dollars and as a percentage of net sales, for each of
the four quarters during the fiscal year ended January 31, 1997. This
information has been derived from the Company's unaudited consolidated
financial statements. In management's opinion, this unaudited information has
been prepared on the same basis as the audited consolidated financial
statements appearing elsewhere in this Prospectus, and includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation thereof. The unaudited quarterly information should be read
in conjunction with the audited consolidated financial statements of NeoMagic
and the notes thereto included elsewhere herein. The growth in net sales and
improvement in operating results experienced by the Company in recent quarters
are not necessarily indicative of future results. In addition, in light of the
significant growth in the recent year, NeoMagic believes that period-to-period
comparisons of its financial results should not be relied upon as an
indication of future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1996 1996 1996 1997
--------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales......................... $ 3,520 $ 5,954 $15,035 $16,283
Cost of sales..................... 2,815 5,481 9,989 10,346
------- ------- ------- -------
Gross profit...................... 705 473 5,046 5,937
Operating expenses:
Research and development......... 1,989 1,634 2,210 2,634
Sales, general and
administrative.................. 965 1,502 1,887 1,951
Legal costs...................... -- (1,503) -- --
------- ------- ------- -------
Total operating expenses...... 2,954 1,633 4,097 4,585
------- ------- ------- -------
Income (loss) from operations..... (2,249) (1,160) 949 1,352
Other income (expense), net:
Interest income and other........ 1,076 75 42 173
Interest expense................. (160) (210) (316) (360)
------- ------- ------- -------
Net income (loss)............. $(1,333) $(1,295) $ 675 $ 1,165
======= ======= ======= =======
Pro forma net income (loss) per
share............................. $ (.06) $ (.06) $ .03 $ .05
======= ======= ======= =======
Shares used in computing pro forma
net income (loss) per share...... 21,678 21,651 21,888 21,806
AS A PERCENTAGE OF NET SALES:
Net sales......................... 100.0% 100.0% 100.0% 100.0%
Cost of sales..................... 80.0 92.1 66.4 63.5
------- ------- ------- -------
Gross profit...................... 20.0 7.9 33.6 36.5
Operating expenses:
Research and development......... 56.5 27.4 14.7 16.2
Sales, general and
administrative.................. 27.4 25.2 12.6 12.0
Legal costs...................... -- (25.2) -- --
------- ------- ------- -------
Total operating expenses...... 83.9 27.4 27.3 28.2
------- ------- ------- -------
Income (loss) from operations..... (63.9) (19.5) 6.3 8.3
Other income (expense), net:
Interest income and other........ 30.6 1.3 .3 1.1
Interest expense................. (4.6) (3.5) (2.1) (2.2)
------- ------- ------- -------
Net income (loss)............. (37.9)% (21.7)% 4.5% 7.2%
======= ======= ======= =======
</TABLE>
22
<PAGE>
Net Sales. Net sales were $3.5 million, $6.0 million, $15.0 million and
$16.3 million in the first, second, third and fourth quarters of fiscal 1997,
respectively. The Company's net sales increased from quarter to quarter during
fiscal 1997 due to a number of factors, including increased market acceptance
of the Company's products, introduction by the Company of additional products
in its MagicGraph128 product family which expanded the portion of the market
addressed by NeoMagic's products, and the Company's investment in sales and
marketing personnel and activities.
Gross Profit. Gross profit was $705,000, $473,000, $5.0 million and
$5.9 million in the first, second, third and fourth quarters of fiscal 1997,
respectively. The decrease in the second quarter was due primarily to charges
for anticipated inventory losses attributable to lower than expected yields of
finished products as a result of a design error. The increase between the
second and third quarters was due primarily to higher sales volumes and to
higher yields and lower material costs on all products during the third
quarter. This increase was offset in part by charges for excess inventory. The
increase in gross profit between the third and fourth quarters was due to
higher sales volume and lower product costs as a result of more favorable yen
to dollar exchange ratios and improved manufacturing yields, partially offset
by charges for excess inventory.
Research and Development. Research and development expenses were $2.0
million, $1.6 million, $2.2 million and $2.6 million for the first, second,
third and fourth quarters of fiscal 1997, respectively. The higher research
and development costs in the first, third and fourth quarters of fiscal 1997
were primarily the result of timing of prototyping costs. Research and
development expenses for the fourth quarter of fiscal 1997 also included
additional compensation related accruals. The remainder of the fluctuations in
research and development expenses between the quarters resulted primarily from
additional engineering personnel and associated costs as the Company continued
to devote substantial resources to research and development efforts. Research
and development expenses as a percentage of net sales declined substantially
in each of the first three quarters of fiscal 1997 due primarily to the
quarter-to-quarter increases in net sales.
Sales, General and Administrative. Sales, general and administrative
expenses were $1.0 million, $1.5 million, $1.9 million and $2.0 million for
the first, second, third and fourth quarters of fiscal 1997, respectively.
These increases were due to the addition of sales, marketing, finance and
administration personnel and increased commission expenses associated with
increased sales levels. Sales, general and administrative expenses for the
fourth quarter of fiscal 1997 also included additional compensation-related
accruals.
Legal Costs. The benefit in legal costs of $1.5 million in the second
quarter of fiscal 1997 was due to the reversal of a reserve balance of
previously estimated legal costs. See Note 8 of Notes to Consolidated
Financial Statements.
Other Income (Expense), Net. Other income (expense), net was $916,000,
$(135,000), $(274,000) and $(187,000) for the first, second, third and fourth
quarters of fiscal 1997, respectively. Other income in the first quarter was
primarily attributable to $1.0 million in proceeds from non-recurring
engineering services performed by NeoMagic. The decrease in other income, net
from the second to the third quarter resulted primarily from higher interest
expense related to the increase in the amounts outstanding under the working
capital line. The decrease in other income (expense), net between the third
and fourth quarters resulted from interest income related to higher cash
balances partially offset by higher interest expense for the fourth quarter.
NeoMagic's quarterly and annual results of operations are affected by a
variety of factors that could materially and adversely affect net sales, gross
profit and income from operations. These factors include, among others, demand
for the Company's products; changes in product or customer mix; fluctuations
in manufacturing yields; incorrect forecasting of future revenues;
availability and cost of manufacturing capacity; unanticipated delays or
problems in the introduction or performance of the Company's next generation
of products; the Company's ability to introduce new products in accordance
with OEM design requirements and design cycles;
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market acceptance of the products of the Company's customers; changes in the
timing of product orders due to unexpected delays in the introduction of
products of the Company's customers or due to the life cycles of such
customers' products ending earlier than anticipated; new product announcements
or product introductions by NeoMagic's competitors; competitive pressures
resulting in lower selling prices; the volume of orders that are received and
can be fulfilled in a quarter; the rescheduling or cancellation of orders by
customers which cannot be replaced with orders from other customers; supply
constraints for the other components incorporated into its customers' notebook
PC products; foreign exchange rate fluctuations; the unanticipated loss of any
strategic relationship; seasonality associated with the tendency of PC sales
to increase in the second half of each calendar year; the level of
expenditures for research and development and sales, general and
administrative functions of the Company; costs associated with future
litigation; and costs associated with protecting the Company's intellectual
property. Any one or more of these factors could result in the Company failing
to achieve its expectations as to future revenues. The Company may be unable
to adjust spending sufficiently in a timely manner to compensate for any
unexpected sales shortfall, which could materially adversely affect quarterly
operating results. Accordingly, the Company believes that period-to-period
comparisons of its operating results should not be relied upon as an
indication of future performance. In addition, the results of any quarterly
period are not indicative of results to be expected for a full fiscal year. In
certain future quarters, the Company's operating results may be below the
expectations of public market analysts or investors. In such event, the market
price of the Common Stock would be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of convertible preferred stock (raising net proceeds of
approximately $16.9 million) through borrowings from Mitsubishi International
Corporation ("Mitsubishi International"), under a working capital revolving
credit agreement (the "Credit Agreement") and through equipment leases.
Through January 31, 1997 the Company had purchased a total of approximately
$5.1 million of capital assets, a portion of which was purchased through lease
lines. The Company currently has no commitments for significant additional
capital expenditures. As of January 31, 1997, the Company had an accumulated
deficit of $13.2 million.
The Company's principal sources of liquidity as of January 31, 1997
consisted of $13.5 million in cash and cash equivalents and the Credit
Agreement. The Credit Agreement is used to finance wafer inventory purchases.
The Credit Agreement provides for 90 day extended credit terms totaling $15.0
million, with a compensating balance requirement for balances in excess of
$12.0 million. As of January 31, 1997, the Company had borrowings of $14.2
million under the Credit Agreement. For periods prior to January 1997, the
interest rate under the Credit Agreement was based on Mitsubishi
International's internal interest rate, which was required to be at least 1.5%
below the prime rate on the date of the invoice, generally approximately 30
days after the Company's receipt of the wafers. The Company also paid a
commission of 1.25% to 2.00% of its wafer purchases to Mitsubishi
International, based on the lending level under the Credit Agreement during
the prior calendar quarter. The Credit Agreement has been amended to provide
(i) that effective January 1997 Mitsubishi International's sole compensation
for the financing of wafer purchases from Mitsubishi Electric will be a
commission of 1.75% of such wafer purchases and (ii) for 60-day extended
credit terms. The term of the Credit Agreement expires on November 20, 1997,
subject to automatic extensions thereafter from year to year unless a notice
is given by either party. Under the terms of the Credit Agreement Mitsubishi
International maintains a security interest in all of the Company's inventory,
cash and investments, and accounts and notes receivable. See Note 3 of Notes
to Consolidated Financial Statements.
Net cash used in operating activities was $2.7 million in fiscal 1995 and
$6.4 million in fiscal 1996. This increase was primarily due to an increase of
approximately $2.1 million in net loss, which resulted primarily from
increased research and development activities, and $1.7 million of changes in
operating asset and liability accounts for fiscal 1996. Net cash used in
operating activities for fiscal 1997 was approximately $3.1 million which
resulted from substantial investments in inventories and accounts receivable
as sales levels increased during that period, offset partially by a reduction
in net loss and an increase in accounts payable.
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Net cash provided by financing activities in fiscal 1995 and fiscal 1996 was
$8.0 million and $9.1 million, primarily representing private equity financing
of $7.3 million and $8.0 million, respectively, in addition to proceeds from
sale leaseback transactions. Net cash provided by financing activities for
fiscal 1997 was $12.8 million, representing net funding from the Credit
Agreement of $13.8 million and proceeds from sale leaseback transactions,
offset by $2.2 million held as restricted cash equivalents under the Credit
Agreement. See Notes 3 and 4 of Notes to Consolidated Financial Statements.
The Company requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable. The Company
believes that the net proceeds of this offering, together with its existing
capital resources, will be sufficient to meet the Company's capital
requirements through the next 12 months, although the Company could be
required, or could elect, to seek to raise additional capital during such
period. The Company's future capital requirements will depend on many factors,
including the rate of net sales growth, the timing and extent of spending to
support research and development programs and expansion of sales and
marketing, the timing of introductions of new products and enhancements to
existing products, and market acceptance of the Company's products. The
Company expects that it may need to raise additional equity or debt financing
in the future. There can be no assurance that additional equity or debt
financing, if required, will be available on acceptable terms or at all. See
"Risk Factors--Need for Additional Capital."
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BUSINESS
The Company designs, develops and markets multimedia accelerators for sale
to notebook PC manufacturers. The Company believes it has developed the first
commercially available high performance silicon technology that integrates
large DRAM memory with analog and logic circuitry to provide multimedia
solutions on a single chip. The Company's MagicGraph128 family of pin-
compatible, multimedia accelerator products incorporates a 128-bit memory bus.
The Company believes these products enable notebook PC manufacturers to
deliver state-of-the-art multimedia capability while decreasing power
consumption, size, weight, system design complexity and cost. Eight of the
world's ten largest notebook PC manufacturers have designed or are designing
notebook PCs to include MagicGraph128 products. MagicGraph128 products are
currently used in notebook PCs sold by Acer, Compaq, Dell, Digital Equipment,
Fujitsu, Hewlett-Packard, Hitachi, Mitsubishi, NEC, Sharp and Texas
Instruments.
NeoMagic's MagicGraph128 family of products ranges from accelerators
designed for notebook PCs that target cost-conscious consumers to fully-
featured multimedia systems designed for high-end notebook PCs. The Company
introduced its first MagicGraph128 product in March 1995, is currently in
production with three products and is now sampling the fourth generation of
its MagicGraph128 product family. NeoMagic has established strategic
relationships with Mitsubishi Electric and Toshiba to produce semiconductor
wafers for the Company's products. Pursuant to these strategic relationships,
NeoMagic designs the overall product, including the logic and analog
circuitry, and the manufacturing partner designs the DRAM module, manufactures
the wafers and performs memory testing and repair. NeoMagic is focused on
leveraging its core competencies in logic, analog and memory integration,
graphics/video multimedia technologies, driver and BIOS software, and power
management to continue developing solutions that facilitate the mobilization
of multimedia applications.
INDUSTRY BACKGROUND
Advances in the multimedia capabilities and features of PCs and software
applications over the past decade have fueled the demand for PCs and helped
make the PC an integral part of everyday life. Graphical user interface
technology, which proliferated in the early 1990s with the introduction of the
Microsoft Windows operating system, provided a more intuitive environment for
PC users than traditional character-based interfaces and opened the power of
the PC to a broader audience of users. Improvements in the ability of PCs to
process graphics, video and audio are enabling the production of applications
that deliver compelling multimedia content, enhancing the usefulness of the PC
as a platform for work, entertainment, communication and collaboration. The
effectiveness of multimedia for many applications, such as on-site
presentations and training, education, video conferencing, e-mail and
entertainment, is maximized in a mobile environment, giving rise to
significant demand for multimedia-capable notebook PCs.
Fueled by the continued globalization of businesses, the proliferation of
client/server computing and the Internet, the growing number of mobile
professionals, combined with the pervasive use of multimedia, the notebook PC
market has emerged as a rapidly growing market segment. The benefits of being
able to work, interact, instruct, learn and play "off the desktop" at any time
and any place have increased the demand for notebook computing solutions.
Dataquest estimated in Fall 1996 that approximately 12 million notebook PCs
would be shipped in 1996 and that 23 million units will be shipped in the year
2000.
Multimedia applications require the storage, processing and display of
enormous streams of data. As a result, multimedia PCs have evolved to
incorporate higher capacity storage and system memory, faster microprocessors,
improved specialized multimedia accelerators and higher quality displays.
However, due to the constraints imposed by the mobile form factor--the need
for low power consumption, small size, low weight, favorable thermal
characteristics and low cost, among others--the multimedia capabilities of
notebook PCs have lagged those of desktop computers. This has limited the
effectiveness of multimedia applications in notebook PCs.
Multimedia Acceleration Technology
A multimedia accelerator for graphics and video is a specialized subsystem
that offloads display and rendering functions from the PC's microprocessor,
enabling the CPU to devote more cycles to running
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applications and improving the system's overall performance. The traditional
approaches to designing a multimedia accelerator subsystem have involved a
multiple chip solution consisting of a logic/analog chip (controller) and
separate DRAM memory chips (frame buffer memory). The performance of the
accelerator depends primarily on the memory bandwidth (measured in megabytes
per second), which is the rate at which data can be transferred between the
controller and the frame buffer memory. Memory bandwidth can be increased by
using a wider data bus between the controller and the frame buffer memory
(i.e., the data is passed in bigger blocks between the chips), and/or a faster
clock speed in the multimedia accelerator. During the last decade, designers
of multimedia accelerators for desktop PCs have increased memory bandwidth
through both of these approaches, widening the memory bus from 8 bits to 128
bits and implementing faster clocks.
Many of the design approaches that have been used to improve multimedia
accelerator performance for desktop PCs are suboptimal for notebook PCs. In a
conventional multimedia accelerator architecture, where memory and logic are
not integrated, the implementation of a wider bus requires the use of more
input/output ("I/O") pins between the controller and the frame buffer memory
chips. Since the transfer of data through I/O pins is a power intensive
process, increasing the number of I/O pins dramatically increases power
consumption and heat generation, which decreases battery life in notebook PCs
and may entail the addition of a costly and bulky heat sink. Increasing the
number of I/O pins also increases both the size of the chip packages and the
size of the board area needed for the interconnections, as well as increasing
system complexity and cost. Similar to the addition of I/O pins, the use of a
faster system clock to increase memory bandwidth results in greater power
consumption, heat generation and a more complex system design. As a
consequence, designers of multimedia accelerators for notebook PCs do not have
the same flexibility as designers for desktop PCs to increase the
accelerator's memory bandwidth through the use of additional I/O pins or a
faster clock.
To fully mobilize multimedia, the Company believes notebook PC manufacturers
require a new approach for developing multimedia accelerators which delivers
higher performance while minimizing power consumption and system size, weight,
complexity and cost.
NEOMAGIC SOLUTION
NeoMagic has pioneered a new technology to provide multimedia semiconductor
solutions for notebook PCs which overcome the limitations of traditional
architectures. This integrated solution, called "MagicWare" (Memory, Analog
and loGIC WARE) is the first commercially available high performance silicon
technology that integrates large DRAM memory with analog and logic circuitry
on a single chip. Using this technology, the Company has developed its first
product line: the MagicGraph128 family of pin-compatible, multimedia
(graphics, text and video) accelerators incorporating a 128-bit memory bus.
These products provide state-of-the-art multimedia capability while decreasing
power consumption, size and system design complexity. The Company introduced
its first MagicGraph128 product in March 1995, is currently in production with
three products and is sampling the fourth generation of its MagicGraph128
product family.
The Company's MagicGraph128 products provide the following important
advantages to notebook PC manufacturers and to end users:
Higher Performance. The Company believes that its MagicGraph128 products
provide the widest commercially available memory bus for notebook PC
multimedia accelerators. The Company's current products use a 128-bit memory
bus as compared to conventional multiple chip solutions which have generally
used 32-bit buses and are migrating to 64-bit buses. The Company's technology
enables faster and smoother output of graphics, video and animation while
maintaining high color depth to increase user productivity and improve the
user experience.
Lower Power Consumption. By integrating large DRAM with analog and logic
circuitry on a single chip, MagicGraph128 products eliminate the power-
consuming I/O pins used in conventional architectures for connections between
the logic/analog chip and the DRAM memory chips. The Company believes that, by
eliminating these I/O pins and using other advanced power management
techniques, the MagicGraph128 products consume approximately one-quarter of
the power used by conventional accelerators with equivalent feature sets,
potentially extending battery life.
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Reduced Size and Weight. The MagicGraph128 single chip solution has a
smaller footprint than conventional multiple chip solutions and eliminates the
need for interconnections between chips, enabling the system manufacturer to
reduce board size and, in some cases, to eliminate boards or to add other
features for increased functionality without increasing board size. The
Company believes that MagicGraph128 products also can reduce the size and
weight of the notebook PC by allowing the manufacturer to use fewer or smaller
batteries and, in some cases, by eliminating the need for a heat sink.
Lower Complexity and Improved Reliability of Notebook PC System. The
Company's MagicGraph128 products can reduce design complexity of both the
multimedia system and of the entire notebook PC by reducing the number of
chips and interconnections, creating less heat and reducing electro-magnetic
interference ("EMI"). The Company believes that, as a result, the Company's
products can reduce system design time and simplify the manufacturing process,
and thereby enable notebook PC manufacturers to produce more reliable systems
and reduce time-to-market.
Lower System Cost. The MagicGraph128 products can lower the overall system
cost of notebook PCs by reducing the number of chips required for the
multimedia accelerator system, typically resulting in lower assembly and
printed circuit board costs, and in certain cases eliminating the need for
heat sinks. The decreased number of I/O pins also reduces the number of
soldered connections, which the Company believes can increase system
manufacturing yield. The reduction in power consumption can also save costs by
requiring lower capacity batteries to achieve the desired battery life.
System Upgradability. The Company's technology enables the Company to
provide single chip, pin-compatible products with different amounts of
embedded memory, thereby enabling notebook PC manufacturers to design product
upgrades without redesigning printed circuit boards. By comparison, increasing
the DRAM capacity of conventional multimedia systems typically requires adding
board space, increasing pin count and changing board design. The Company
believes that providing a pin-compatible product family enhances its ability
to achieve design wins through multiple product cycles, lowers system
manufacturers' design and support costs and improves customers' time to
market.
STRATEGY
NeoMagic's goal is to be a leading global supplier of multimedia
semiconductor solutions for the notebook PC market. The Company's strategy for
mobilizing multimedia includes the following elements:
Maintain Leadership in Providing Multimedia Accelerator Solutions for
Notebook PCs. The Company believes that its MagicGraph128 products are the
first commercially available multimedia accelerators that integrate large DRAM
memory with analog and logic circuitry on a single chip. NeoMagic is focused
on leveraging and building its core competencies in logic, analog and memory
integration, graphics/video multimedia technologies, driver and BIOS software,
and power management to continue developing solutions that facilitate the
mobilization of multimedia applications both in the notebook PC market and
eventually in other mobile product markets. The Company is currently sampling
its fourth generation MagicGraph128 product.
Cultivate Long Term Relationships with Leading Notebook PC Companies. The
Company seeks to establish close relationships with the world's leading
notebook PC companies. The Company has achieved design wins with eight of the
world's ten largest notebook PC manufacturers, and its MagicGraph128 products
are currently used in notebook PCs sold by Acer, Compaq, Dell, Digital
Equipment, Fujitsu, Hewlett-Packard, Hitachi, Mitsubishi, NEC, Sharp and Texas
Instruments. Long term relationships with its customers and partners enhance
the Company's ability to anticipate the needs of its target markets and
develop products that meet those needs in a timely manner. The Company's
strategy includes adding additional OEM companies to its customer portfolio
and enhancing its record of notebook PC design wins.
Establish Strategic Relationships with World-Class DRAM Partners. The
Company established a strategic relationship with Mitsubishi Electric in early
calendar 1994, and Mitsubishi Electric has manufactured all of the
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wafers for the Company's products to date. In January 1997, the Company
formalized its strategic relationship with Mitsubishi Electric in a five-year
wafer supply agreement. The Company has also established a strategic
relationship with Toshiba which has been formalized in a five-year wafer
supply agreement, and the Company expects that Toshiba will begin
manufacturing wafers for one of the Company's future products in the second
half of calendar 1997. The Company's DRAM partners design the DRAM portions of
the products, manufacture the wafers for the Company's products and perform
testing and repairs. These strategic relationships enable the Company to
benefit from its partners' standard DRAM design rules and manufacturing
processes and to accelerate product development by leveraging its partners'
technology expertise.
Extend Core Technology to Address New Market Opportunities. The Company
believes its MagicWare technology may be extended to a variety of other
applications. The Company intends to investigate opportunities to apply its
MagicWare technology to other product applications both inside and outside the
PC market. Potential applications being examined by the Company include mass
storage, communication and consumer devices, such as DVDs and Internet
appliances.
MARKETS AND PRODUCTS
The Company sells its products to notebook PC OEMs as well as to third-party
subsystem manufacturers who design and manufacture notebook PCs on behalf of
the brand name OEMs. Eight of the world's ten largest notebook PC
manufacturers have designed or are designing notebook PCs to include
MagicGraph128 products. MagicGraph128 products are currently used in notebook
PCs sold by the following companies:
Acer Hitachi
Compaq Mitsubishi
Dell NEC
Digital Equipment Sharp
Fujitsu Texas Instruments
Hewlett-Packard
The Company sells the MagicGraph128 line of pin-compatible 128-bit
multimedia accelerators for notebook PCs. Each product integrates large DRAM
with analog and logic circuitry on a single 176-pin chip. The MagicGraph128
family of products ranges from accelerators designed for notebook PCs that
target cost-conscious consumers to fully-featured multimedia systems designed
for high-end notebook PCs. The following table sets forth information with
respect to each of the Company's first four products:
<TABLE>
<CAPTION>
MEMORY
PRODUCT PRODUCT STATUS SIZE KEY NEW FEATURES
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
MagicGraph128 Volume production 7Mbits 128-bit multimedia accelerator
Feb 1996 Active and passive LCD panel interface
18 bit RAMDAC
Less than 500mW power dissipation
800x600 resolution with 256 colors
--------------------------------------------------------------------------------------
MagicGraph128V Volume production 9Mbits Video acceleration for MPEG playback
June 1996 24-bit RAMDAC
800x600 resolution with 64,000 colors
--------------------------------------------------------------------------------------
MagicGraph128ZV Volume production 9Mbits Zoom Video port for live video capture
September 1996 TV output support
--------------------------------------------------------------------------------------
MagicGraph128XD Prototypes available 16Mbits Bus master for 3D/video acceleration
November 1996 Spread spectrum EMI suppression
1024x768 resolution with 64,000 colors
</TABLE>
MagicGraph128. The Company believes that the MagicGraph128, its first
product, is the industry's first 128-bit, single-chip graphics accelerator for
notebook computers. The MagicGraph128 provides high
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performance graphics for mainstream business and consumer notebooks while
decreasing power consumption, size, system design complexity and cost. The
Company has sold over 450,000 units of this product since volume production
commenced in February 1996.
MagicGraph128V. The MagicGraph128V builds on the capabilities of the
MagicGraph128 by adding support for more colors and full-motion video.
Optimized for mobile business professionals who perform multimedia
presentations with sound and motion, the MagicGraph128V provides MPEG playback
with full screen and full motion video at 30 frames per second with true
color.
MagicGraph128ZV. The MagicGraph128ZV adds zoom video capability (for
capturing and displaying TV or video images) and television output capability
to the MagicGraph128V. The MagicGraph128ZV provides a fully-featured
multimedia solution for mid-range and high-end notebook PCs with 800x600 LCD
displays.
MagicGraph128XD. By offering higher display resolutions, a larger number of
displayable colors, and higher performance, the MagicGraph128XD is designed to
provide desktop-replacement capabilities to high-end notebooks. The
MagicGraph128XD is designed to deliver performance enhancements for Microsoft
Direct3D. These enhancements accelerate animation, games and business
applications utilizing 3D in a Windows environment.
TECHNOLOGY
NeoMagic has pioneered MagicWare (Memory, Analog and loGIC WARE) technology
which integrates large DRAM with analog and logic circuitry on a single chip.
This integration represents a challenging problem because DRAM and logic
design and process technologies have evolved along different paths over the
past 15 years. DRAM process technology has been driven primarily by the need
for high density memory storage while logic process technology has been driven
primarily by the need to achieve greater speed and metal interconnect density.
As a result, a typical 16 Mbit DRAM process features densely packed,
relatively slow transistors with two layers of metal interconnect, while the
typical logic process utilizes a less dense configuration of relatively fast
transistors with three or more layers of metal interconnect. In addition,
DRAMs are characterized by a relatively high degree of electrical noise
compared to logic and analog circuits due to the sharp peaks in power demand
from the charging and synchronous discharging of large capacitances associated
with the data lines of DRAM memory cells. High levels of electrical noise tend
to disrupt the behavior and performance of analog circuits that share the same
silicon substrate with the DRAM.
The Company has focused on overcoming the difficulties of integrating large
DRAM with analog and logic circuitry by selecting manufacturing partners with
the most suitable DRAM process technology and by developing proprietary
technology in the following areas:
Performance. NeoMagic's embedded DRAM system architectures are designed to
optimize system performance and to scale performance as memory bandwidth
increases through process and architectural enhancements to the DRAM module
designs. NeoMagic has worked closely with Mitsubishi Electric to modify
Mitsubishi Electric's proven 16 Mbit DRAM designs to generate a 128-bit wide,
high bandwidth memory bus that delivers high performance capture and display
of multimedia data streams, as well as 2D and 3D graphics. The Company has
developed significant expertise in matching processing engine data paths,
buffer depth and width and arbitration schemes to the available memory
bandwidth, as well as in making system level (hardware and software) tradeoffs
to place hardware in the processing engine to balance the utilization of
system bus and memory bandwidth. The Company believes that the ability to
deliver scalable system performance will become increasingly important due to
the introduction of high bandwidth system buses for multimedia applications,
such as Intel's Accelerated Graphics Port ("AGP"), which is expected to be
incorporated into PC architectures in 1997.
Reduced Power Consumption. NeoMagic has implemented numerous system
architecture design techniques to reduce power consumption for its multimedia
solutions. The Company's integrated logic and DRAM products deliver
significant power savings through the elimination of the I/O pads which are
typically utilized in conventional solutions to connect discrete logic and
DRAM components. Power consumption in the
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Company's products is further reduced due to their "granularity," which means
that they integrate no more than the amount of DRAM required for a given
application. For example, the Company's MagicGraph128V and MagicGraph128ZV
products integrate only the 9 Mbits of DRAM needed to accelerate an SVGA
display. In contrast, non-integrated solutions typically utilize 16 Mbits (2
megabytes) of DRAM due to the configuration of commercially available DRAMs.
NeoMagic has also developed additional power management techniques such as
sophisticated processing engine and memory module design to optimize memory
access time, page size, buffer size and processing pipeline stages while
achieving minimal power consumption and logic gate count without performance
degradation. Together with the incorporation of more traditional power
management techniques such as low power logic design, clock management and low
power cell library design, NeoMagic believes that its proprietary
architectures currently deliver the lowest power consumption available on
notebook PCs. The reduction in power consumption improves the battery life and
diminishes heat generation. The Company believes these same architectural
concepts have the potential to be used to achieve similar power savings on
other power-sensitive hardware platforms.
Manufacturing Test. NeoMagic and its DRAM manufacturing partners have
jointly developed cost-effective testing methodologies for products based on
the Company's MagicWare technology. These methodologies are based on the
synergistic combination of established test-and-repair techniques developed
for DRAM manufacturing and built-in self test techniques developed for logic
ICs.
Reduction of Electro-magnetic Interference. The FCC imposes strict limits on
EMI emissions from electronic devices including PCs. The reduction of EMI
often represents a challenging problem for the system designer, particularly
in small form factor mobile applications. All data transfer between logic and
memory occurs on a single chip in the Company's MagicGraph128 products,
inherently eliminating a significant source of EMI. NeoMagic also has
developed proprietary spread spectrum techniques to further reduce EMI in the
transmission of video and graphics data for display on high resolution LCD
panels. The Company believes that its ability to reduce EMI will become
increasingly important as DRAM speeds continue to increase to meet higher
memory bandwidth requirements for portable applications.
Design Methodology. The Company designs its products by utilizing a high-
level design language and a proprietary NeoMagic cell library for logic
synthesis. The Company verifies designs in the high-level language and at the
gate level using software simulators. Each design is further validated at the
system level through hardware emulation prior to committing the design to
silicon. In the physical design of placement and routing, NeoMagic has
developed proprietary layout technology to integrate large DRAM with analog
and logic circuitry on the same substrate while preserving signal integrity,
eliminating cross talk, minimizing clock skew and maximizing clock frequency.
Software Technology. NeoMagic has built a robust and flexible software base
to support Windows 3.1, Windows 95, Windows NT and OS/2 operating systems for
notebook PCs. The Company also provides customer specific control panels and
utilities for intelligent power management and the management of hardware and
software resources. The Company ensures software quality through a
comprehensive quality assurance process developed in consultation with its
customers. NeoMagic is focused on enhancing its software to support new levels
of functionality and performance demanded by more intuitive user interfaces
and more realistic multimedia experiences.
MANUFACTURING
The Company's products require semiconductor wafers manufactured with state-
of-the-art fabrication equipment and technology. NeoMagic has established
strategic relationships with two leading DRAM manufacturers to produce its
semiconductor wafers, and uses other independent contractors to perform
assembly, packaging and testing. This approach enables the Company to
concentrate its resources on product design and development, where NeoMagic
believes it has greater competitive advantages, and to eliminate the high cost
of owning and operating a semiconductor wafer fabrication facility.
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The Company's products are designed to be manufactured in accordance with
the DRAM partners' design rules and manufacturing processes. Each DRAM partner
has a design team dedicated to NeoMagic product development. The DRAM partner
designs the DRAM product modules, and NeoMagic designs the overall product,
including the analog and logic circuitry. The DRAM partner then aids the
Company in design verification prior to production. The DRAM partners
manufacture the wafers, perform memory testing and repair, and sell the
Company finished wafers, with pricing determined on a quarterly basis. The
Company uses subcontractors to perform assembly, packaging and final test. The
Company develops its own software and hardware for product testing.
All of the Company's products are currently supplied by Mitsubishi Electric
in Japan. Mitsubishi Electric is currently producing six-inch wafers for the
Company and expects to begin producing eight-inch wafers for certain of the
Company's new products in calendar 1997. The Company also has established a
strategic relationship with Toshiba to commence production of the Company's
next generation multimedia accelerator products. NeoMagic does not expect that
a significant portion of the Company's wafer requirements will be met by
Toshiba before calendar 1998. The Company expects that, for the foreseeable
future, each of its products will be single source manufactured. Because the
lead time needed to establish a strategic relationship with a new DRAM partner
is at least twelve months and the estimated time for Mitsubishi Electric to
switch to a new product line is four to six months, there is no readily
available alternative source of supply for any specific product. A disruption
of manufacturing facilities at one of the partner's plants would disrupt the
Company's production of particular for a substantial period of time. In the
event that the process improvements at Mitsubishi Electric or the relationship
with Toshiba is unsuccessful or delayed beyond the Company's expectations, the
Company's business, financial condition and results of operation would be
materially and adversely affected.
Until recently, Mitsubishi Electric supplied wafers to the Company on a
purchase order basis. In January 1997, the Company and Mitsubishi Electric
entered into a five year wafer supply agreement setting forth the terms of
their relationship (the "Mitsubishi Electric Agreement"). In February 1997,
the Company entered into a similar five-year wafer supply agreement with
Toshiba (the "Toshiba Agreement"). Under the Mitsubishi Electric Agreement and
the Toshiba Agreement, the Company is obligated to provide a rolling 12 month
forecast of anticipated purchases and to place binding purchase orders four
months prior to shipment. If the Company cancels a purchase order, it must pay
cancellation penalties based on the status of work-in-process or the proximity
of the cancellation to the shipment date. Forecasts of monthly purchases may
not increase or decrease by more than a certain percentage from the previous
month's forecast without the manufacturer's consent. The Mitsubishi Electric
Agreement and the Toshiba Agreement also provide that the parties will
indemnify each other with respect to certain third party intellectual property
claims.
The Company's manufacturing arrangements require it to make forecasts and
place purchase orders for wafers long before it receives purchase orders from
its own customers. This limits the Company's ability to react to fluctuations
in demand for its products, which can be unexpected and dramatic, and often
will cause the Company to have an excess or shortage of wafers for a
particular product. As a result of the long lead time for manufacturing
wafers, semiconductor companies such as the Company from time to time must
take charges for excess inventory. For example, the Company booked charges
totaling $1.5 million for excess inventory in fiscal 1997. Significant write-
offs of excess inventory could materially and adversely affect the Company's
financial condition and results of operations. Conversely, failure to order
sufficient wafers would cause the Company to miss revenue opportunities and,
if significant, could impact sales by the Company's customers, which could
adversely affect the Company's customer relationships and thereby materially
adversely affect the Company's business, financial condition and results of
operations.
The Company's products are assembled and tested by third party
subcontractors. The Company does not have long-term agreements with any of
these subcontractors. As a result of this reliance on third party
subcontractors to assemble and test its products, the Company cannot directly
control product delivery schedules, which could lead to product shortages or
quality assurance problems that could increase the costs of manufacture or
assembly of the Company's products. Due to the amount of time normally
required to qualify assembly and test subcontractors, if the Company is
required to find alternative subcontractors, shipments could be delayed
32
<PAGE>
significantly. Any problems associated with the delivery, quality or cost of
the assembly and test of the Company's products could have a material adverse
effect on the Company's business, financial condition and results of
operations.
SALES AND MARKETING
NeoMagic's sales and marketing strategy is an integral part of the Company's
effort to become a leading supplier of multimedia accelerators to the leading
manufacturers of notebook PCs. To meet customer requirements and achieve
design wins, the Company's sales and marketing personnel work closely with its
customers, business partners and key industry trend setters to define product
features, performance, price, and market timing of new products. The Company
employs a sales force with a high level of technical expertise and product and
industry knowledge to support a lengthy and complex design win process.
Additionally, the Company employs a highly trained team of application
engineers to assist customers in designing, testing and qualifying system
designs that incorporate NeoMagic products. The Company believes that the
depth and quality of this design support are key to improving customers' time-
to-market, maintaining a high level of customer satisfaction and encouraging
customers to utilize subsequent generations of NeoMagic's products.
In many cases, notebook PCs are designed and manufactured by third party
system manufacturers on behalf of the final brand name OEM. NeoMagic focuses
on developing long-term customer relationships with both the system
manufacturer and the brand name OEMs. The Company believes that this approach
increases the likelihood of design wins, improves the overall quality of
support and enables timely release of customer product to market.
In the United States, the Company sells its products to key customers
primarily through direct sales. In Japan, DIA Semicon acts as the Company's
sales representative. In Taiwan, Regulus acts as the Company's sales
representative, with support from the Company's Taiwan country manager. As of
December 31, 1996, NeoMagic employed 18 individuals in its sales, marketing
and support organization and maintained regional sales offices in Austin,
Texas and Taipei, Taiwan.
During fiscal 1996, sales to Quanta, Compal and Hewlett-Packard accounted
for approximately 34.6%, 28.6% and 14.4% of net sales, respectively. During
fiscal 1997, sales to Sony, Compal and Arima accounted for approximately
31.6%, 19.8% and 14.6% of net sales, respectively. Quanta, Compal, Sony and
Arima are system manufacturers for brand name OEMs. No other customers
represented more than 10% of the Company's net sales for either of such
periods. Sales to the Company's top five customers accounted for 100% and
79.7% of net sales for fiscal 1996 and 1997, respectively. Sales to customers
located outside the United States accounted for 90.0% and 96.2% of the
Company's net sales for fiscal 1996 and 1997, respectively.
PROPRIETARY RIGHTS
The Company relies in part on patents to protect its intellectual property.
In the United States, the Company has been issued two patents, each covering
certain aspects of the design and architecture of the Company's multimedia
accelerators. In addition, the Company has several patent applications pending
in the United States Patent and Trademark Office (the "PTO"). There can be no
assurance that the Company's pending patent applications or any future
applications will be approved, or that any issued patents will provide the
Company with competitive advantages or will not be challenged by third
parties, or that the patents of others will not have an adverse effect on the
Company's ability to do business. Furthermore, there can be no assurance that
others will not independently develop similar products, duplicate the
Company's products or design around any patents that may be issued to the
Company.
The Company also relies on a combination of mask work protection,
trademarks, copyrights, trade secret laws, employee and third-party
nondisclosure agreements and licensing arrangements to protect its
intellectual property. Despite these efforts, there can be no assurance that
others will not independently develop substantially
33
<PAGE>
equivalent intellectual property or otherwise gain access to the Company's
trade secrets or intellectual property or disclose such intellectual property
or trade secrets or that the Company can meaningfully protect its intellectual
property. A failure by the Company to meaningfully protect its intellectual
property could have material adverse effect on the Company's business,
financial condition and results of operations.
The Company has in the past, and may in the future be, notified that it may
be infringing the intellectual property rights of third parties. For example,
in October 1996 the Company was notified by two of its customers that they had
received a letter from the holder of a United States patent asserting that the
video graphics subsystem in such customers' notebook PCs which use the
Company's MagicGraph128 and MagicGraph128V products, infringe certain claims
of the patent. As is standard in the semiconductor industry, the Company has
certain indemnification obligations to customers with respect to the
infringement of third-party intellectual property rights by its products.
There can be no assurance that the Company's obligation to indemnify such
customers will not have a material adverse effect on the Company's business
financial condition and results of operations. The Company believes, based
upon advice rendered by its patent counsel in this matter, Townsend and
Townsend and Crew, that the Company's MagicGraph128 and MagicGraph128V
products do not infringe any of the claims of the patent. Although there have
been no further communications on this matter since October 1996, there can be
no assurance that the holder of such patent will not file a lawsuit against
the Company or its customers, that the Company or such customers would prevail
in any such litigation, or that such customers will continue to purchase the
Company's products under the threat of potential litigation. Any such
litigation, whether or not determined in the Company's favor or settled by the
Company, would at a minimum be costly and could divert the efforts and
attention of the Company's management and technical personnel from productive
tasks, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
As a general matter, the semiconductor industry is characterized by
substantial litigation regarding patent and other intellectual property
rights. In November 1994, Cirrus Logic filed suit against the Company and
certain of its employees claiming, among other things, breach of fiduciary
duty, breach of and interference with contract and misappropriation of trade
secrets. This lawsuit was dismissed in June 1996, but the Company incurred an
aggregate of $703,000 in expenses in connection with such litigation during
fiscal 1995 and fiscal 1996. The settlement giving rise to this dismissal did
not involve cash payments but did include a non-solicitation provision and
certain contingent cross-licensing provisions. There can be no assurance that
infringement claims by third parties or claims for indemnification by other
customers or end users of the Company's products resulting from infringement
claims will not be asserted in the future or that such assertions, if proven
to be true, will not materially adversely affect the Company's business,
financial condition and results of operations. In the event of any adverse
ruling in any such matter, the Company could be required to pay substantial
damages, which could include treble damages, cease the manufacturing, use and
sale of infringing products, discontinue the use of certain processes or to
obtain a license under the intellectual property rights of the third party
claiming infringement. There can be no assurance, however, that a license
would be available on reasonable terms or at all. Any limitations on the
Company's ability to market its products, or delays and costs associated with
redesigning its products or payments of license fees to third parties, or any
failure by the Company to develop or license a substitute technology on
commercially reasonable terms could have a material adverse effect on the
Company's business, financial condition and results of operations.
COMPETITION
The market for multimedia accelerators for notebook PCs in which the Company
competes is intensely competitive and is characterized by rapid technological
change, evolving industry standards and declining average selling prices.
NeoMagic believes that the principal factors of competition in this market are
performance, price, features, power consumption, size, weight and software
support. The ability of the Company to compete successfully in the rapidly
evolving notebook PC market depends on a number of factors, including success
in designing and subcontracting the manufacture of new products that implement
new technologies, product quality, reliability, price, the efficiency of
production, design wins for NeoMagic's integrated circuits, ramp up of
production of the Company's products for particular system manufacturers, end-
user acceptance of the system manufacturers' products, success of competitors'
products and general economic conditions. There can be no assurance that the
Company will be able to compete successfully in the future.
34
<PAGE>
NeoMagic competes with major domestic and international companies, most of
which have substantially greater financial and other resources than the
Company with which to pursue engineering, manufacturing, marketing and
distribution of their products. The Company's principal competitors include
Chips & Technologies, Cirrus Logic, S3 and Trident. NeoMagic may also face
increased competition from new entrants into the notebook PC multimedia
accelerator market including from companies currently selling products
designed for desktop PCs. Furthermore, the Company expects that many of its
competitors will seek to develop and introduce products that integrate large
DRAM with analog and logic circuitry on a single chip. For example, Chips &
Technologies and Trident have recently announced separate programs to
introduce in conjunction with Samsung, the world's largest DRAM manufacturer,
an integrated multimedia acceleration solution for the notebook PC market that
would compete directly with the Company's products. Potential competition also
could come from manufacturers that integrate a microprocessor with a
multimedia controller. Although Intel has not announced any such product,
Cyrix recently announced such a product. To the Company's knowledge, the Cyrix
product does not eliminate the need for multimedia accelerators in notebook
PCs. The successful commercial introduction of such a product that eliminates
the need for a separate multimedia accelerator in notebook PCs could have a
material adverse impact on the Company's business, financial condition and
results of operations.
Some of the Company's current and potential competitors operate their own
manufacturing facilities. Since the Company does not operate its own
manufacturing facility and must make binding commitments to purchase products,
it may not be able to reduce its costs and cycle time or adjust its production
to meet demand as rapidly as companies that operate their own facilities,
which could have a material adverse effect on its business, financial
condition and results of operations. Additionally, a significant reduction in
the price of DRAMs could cause the Company's products to be less competitively
priced, potentially affecting ongoing product pricing as well as resulting in
the loss of design wins for new notebook PCs.
BACKLOG
Sales of the Company's products are made pursuant to standard purchase
orders that are cancelable without significant penalties. In addition,
purchase orders are subject to price renegotiations and to changes in
quantities of products and delivery schedules in order to reflect changes in
customers' requirements and manufacturing availability. A large portion of the
Company's sales are made pursuant to short lead time orders. In addition, the
Company's actual shipments depend on the manufacturing capacity of the
Company's suppliers and the availability of products from such suppliers. As a
result of the foregoing factors, the Company does not believe that backlog at
any give time is a meaningful indicator of future sales.
EMPLOYEES
As of January 31, 1997, the Company employed a total of 94 full-time
employees, including 47 in research and development, 9 in customer service and
applications engineering, 11 in sales and marketing, 10 in manufacturing and
17 in finance and administration. The Company also employs, from time to time,
a number of temporary and part-time employees as well as consultants on a
contract basis. The Company's employees are not represented by a collective
bargaining organization, and the Company believes that its relations with its
employees are good.
FACILITIES
The Company's corporate headquarters, which is also its principal
administrative, selling and marketing, customer service, applications
engineering and product development facility, is located in Santa Clara,
California and consists of approximately 45,000 square feet under a lease
which expires on April 30, 2003. The Company has subleased approximately
12,000 square feet of its office space under a sublease that expires March 31,
1998, and approximately 3,200 square feet of office space under another
sublease that expires May 31, 1997. The Company also leases a small sales
office in Austin, Texas. The Company believes its existing facilities are
adequate for its current needs and that additional space for growth will be
met as the expiration of the current sublease arrangements occur.
35
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of February 25, 1997
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kamran Elahian.......................... 42 Chairman of the Board
Prakash C. Agarwal...................... 43 President, Chief Executive Officer and Director
Dr. Clement Leung....................... 47 Vice President, Engineering
Deepraj Puar............................ 51 Vice President, Technology
Ibrahim Korgav.......................... 48 Vice President, Manufacturing Operations
Ron Jankov.............................. 38 Vice President, Sales
Niall Bartlett.......................... 36 Vice President, Marketing
Merle McClendon......................... 41 Vice President, Finance and Chief Financial Officer
Irwin Federman(1)....................... 61 Director
Michael Moritz(1)....................... 42 Director
James Lally(2).......................... 52 Director
Brian P. Dougherty(2)................... 40 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Kamran Elahian, a co-founder of the Company, has been Chairman of the Board
since the Company's inception in 1993. Mr. Elahian has co-founded several
Silicon Valley companies since 1981, including CAE Systems, Inc., a computer-
aided engineering software company, Cirrus Logic, a semiconductor manufacturer
and Momenta Corporation, a pen-based computer company. In addition to his
duties as Chairman of the Company, Mr. Elahian is the Chairman and Chief
Executive Officer of PlanetWeb, Inc., an Internet software company
("PlanetWeb"). Mr. Elahian holds a BS in Computer Science, a BS in Mathematics
and a Masters of Engineering from the University of Utah.
Prakash C. Agarwal, a co-founder of the Company, has been President, Chief
Executive Officer, and a Director of the Company since its inception in 1993.
Mr. Agarwal has over 19 years of engineering, marketing, and general
management experience in the semiconductor industry. Prior to joining the
Company, he was employed as Vice President and General Manager of Cirrus
Logic's Portable Product Division. Mr. Agarwal holds a BS and a MS degree in
Electrical Engineering from the University of Illinois.
Dr. Clement Leung, a co-founder of the Company, has served as Vice
President, Engineering since the Company's inception in 1993. Dr. Leung has 12
years of engineering and management experience in the semiconductor industry,
primarily in the areas of integrated circuit design and computer-aided design
systems. Prior to joining the Company, he was employed as Director of
Engineering of Cirrus Logic's Portable Product Division. Dr. Leung holds an
SB, an SM and a Ph.D. degree from the Massachusetts Institute of Technology.
Deepraj Puar, a co-founder of the Company, has been Vice President,
Technology since the Company's inception in 1993. Mr. Puar has 26 years of
engineering and management experience in the semiconductor industry, primarily
in the area of memory design and development. Prior to joining the Company,
Mr. Puar was employed by Cirrus Logic as its Director of Memory and Circuits
Engineering. Mr. Puar holds a B.TECH degree from the Indian Institute of
Technology (India) and a MSEE degree from Michigan State University.
Ibrahim Korgav joined the Company in 1994 as Vice President, Manufacturing
Operations. Mr. Korgav has 20 years of experience in manufacturing management
in the semiconductor industry. Prior to joining the Company, Mr. Korgav was
the Vice President of Operations and a co-founder of Micro Linear Corporation,
a semiconductor manufacturer. Mr. Korgav holds a MS degree in Mechanical
Engineering from the University of Tulsa.
36
<PAGE>
Ron Jankov joined the Company in October 1995 as Vice President, Sales. Mr.
Jankov has 15 years of engineering, operations and sale management experience
in the semiconductor industry. From 1994 to 1995 he was employed by Cyrix
Corporation, a microprocessor manufacturer, as its Vice President of Asia
Operations. From 1990 to 1994, he served as General Manager of Accell, a
Taiwan-based semiconductor engineering and sales company. Mr. Jankov holds a
BS degree in Physics from Arizona State University.
Niall Bartlett joined the Company in November 1995 as Vice President,
Marketing. Mr. Bartlett has 12 years of marketing and engineering experience
in display and multimedia systems. From 1994 to 1995, he was employed as
Multimedia Business Unit Director at Integrated Circuit Systems, Inc., a
semiconductor manufacturer. From 1991 to 1994, Mr. Bartlett was Director of
Marketing and Development of the semiconductor division of Media Vision, Inc.,
a multimedia company. Mr. Bartlett holds a BS degree in Electronic Engineering
from the University of Southampton (England).
Merle McClendon joined the Company in January 1997 as its Vice President,
Finance and Chief Financial Officer. Ms. McClendon has 18 years of finance
experience. From 1993 through 1996, Ms. McClendon was Vice President and
Corporate Controller at S3 Incorporated, a semiconductor company. From 1980 to
1993, Ms. McClendon was employed by Deloitte and Touche, most recently as a
Senior Manager. Ms. McClendon is a Certified Public Accountant and holds a BS
degree in Business Administration from San Jose State University.
Irwin Federman has served as a Director of the Company since March 1994. Mr.
Federman has been a general partner of U.S. Venture Partners, a venture
capital firm, since 1990. Mr. Federman serves on the Boards of Directors of
TelCom Semiconductor, Inc., a semiconductor products company, SanDisk
Corporation, a semiconductor company, Western Digital Corporation, a disk
drive manufacturer, Komag Incorporated, a thin film media manufacturer and
CheckPoint Software Technologies, Ltd, a network security software company. He
received a BS degree in Accounting from Brooklyn College and holds an honorary
Doctorate of Engineering Science from Santa Clara University.
Michael Moritz has served as a Director of the Company since July 1993. Mr.
Moritz joined Sequoia Capital, a venture capital firm, in 1986. He also serves
on the Board of Directors of Visigenic Software, Inc., a software company,
Yahoo! Inc., an Internet directory company and Flextronics International,
Inc., a contract electronics manufacturer. Mr. Moritz received an MBA from the
Wharton School in 1978 and an MA in History at Oxford University in 1976.
Jim Lally has served as a Director of the Company since July 1993. Mr. Lally
has been a general partner of Kleiner Perkins Caufield & Byers, a venture
capital firm, since 1981. He currently serves on the boards of NetFRAME
Systems, a network server company, Visioneer Communications, Inc., a computer
peripherals manufacturer, and Ascend Communications, Inc., a networking
company. He holds a BS degree in Electrical Engineering from Villanova
University.
Brian P. Dougherty joined the Company as a Director in January 1997. Mr.
Dougherty is a founder and serves as Chairman of Wink Communications, a
developer of interactive television software. From its inception in 1983
through 1994, Mr. Dougherty served as Chief Executive Officer of Geoworks, a
consumer computing device operating system manufacturer, and continues to
serve as its Chairman. Mr. Dougherty holds a BS degree in Electrical
Engineering from the University of California at Berkeley.
Each director will hold office until the next Annual Meeting of Stockholders
and until his successor is elected and qualified or until his earlier
resignation or removal. Each officer serves at the discretion of the Board of
Directors. There are no family relationships between any of the directors or
executive officers of the Company.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee, which is comprised of Messrs. Dougherty and Lally,
administers the Stock Plan, the Purchase Plan and all matters concerning
executive compensation. The Audit Committee, which is comprised of
Messrs. Federman and Moritz, approves the Company's independent auditors,
reviews the results and scope of annual audits and other accounting related
services, and evaluates the Company's internal audit and control functions.
These committees were established in January 1997.
37
<PAGE>
DIRECTOR COMPENSATION
The Company does not pay any compensation to directors for serving in that
capacity, nor does it reimburse directors for expenses incurred in attending
board meetings. However, the Chairman is compensated for certain services
provided to the Company. See "Certain Transactions-Arrangements with
Chairman."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during its fiscal 1997.
During fiscal 1997, all decisions regarding executive compensation were made
by the full Board of Directors. No interlocking relationship exists between
the Company's Board of Directors or Compensation Committee and the board of
directors or compensation committee of any other Company, nor has any such
interlocking relationship existed in the past.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except for liability (i)
for any breach of their duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
agents and other agents to the fullest extent permitted by law. The Company
believes that indemnification under its Bylaws covers at least negligence and
gross negligence on the part of indemnified parties. The Company's Bylaws also
permit the Company to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether the Bylaws would permit indemnification.
The Company has entered into agreements to indemnify its directors and
officers, in addition to indemnification provided for in the Company's Bylaws.
These agreements, among other things, indemnify the Company's directors and
officers for certain expenses (including attorneys' fees), judgments, fines
and settlement amounts incurred by any such person in any action or
proceeding, including any action by or in the right of the Company, arising
out of such person's services as a director or officer of the Company, any
subsidiary of the Company or any other Company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified directors and officers.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company during the fiscal year ended January 31, 1997 to the Company's
Chief Executive Officer and each of the Company's other most highly
compensated executive officers who earned in excess of $100,000 during such
fiscal year (collectively, the "Named Officers").
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) OPTIONS (#) COMPENSATION(1)
--------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
Prakash C. Agarwal
President and Chief Executive
Officer............................. $189,313 650,000 $6,577
Dr. Clement Leung
Vice President, Engineering......... 125,102 225,000 4,800
Deepraj Puar
Vice President, Technology.......... 125,194 225,000 6,558
Ron Jankov
Vice President, Sales............... 167,521 100,000 2,338
Niall Bartlett
Vice President, Marketing........... 120,053 90,000 5,311
</TABLE>
- --------
(1) Consists of premiums paid on health and term life insurance.
OPTION GRANTS IN FISCAL 1997
The following table provides information concerning grants of options to
purchase the Company's Common Stock made to each of the Named Officers during
fiscal 1997.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
INDIVIDUAL GRANTS(1) RATES OF STOCK PRICE
--------------------------------------------------------------- APPRECIATION FOR OPTION
NUMBER OF % OF TOTAL TERM(3)
SECURITIES UNDERLYING OPTIONS GRANTED EXERCISE PRICE EXPIRATION -----------------------
NAME OPTIONS GRANTED TO EMPLOYEES PER SHARE(2) DATE 5% 10%
---- --------------------- --------------- -------------- ---------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Prakash C. Agarwal...... 500,000(4) 14.8% $ .80 03/07/06 $ 251,558 $ 637,497
Prakash C. Agarwal...... 150,000(5) 4.4% 7.50 12/12/06 707,506 1,792,960
Dr. Clement Leung....... 175,000(4) 5.2% .80 03/07/06 88,045 223,124
Dr. Clement Leung....... 50,000(5) 1.5% 7.50 12/12/06 235,835 597,653
Deepraj Puar............ 175,000(4) 5.2% .80 03/07/06 88,045 223,124
Deepraj Puar............ 50,000(5) 1.5% 7.50 12/12/06 235,835 597,653
Ron Jankov.............. 50,000(5) 1.5% .80 03/07/06 25,156 63,750
Ron Jankov.............. 50,000(6) 1.5% 3.50 10/10/06 110,057 278,905
Niall Bartlett.......... 50,000(5) 1.5% .80 03/07/06 25,156 63,750
Niall Bartlett.......... 40,000(7) 1.2% 7.50 12/12/06 188,668 478,123
</TABLE>
- --------
(1) All options granted during the fiscal year were granted under the Stock
Plan. Each option becomes exercisable according to a vesting schedule,
subject to the employee's continued employment with the Company. See
"Employee Benefit Plans."
(2) The exercise price per share of options granted represented the fair
market value of the underlying shares of Common Stock on the dates the
respective options were granted as determined by the Board. The Company's
Common Stock was not traded publicly at the time of the option grants to
the Named Officers.
(3) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation based upon the deemed fair market value are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future common stock price. Actual
gains, if any, on stock option exercises are dependent on the future
financial performance of the Company, overall market conditions and the
option holders' continued employment through the vesting period. This
table does not take into account any appreciation in the deemed fair
market value of the Common Stock from the date of grant to the date of
this Prospectus, other than the columns reflecting assumed rates of
appreciation of 5% and 10%.
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<PAGE>
(4) This option was granted by the Board on March 7, 1996, with vesting to
commence on July 1, 1997. This option will vest ratably on a monthly basis
over a period of 30 months.
(5) This option was granted by the Board on December 12, 1996, with vesting to
commence on January 1, 2000. This option will vest ratably on a monthly
basis over a period of 12 months.
(6) This option was granted by the Board on October 10, 1996, with vesting to
commence on October 10, 1996. One-fourth of the shares covered by this
option will vest on October 10, 1997 and 1/48 of the shares will vest
ratably each month thereafter.
(7) This option was granted by the Board on December 12, 1996, with vesting to
commence on January 1, 1997. One-fourth of the shares covered by this
option will vest on January 1, 1998 and 1/48 of the shares will vest
ratably each month thereafter.
OPTION EXERCISES AND HOLDINGS
The following table sets forth for each of the Named Officers certain
information concerning the number of shares subject to both exercisable and
unexercisable stock options at January 31, 1997. Also reported are values for
"in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding stock options and the fair market
value of the Company's Common Stock as of January 31, 1997, as determined by
the Board of Directors.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL 1997 VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
JANUARY 31, 1997(2) JANUARY 31, 1997(1)(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(2) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Prakash C. Agarwal...... 500,000 $ -- 150,000 -- $ -- --
Dr. Clement Leung....... -- -- 225,000 -- 1,172,500 --
Deepraj Puar............ -- -- 225,000 -- 1,172,500 --
Ron Jankov.............. 50,000 -- 50,000 -- 200,000 --
Niall Bartlett.......... -- -- 90,000 -- 335,000 --
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at January 31, 1997 ($7.50 per share,
as determined by the Board of Directors) and the exercise price of the
options.
(2) Options granted under the Stock Plan may be exercised immediately upon
grant and prior to full vesting, subject to the optionee's entering a
restricted stock purchase agreement with the Company with respect to any
unvested shares.
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<PAGE>
EMPLOYEE BENEFIT PLANS
AMENDED AND RESTATED 1993 STOCK PLAN
The Company's Amended and Restated 1993 Stock Plan provides for the granting
to employees of incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
and for the granting to employees, directors and consultants of nonstatutory
stock options and stock purchase rights ("SPRs"). The original plan was
approved initially by the Board of Directors and the stockholders in July
1993. The Stock Plan was approved by the Board of Directors in December 1996
and by the stockholders in February 1997. Unless terminated sooner, the Stock
Plan will terminate automatically in December 2003. A total of 7,775,000
shares of Common Stock are currently authorized for issuance pursuant to the
Stock Plan, of which 2,427,387 were available for issuance at January 31,
1997. As of January 31, 1997, 3,443,487 shares had been issued upon the
exercise of stock options or stock purchase rights granted under the Stock
Plan, and 2,440,750 shares were subject to outstanding options.
The Stock Plan may be administered by the Board of Directors or a committee
of the Board (the "Committee"), which Committee shall, in the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code, consist of two or more "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code.
The Committee has the power to determine the terms of the options or SPRs
granted, including the exercise price, the number of shares subject to each
option or SPR, the exercisability thereof, and the form of consideration
payable upon such exercise. In addition, the Committee has the authority to
amend, suspend or terminate the Stock Plan, provided that no such action may
affect any share of Common Stock previously issued and sold or any option
previously granted under the Stock Plan.
Options and SPRs granted under the Plan are not generally transferable by
the optionee, and each option and SPR is exercisable during the lifetime of
the optionee only by such optionee. Options granted under the Stock Plan must
generally be exercised within 30 days of the end of optionee's status as an
employee or consultant of the Company, or within twelve months after such
optionee's termination by death or disability, but in no event later than the
expiration of the option's ten year term. In the case of SPRs, unless the
Committee determines otherwise, the Restricted Stock Purchase Agreement shall
grant the Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment with the Company for any
reason (including death or disability). The purchase price for shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall
lapse at a rate determined by the Committee. The exercise price of all
incentive stock options granted under the Stock Plan must be at least equal to
the fair market value of the Common Stock on the date of grant. The exercise
price of nonstatutory stock options and SPRs granted under the Stock Plan is
determined by the Committee, but with respect to nonstatutory stock options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code, the exercise price must at least
be equal to the fair market value of the Common Stock on the date of grant.
With respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of the Company's outstanding capital stock, the
exercise price of any incentive stock option granted must equal at least 110%
of the fair market value on the grant date and the term of such incentive
stock option must not exceed five years. The term of all other options granted
under the Stock Plan may not exceed ten years.
The Stock Plan provides that in the event of a merger of the Company with or
into another corporation, a sale of substantially all of the Company's assets
or a like transaction involving the Company, each option shall be assumed or
an equivalent option substituted by the successor corporation. If the
outstanding options are not assumed or substituted for as described in the
preceding sentence, the Optionee shall fully vest in and have the
41
<PAGE>
right to exercise the option or SPR as to all of the optioned stock, including
shares as to which it would not otherwise have been vested and be exercisable.
In the event that an option or SPR becomes exercisable in full in the event of
a merger or sale of assets, the Committee shall notify the optionee that the
option or SPR shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the option or SPR will terminate
upon the expiration of such period.
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in December 1996 and approved by the
stockholders in February 1997. A total of 500,000 shares of Common Stock has
been reserved for issuance under the Purchase Plan. The Purchase Plan, which
is intended to qualify under Section 423 of the Internal Revenue Code, is
implemented by consecutive and overlapping twenty-four month offering periods
that begin every six months. Each twenty-four month offering period includes
four six-month purchase periods, during which payroll deductions are
accumulated and at the end of which, shares of Common Stock are purchased with
a participant's accumulated payroll deductions, except for the first such
offering period which commences on the first trading day on or after the
effective date of this Offering and ends on the last trading day on or before
March 1, 1999. The Purchase Plan is administered by the Board of Directors or
by a committee appointed by the Board. Employees are eligible to participate
if they are customarily employed by the Company or any participating
subsidiary for at least 20 hours per week and more than five months in any
calendar year. The Purchase Plan permits eligible employees to purchase Common
Stock through payroll deductions of up to 10% of an employee's compensation
(excluding commissions, overtime and other bonuses and incentive
compensation), subject to the limitations of Section 423(b)(8) of the Internal
Revenue Code. The price of stock purchased under the Purchase Plan is 85% of
the lower of the fair market value of the Common Stock at the beginning of the
offering period or at the end of the relevant purchase period. Employees may
end their participation at any time during an offering period, and they will
be paid their payroll deductions to date. Participation ends automatically
upon termination of employment with the Company.
Rights granted under the Purchase Plan are not transferable by a participant
other than by will, the laws of descent and distribution, or as otherwise
provided under the Purchase Plan. The Purchase Plan provides that, in the
event of a merger of the Company with or into another corporation or a sale of
substantially all of the Company's assets, the Board of Directors shall
shorten the offering period then in progress (so that employees' rights to
purchase stock under the Purchase Plan are exercised prior to the merger or
sale of assets). The Purchase Plan will terminate in December 2007. The Board
of Directors has the authority to amend or terminate the Purchase Plan, except
that no such action may adversely affect any outstanding rights to purchase
stock under the Purchase Plan.
CERTAIN TRANSACTIONS
On July 20, 1993 and September 16, 1993, the Company sold in the aggregate
3,050,200 shares of Series A Preferred Stock at a price per share of $.50. On
February 11, 1994, the Company issued 10,250 shares of Series A Preferred in
exchange for shares of Common Stock held by certain employees of the Company
and Kamran Elahian at an exchange ratio of 500 shares of Common Stock for each
share of Series A Preferred. On March 10, 1994, the Company issued 2,539,999
shares of Series B Preferred Stock at a price per share of $.625 pursuant to
the exercise of warrants issued on July 20, 1993 and September 16, 1993. On
July 6, 1994 and August 30, 1994, the Company sold in the aggregate 3,839,165
shares of Series C Preferred Stock at a price per share of $1.50. On June 30,
1995 and August 10, 1995, the Company sold in the aggregate 2,820,000 shares
of Series D Preferred Stock at a price per share of $2.85. Simultaneously with
the consummation of this offering, all shares of Preferred Stock will be
converted into an aggregate of 12,259,614 shares of Common Stock.
Listed below are those directors, executive officers and five percent
stockholders who have made equity investments in the Company during the last
three fiscal years. The Company believes that the shares issued in
42
<PAGE>
these transactions were sold at the then fair market value and that the terms
of these transactions were no less favorable than the Company could have
obtained from unaffiliated third parties.
<TABLE>
<CAPTION>
AGGREGATE
SERIES A SERIES B SERIES C SERIES D CASH
STOCKHOLDER PREFERRED PREFERRED PREFERRED PREFERRED CONSIDERATION
----------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Entities associated with
Japan Associated
Finance Co., Ltd........ -- -- 1,000,000 350,877 $2,500,000
Entities associated with
Kleiner Perkins
Caufield & Byers (1).... 1,500,000 833,333 833,333 350,877 3,520,832
Entities associated with
Sequoia Capital(2)...... 1,500,000 833,333 833,333 350,877 3,520,832
Entities associated with
U.S. Venture
Partners(3)............. -- 833,333 833,333 421,053 2,970,834
</TABLE>
- --------
(1) KPCB VI Associates, which is the general partner of each of these
entities, has seven general partners, each of whom share investment and
voting power over the shares held by KPCB VI Associates. James Lally, a
director of the Company, is a general partner of KPCB VI Associates. Mr.
Lally disclaims beneficial ownership of the shares except to the extent of
his proportionate interest therein.
(2) Each of these entities are affiliated with Sequoia Partners (O). Sequoia
Partners (O) has eight general partners. Each of these general partners
shares voting and investment power over the shares held by Sequoia
Partners (O). Michael Moritz, a director of the Company, is a general
partner of Sequoia Partners (O). Mr. Moritz disclaims beneficial ownership
of the shares held by such entities to the extent of his proportionate
interest therein.
(3) Presidio Management Group IV, L.P. ("Presidio"), which is the general
partner of each of these entities, has five general partners, each of whom
shares voting and investment power over the shares held by Presidio. Irwin
Federman, a director of the Company, is a general partner of Presidio. Mr.
Federman disclaims beneficial ownership of the shares held by Presidio
except to the extent of his proportionate interest therein.
The Company has entered into an Indemnification Agreement with each of its
executive officers and directors.
The Company has granted options to certain of its executive officers. See
"Management--Option Grants in Last Fiscal Year."
Holders of Preferred Stock are entitled to certain registration rights with
respect to the Common Stock issued or issuable upon conversion thereof. See
"Description of Capital Stock--Registration Rights."
Kamran Elahian, Chairman of the Board of the Company, receives an annual
salary in the amount of $70,000 for services rendered to the Company, which
include participation in the establishment and management of key customer and
manufacturing relationships. In addition, on March 7, 1996 Mr. Elahian was
granted an option to purchase 175,000 shares of the Company's Common Stock at
an exercise price of $.80 per share, subject to vesting, and on December 12,
1996 was granted an option to purchase 30,000 shares of the Company's Common
Stock at an exercise price of $7.50 per share, subject to vesting. Both
options were granted pursuant to the Stock Plan.
In March 1994, in connection with the purchase of restricted shares of
Common Stock, the Company provided a loan to Prakash Agarwal, the President,
Chief Executive Officer, and a director of the Company, in the principal
amount of $34,925 at an annual interest rate of 4.01%, pursuant to a
promissory note secured by a pledge of 1,397,000 shares of Common Stock held
by Mr. Agarwal. In April 1996, in connection with the exercise of an option to
purchase 500,000 shares of Common Stock, the Company provided a loan to
Mr. Agarwal in the aggregate principal amount of $400,000 at an annual
interest rate of 5.88% pursuant to two promissory notes secured by a pledge of
an aggregate of 500,000 shares of Common Stock held by Mr. Agarwal. As of
January 31, 1997, an aggregate amount of $456,650 remained outstanding on the
three promissory notes, which is the largest aggregate amount of indebtedness
outstanding as of such date under such note.
43
<PAGE>
In March 1994, in connection with the purchase of restricted shares of
Common Stock, the Company provided a loan to Dr. Clement Leung, the Vice
President, Engineering of the Company in the principal amount of $22,450 at an
annual interest rate of 4.01%, pursuant to a promissory note secured by a
pledge of 898,000 shares of Common Stock held by Dr. Leung. As of January 31,
1997, an aggregate amount of $25,076 remained outstanding on the promissory
note, which is the largest aggregate amount of indebtedness outstanding under
such note.
In March 1994, in connection with the purchase of restricted shares of
Common Stock, the Company provided a loan to Deepraj Puar, the Vice President,
Technology of the Company in the principal amount of $22,450 at an annual
interest rate of 4.01%, pursuant to a promissory note secured by a pledge of
898,000 shares of Common Stock held by Mr. Puar. As of January 31, 1997, an
aggregate amount of $25,076 remained outstanding on the promissory note, which
is the largest aggregate amount of indebtedness outstanding under such note.
In June 1994, in connection with the purchase of restricted shares of Common
Stock, the Company provided a loan in the principal amount of $15,000 to
Ibrahim Korgav, Vice President of Manufacturing, at an annual interest rate of
6.80% pursuant to a promissory note secured by a pledge of 300,000 shares of
Common Stock held by Mr. Korgav. As of January 31, 1997, an aggregate amount
of $16,658 remained outstanding on the promissory note, which is the largest
aggregate amount of indebtedness outstanding as of such date under such note.
In July 1994, in connection with his offer of employment with the Company, the
Company provided a loan to Mr. Korgav in the principal amount of $63,956.93 at
an annual interest rate of 5.63%, pursuant to a promissory note. The loan was
used to repay certain obligations owed by Mr. Korgav to his former employer
and to exercise certain options to purchase shares of such employer. Mr.
Korgav repaid to the Company $14,000 of the principal and accrued interest in
July 1995 and paid the remaining balance of principal and accrued interest in
December 1995. The largest aggregate indebtedness outstanding under such notes
in the last three fiscal years was $83,662.71.
In December 1995, in connection with the purchase of restricted shares of
Common Stock, the Company provided a loan to Ron Jankov, the Vice President,
Sales of the Company in the principal amount of $76,950 at an annual interest
rate of 5.91% pursuant to a promissory note secured by a pledge of 270,000
shares held by Mr. Jankov. In April 1996, in connection with the exercise of
option to purchase 50,000 shares of Common Stock, the Company provided a loan
to Mr. Jankov in the principal amount of $40,000 at an interest rate of 5.88%
pursuant to a promissory note secured by a pledge of 50,000 shares of Common
Stock held by Mr. Jankov. As of January 31, 1997, an aggregate amount of
$123,641 remained outstanding on the two promissory notes, which is the
largest aggregate amount of indebtedness outstanding under such notes.
In December 1995, in connection with the purchase of restricted shares of
Common Stock, the Company provided a loan to Niall Bartlett, Vice President,
Marketing of the Company in the principal amount of $57,000 at an annual
interest rate of 5.91% pursuant to a promissory note secured by a pledge of
200,000 shares held by Mr. Bartlett. As of January 31, 1997, an aggregate
amount of $60,649 remained outstanding on this promissory note, which is the
largest aggregate amount of indebtedness outstanding under such notes.
In March 1994, in connection with the purchase of restricted shares of
Common Stock, the Company provided a loan to Chet Bassetti, the Flat-Panel
Technology Manager, in the principal amount of $22,450 at an annual interest
rate of 4.01% pursuant to a promissory note secured by a pledge of 898,000
shares of Common Stock held by Mr. Bassetti. On December 26, 1996, Mr.
Bassetti repaid the remaining $25,000 in principal and interest. The largest
aggregate amount of indebtedness outstanding during the last three years was
$25,000.
In March 1994, in connection with the purchase of restricted shares of
Common Stock, the Company provided a loan to Kamran Elahian, the Chairman of
the Board, in the principal amount of $22,450 at an annual interest rate of
4.01% pursuant to a promissory note secured by a pledge of 898,000 shares of
Common Stock held by Mr. Elahian. In April 1996, in connection with the
exercise of an option to purchase 125,000 shares of Common Stock, the Company
provided a loan to Mr. Elahian in the principal amount of $100,000 at an
annual
44
<PAGE>
interest rate of 5.88% pursuant to a promissory note secured by a pledge of
the Common Stock so acquired. As of January 31, 1997, and aggregate amount of
$129,486 remained outstanding on the two promissory notes, which is the
largest aggregate amount of indebtedness outstanding under such notes.
In September 1996, in connection with the resignation of the Company's then
current Chief Financial Officer, Lori Holland, the Company agreed to pay Ms.
Holland $12,500 per month through February 28, 1997. In addition, the Company
released 97,500 shares of Common Stock held by Ms. Holland from a right of
repurchase in favor of the Company set forth in the agreement pursuant to
which Ms. Holland purchased such shares from the Company.
In June 1996, the Company entered into a Sublease Agreement with PlanetWeb.
Kamran Elahian, a co-founder of the Company and its Chairman, is the founder
of PlanetWeb and is its Chairman and Chief Executive Officer. The Sublease
Agreement provides for a sublease of 3,166 square feet of office space at the
Company's principal office for a term beginning on May 28, 1996 through and
including May 31, 1997. Pursuant to the Sublease Agreement, PlanetWeb is
obligated to pay $300 per month for janitorial services and rent according to
the following schedule: $1.00 per square foot during months one through three,
$1.50 per square foot during months four through six and $1.75 per square foot
during months seven through 12.
The Company believes that all related-party transactions described above
were on terms no less favorable than could have been otherwise obtained from
unrelated third parties. All future transactions between the Company and its
principal officers, directors and affiliates will be approved by a majority of
the independent and disinterested members of the Board of Directors and will
be on terms no less favorable that could be obtained from unrelated third
parties. In addition, the Board of Directors has voted that any loans or
guarantees in the future by the Company for its officers, directors or
affiliates will be approved by a majority of the independent and disinterested
members of the Board on the basis that such loans or guarantees will be made
only for bona fide business purposes.
45
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of January 31, 1997 and
as adjusted to reflect the sale of Common Stock offered hereby for (i) each
person who is known by the Company to beneficially own more than 5% of the
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Officers and (iv) all directors and officers as a group and (v) each selling
stockholder.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
OWNED(1) OWNED(2)(3)
------------ -----------------
BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- ------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with KPCB VI Associates(4).. 3,517,543 17.3% 15.1%
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with Sequoia Capital(5)..... 3,517,543 17.3 15.1
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Entities affiliated with U.S. Venture Partners
IV, L.P.(6).................................... 2,087,719 10.3 8.9
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Japan Associated Finance Co., Inc.(7)........... 1,350,877 6.6 5.8
Tekko Building
1-8-2, Marunouchi, Chiyoda-Ku
Tokyo, Japan 100
Kamran Elahian(8)............................... 1,054,800 5.2 4.5
Irwin Federman(6)............................... 2,087,719 10.3 8.9
Michael Moritz(5)............................... 3,517,543 17.3 15.1
James Lally(4).................................. 3,517,543 17.3 15.1
Chet Bassetti(9)................................ 927,800 4.6 4.0
Prakash C. Agarwal(10).......................... 1,449,800 7.1 6.2
Dr. Clement Leung(11)........................... 1,118,800 5.4 4.7
Deepraj Puar(12)................................ 524,800 2.6 2.2
Ron Jankov(13).................................. 370,000 1.8 1.6
Ibrahim Korgav(14).............................. 387,500 1.9 1.7
Niall Bartlett(15).............................. 290,000 1.4 1.2
All directors and officers as
a group(4), (5), (6), (8), (10)-(15)........... 14,318,505 67.7% 59.2%
OTHER SELLING STOCKHOLDERS
Additional Selling Stockholders (3 persons),
each holding less than 1% of Common Stock prior
to offering.................................... 173,000 * *
</TABLE>
- --------
* Less than 1% of the outstanding shares.
(1) Assumes no exercise of the Underwriter's over-allotment option. Except
pursuant to applicable community property laws or as indicated in the
footnotes to this table, to the Company's knowledge, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such
stockholder.
(2) Percent of the outstanding shares of Common Stock, treating as
outstanding all shares of Common Stock issuable on exercise of options
held by the particular beneficial owner that are included in the first
column.
(3) This column assumes no exercise of the Underwriter's over-allotment
option and does not reflect the issuance of any shares pursuant to the
Direct Sales. If, however, the Underwriters' over-allotment option is
exercised in full, certain stockholders will sell an aggregate of
100,000 shares of Common Stock. Specifically, in such event, in addition
to those share amounts set forth in the table above, (i) Kamran
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<PAGE>
Elahian will sell an aggregate of 15,000 shares and will beneficially own
1,039,800 shares, which is 4.4% of the Company's outstanding Common Stock,
after completion of this Offering, (ii) Chet Bassetti will sell an
aggregate of 10,000 shares and will beneficially own 917,800 shares, which
is 3.9% of the Company's outstanding Common Stock, after completion of the
Offering, (iii) Prakash Agarwal will sell an aggregate of 15,000 shares
and will beneficially own 1,434,800 shares, which is 6.0% of the Company's
outstanding Common Stock, after completion of the Offering, (iv) Dr.
Clement Leung will sell an aggregate of 15,000 shares and will
beneficially own 1,103,800 shares, which is 4.6% of the Company's
outstanding Common Stock, after completion of the Offering, (v) Deepraj
Puar will sell an aggregate of 15,000 shares and will beneficially own
509,800 shares, which is 2.1% of the Company's outstanding Common Stock,
after completion of the Offering, (vi) Ibrahim Korgav will sell an
aggregate of 15,000 shares and will beneficially own 372,500 shares, which
is 1.6% of the Company's outstanding Common Stock, after completion of the
Offering, (vii) Niall Bartlett will sell an aggregate of 10,000 shares and
will beneficially own 280,000 shares, which is 1.6% of the Company's
outstanding Common Stock, after completion of the Offering, and
(viii) three other stockholders, each of whom owns less than 1% of the
Company's outstanding stock, will sell an aggregate of 5,000 shares and
will beneficially own 168,000 shares, which is .7% of the Company's
outstanding Common Stock, after completion of the Offering.
(4) Includes 3,052,211 shares held by Kleiner Perkins Caufield & Byers VI and
465,332 shares held by KPCB VI Founders Fund. KPCB VI Associates is the
general partner of Kleiner Perkins Caufield & Byers VI and KPCB VI
Founders Fund. KPCB VI Associates has seven general partners. Each of
these general partners shares voting and investment power over the shares
held by KPCB VI Associates. James Lally, a director of the Company, is a
general partner of KPCB VI Associates. Mr. Lally disclaims beneficial
ownership of the shares held by such entities except to the extent of his
proportionate interest therein.
(5) Includes 3,200,964 shares held by Sequoia Capital VI, 175,878 shares held
by Sequoia Technology Partners VI, 93,333 shares held by Sequoia XXIII
and 47,368 shares held by Sequoia XXIV each of which is affiliated with
Sequoia Partners (O). Sequoia Partners (O) is the general partner of
Sequoia Capital VI. Sequoia Partners (O) has eight general partners, who
are also the general partners of Sequoia Technology Partners VI. Each of
these general partners shares voting and investment power over the shares
held by Sequoia Partners (O). Michael Moritz, a director of the Company,
is a general partner of Sequoia Partners (O). Mr. Moritz disclaims
beneficial ownership of the shares held by such entities except to the
extent of his proportionate interest therein.
(6) Includes 1,837,193 shares held by U.S. Venture Partners IV, L.P., 41,755
shares held by USVP Entrepreneur Partner II, L.P. and 208,771 shares held
by Second Ventures II, L.P. Presidio Management Group IV, L.P.
("Presidio") is the general partner of each of these entities. Presidio
has five general partners. Each of these general partners shares voting
and investment power over the shares held by Presidio. Irwin Federman, a
director of the Company, is a general partner of Presidio. Mr. Federman
disclaims beneficial ownership of the shares held by such entities except
to the extent of his proportionate interest therein.
(7) Includes 235,088 shares held by Japan Associated Finance Co., Ltd.,
398,067 shares held by JAFCO G-5 Investment Enterprise Partnership,
185,981 shares held by JAFCO R-1(A) Investment Enterprise Partnership,
185,981 shares held by JAFCO R-1(B) Investment Enterprise Partnership,
170,321 shares held by JAFCO R-2 Investment Enterprise Partnership. Japan
Associated Finance Co., Inc. is the general partner of each of these
entities. Also includes 175,439 shares held by U.S. Information
Technology Investment Enterprise Partnership. Japan Associated Finance
Co., Inc. and JAFCO America Ventures, Inc. are the general partners of
U.S. Information Technology Investment Enterprise Partnership.
(8) Includes an option to purchase 30,000 shares, exercisable within 60 days
of January 31, 1997.
(9) Includes an option to purchase 28,000 shares, exercisable within 60 days
of January 31, 1997.
(10) Includes an option to purchase 150,000 shares, exercisable within 60 days
of January 31, 1997.
(11) Includes 15,000 shares registered in the name of Lau Sek Lan, 15,000
shares registered in the name of Yim Lai Ting, 10,000 shares registered
in the name of Elizabeth T. Lau, 10,000 shares registered in the name of
Kin Mun Leung, 10,000 shares registered in the name of Christopher K.
Leung, and 10,000 shares
47
<PAGE>
registered in the name of Chung Ki Wong Leung. Each such person is a
family member of Dr. Leung. Dr. Leung disclaims beneficial ownership of
such shares. Includes an option to purchase 225,000 shares exercisable
within 60 days of January 31, 1997.
(12) Includes 20,000 shares registered in the name of Yuvraj Singh Puar, Mr.
Puar's brother, and 20,000 shares registered in the name of Nandita Puar,
Mr. Puar's sister-in-law. Mr. Puar disclaims beneficial ownership of such
shares. Includes 20,000 shares registered in the name of Dhruv Raj Puar
and 20,000 shares registered in the name of Rahul Raj Puar, who are Mr.
Puar's children. Includes an option to purchase 225,000 shares,
exercisable within 60 days of January 31, 1997.
(13) Includes an option to purchase 50,000 shares, exercisable within 60 days
of January 31, 1997.
(14) Includes 20,000 shares registered in the name of Kirk Steven Hayes, as
Trustee of the Ibrahim Korgav and Sandra Lee Korgav 1989 Irrevocable
Trust dated 10/2/89. Mr. Korgav may be deemed the beneficial owner of
such shares. Includes an option to purchase 87,500 shares, exercisable
within 60 days of January 31, 1997.
(15) Includes an option to purchase 90,000 shares, exercisable within 60 days
of January 31, 1997.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this Offering, the authorized capital stock of the
Company consists of 60,000,000 shares of Common Stock, $.001 par value, and
2,000,000 shares of Preferred Stock, $.001 par value.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Certificate of
Incorporation which is included as an exhibit to the Registration Statement of
which this Prospectus is a part and by the provisions of applicable law.
COMMON STOCK
As of January 31, 1997, there were 20,332,205 shares of Common Stock
outstanding (assuming conversion of Preferred Stock and assuming no exercise
of outstanding options or warrants) before giving effect to the sale of Common
Stock offered hereby and before giving effect to the Direct Sales.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for the payment of dividends. See "Dividend Policy." In the
event of a 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 and liquidation preferences of any outstanding shares
of Preferred Stock. Holders of Common Stock have no preemptive rights or
rights to convert their Common Stock into any other securities. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock to be issued upon completion of this offering will be
fully paid and non-assessable.
PREFERRED STOCK
Pursuant to the Company's Restated Certificate of Incorporation effective
after conversion of previously outstanding shares of Preferred Stock into an
aggregate of 12,259,614 shares of Common Stock, which conversion will be
effected simultaneously with the consummation of this offering, the Board of
Directors has the authority, without further action by the stockholders, to
issue up to 2,000,000 shares of Preferred Stock in one or more series and to
fix the designations, powers, preferences, privileges, and relative
participating, optional or special rights and the qualifications, limitations
or restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences any or all of which
may be greater than the rights of the Common Stock. The Board of Directors,
without stockholder approval, can issue Preferred Stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of Common Stock. Preferred Stock could thus be
issued quickly with terms calculated to delay or prevent a change in control
of the Company or make removal of management more difficult. Additionally, the
issuance of
48
<PAGE>
Preferred Stock may have the effect of decreasing the market price of the
Common Stock, and may adversely affect the voting and other rights of the
holders of Common Stock. At present, there are no shares of Preferred Stock
outstanding and the Company has no plans to issue any of the Preferred Stock.
COMMON STOCK WARRANTS
As of the date of this Prospectus, the Company has warrants outstanding
exercisable to purchase an aggregate of 316,743 shares of Common Stock.
In connection with a software lease entered into in November 1993, the
Company issued to the lessor a warrant to purchase up to an aggregate of
120,000 shares of the Company's Series A Preferred Stock and, upon the closing
of this Offering, such warrant will become a warrant exercisable to purchase
the same number of shares of Common Stock with an exercise price of $.50 per
share and a term of ten years from the date of execution of such warrant.
In connection with an equipment lease, the Company issued two warrants to
purchase up to an aggregate of 91,200 shares of the Company's Series B
Preferred Stock. Upon the consummation of this Offering, one of such warrants,
exercisable for up to 48,000 shares of Series B Preferred, will become
exercisable to purchase the same number of shares of Common Stock with an
exercise price of $.625 per share and a term of ten years from the date of
execution of such warrant or five years from the effective date of the
Company's initial public offering, whichever is longer. The second of such
warrants, exercisable for up to 43,200 shares of Series B Preferred, will
become exercisable to purchase the same number of shares of Common Stock with
an exercise price of $.625 per share and a term of seven years from the date
of execution of such warrant or five years from the effective date of the
Company's initial public offering, whichever is longer.
In connection with a combined software and equipment lease entered into in
July 1994, the Company issued to the lessor a warrant to purchase 36,666
shares of the Company's Series C Preferred Stock and, upon the closing of this
Offering, such warrant will become exercisable to purchase the same number of
shares of Common Stock with an exercise price of $1.50 per share. At the same
time, the Company issued to the lessor a warrant to purchase 15,789 shares of
the Company's Series D Preferred Stock and, upon the of this Offering, such
warrant will become exercisable to purchase the same number of shares of
Common Stock with an exercise price of $2.85 per share. Each of these warrants
is exercisable for a period of seven years from August 1, 1994 or five years
from the effective date of the Company's initial underwritten public offering,
whichever is longer.
In connection with a capital equipment lease entered into in July 1995, the
Company issued to the lessor a warrant to purchase 35,088 shares of the
Company's Series D Preferred Stock and, upon the closing of this Offering,
such warrant will become exercisable to purchase the same number of shares of
Common Stock with an exercise price of $2.85 per share. Each of these warrants
is exercisable until December 31, 2001.
In connection with a combined mask, software and equipment lease entered
into in June 1996, the Company issued to the lessor a warrant to purchase
18,000 shares of the Company's Series D Preferred Stock and, upon the closing
of this Offering, such warrant will become exercisable to purchase the same
number of shares of Common Stock with an exercise price of $5.70 per share.
Each of these warrants is exercisable until December 31, 2001.
REGISTRATION RIGHTS
The holders of an aggregate of 12,576,357 shares of Common Stock will be
entitled to certain rights with respect to the registration of such shares
under the Securities Act. Under the terms of certain registration rights
agreements, holders of Common Stock benefitting from these rights may require
the Company to file a registration statement under the Securities Act at its
expense with respect to their shares of Common Stock, and the Company is
required to use its best efforts to effect such registration, subject to
certain conditions and limitations. The rights are subject to certain
conditions and limitations, among them the right of the underwriters
49
<PAGE>
of an offering subject to the registration to limit the number of shares
included in such registration. In addition, if the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other security holders exercising registration
rights, such holders are entitled to notice of such registration and are
entitled to include such shares of Common Stock in the registration.
Furthermore, such holders may require the Company to file additional
registration statements on Form S-3 subject to certain conditions and
limitations.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
Upon the completion of the Company's reincorporation in the State of
Delaware prior to closing of this offering, the Company will be subject to
Section 203 of the Delaware General Corporation Law ("Section 203"), which,
subject to certain exceptions, prohibits a Delaware corporation from engaging
in any business combination with any interested stockholder for a period of
three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentiality whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the Board of Directors
and authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
The Company's Certificate of Incorporation continues to entitle stockholders
to use cumulative voting in the election of directors and to take action by
written consent.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe. Its address is 150 Royall Street, Canton, Massachusetts, 02021, and
its telephone number is 617-575-2000.
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol NMGC. The Company has not applied to list its
Common Stock on any other exchange or quotation system. See "Risk Factors--
Absence of Prior Public Market and Possible Volatility of Stock Price."
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Therefore, future sales of substantial amounts of Common Stock in the
public market could adversely affect the prevailing market price from time to
time. Furthermore, because only a limited number of shares will be available
for sale shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding an
aggregate of 23,332,205 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option, no exercise of outstanding options under
the Stock Plan and no issuances of shares pursuant to the Direct Sales. Of
these outstanding shares of Common Stock, the 3,000,000 shares sold in this
offering and any shares sold in the Direct Sales will be freely tradeable
without restriction or further registration under the Securities Act of 1933,
as amended (the "Securities Act"), unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. The
remaining 20,332,205 shares of Common Stock outstanding upon completion of
this offering and held by existing stockholders will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act
("Restricted Shares").
The holders of 20,134,705 Restricted Shares, including all officers and
directors of the Company, are subject to "lock-up" agreements with the
Representatives of the Underwriters and/or the Company providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of the shares of Common Stock owned by them or that could be
purchased by them through the exercise of options to purchase Common Stock of
the Company for a period of 180 days after the date of this Prospectus without
the prior written consent of Morgan Stanley & Co. Incorporated and/or the
Company, as applicable. The Company has agreed with the Representatives of the
Underwriters not to release any holders from such agreements without the prior
written consent of Morgan Stanley & Co. Incorporated. Such lock-up agreements
may be released at any time as to all or any portion of the shares subject to
such agreements at the sole discretion of Morgan Stanley & Co. Incorporated.
Of the 20,134,705 Restricted Shares that will first become eligible for sale
in the public market 180 days after the date of this Prospectus, 5,524,824
shares will be immediately eligible for sale without restriction under Rule
144(k) or Rule 701, and 14,609,882 shares will be immediately eligible for
sale subject to certain volume and other restrictions pursuant to Rule 144.
All 14,609,882 shares will be eligible for sale pursuant to Rule 144 upon the
expiration of one-year holding periods, all of which will expire on or before
September 15, 1997.
On February 20, 1997, the Securities and Exchange Commission announced the
adoption of certain changes to Rule 144 to reduce the holding period
requirements contained in Rule 144 to permit the resale of limited amounts of
restricted securities by any person after a one-year, rather than a two-year,
holding period. Such amendment also permits unlimited resales of restricted
securities held by non-affiliates of an issuer after a holding period of two
years, rather than three years. Such changes shall become effective on a date
which is 60 days following official publication of the changes to Rule 144.
In general, under the new Rule 144, beginning 90 days after the date of this
Prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year, including persons
who may be deemed to be "affiliates" of the Company, would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 233,322 shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock
as reported through the Nasdaq National Market during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned for at least two years the Restricted Shares
proposed to be sold (including the holding period of any prior owner except an
affiliate), is entitled to sell such shares without complying with the manner
of sale, public information, volume limitation or notice provisions of Rule
144.
51
<PAGE>
Subject to certain limitations on the aggregate offering price of a
transaction and certain other conditions, Rule 701 permits resales of shares
issued prior to the date the issuer becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), pursuant to certain compensatory benefit plans and contracts commencing
90 days after the issuer becomes subject to the reporting requirements of the
Exchange Act, in reliance upon Rule 144 but without compliance with certain
restrictions, including the holding period requirements, contained in Rule
144. In addition, the Securities and Exchange Commission has indicated that
Rule 701 will apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired upon exercise of such options (including exercises after
the date of this Prospectus). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this Prospectus, may be sold by
persons other than affiliates subject only to the manner of sale provisions of
Rule 144 and by affiliates under Rule 144 without compliance with its two-year
minimum holding period requirements.
The Company has also agreed not to sell or otherwise dispose of any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or enter into any swap or similar agreement
that transfers, in whole or in part, the economic risk of ownership of the
Common Stock, for a period of 180 days after the date of this Prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated,
subject to certain limited exceptions.
The Company intends to file a registration statement under the Securities
Act covering approximately 4,868,137 shares of Common Stock subject to
outstanding options or reserved for issuance under the Stock Plan (which
includes a 2,000,000 share increase in the number of shares reserved for
future issuances under the Stock Plan that was approved by the Company's Board
of Directors in December 1996) and 500,000 shares of Common Stock reserved for
issuance under the Purchase Plan. See "Management--Employee Benefit Plans."
Such registration statement is expected to be filed simultaneously with the
effectiveness of the registration statement covering the shares of Common
Stock offered in this offering and will automatically become effective upon
filing. Accordingly, shares registered under such registration statement will,
subject to Rule 144 volume limitations applicable to affiliates and the
lapsing of the Company's repurchase options, be available for sale in the open
market, except to the extent that such shares are subject to vesting
restrictions with the Company or the contractual restrictions described above.
DIRECT SALES
The Company anticipates that concurrently with the closing of the offering
contemplated hereby, Mitsubishi International Corporation ("MIC") and MC
Silicon Valley, Inc. ("MC Silicon Valley") will purchase directly from the
Company shares of Common Stock having a purchase price of $1,000,000 and
$500,000, respectively. The Company anticipates that the shares of Common
Stock will be sold pursuant to stock purchase agreements between the Company
and MIC and MC Silicon Valley, respectively, and anticipates that such
agreements will be executed concurrently with the closing of the offering
contemplated hereby.
52
<PAGE>
UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Montgomery Securities and Robertson, Stephens &
Company LLC are serving as Representatives, have severally agreed to purchase,
and the Company and the Selling Stockholders have agreed to sell to them,
severally, the respective numbers of shares of Common Stock set forth opposite
their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
Montgomery Securities..............................................
Robertson, Stephens & Company LLC..................................
---------
Total.......................................................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and
pay for all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any are taken.
The Underwriters initially propose to offer a portion of the shares of
Common Stock offered hereby directly to the public at the initial public
offering price set forth on the cover page hereof and a portion to certain
dealers at a price that represents a concession not in excess of $ per
share under the initial public offering price. The Underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share to
other Underwriters or to certain other dealers.
Pursuant to the Underwriting Agreement, the Company and the Selling
Stockholders have granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 350,000
shares and 100,000 shares, respectively, of Common Stock at the initial public
offering price set forth on the cover page hereof, less underwriting discounts
and commissions. The Underwriters may exercise such option to purchase solely
for the purpose of covering over-allotments, if any, incurred in the sale of
the shares of Common Stock offered hereby. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriters' name in the
preceding table bears to the total number of shares of Common Stock offered
hereby. If the Underwriters elect to purchase less than all of such additional
shares, the terms of the Underwriting Agreement provide that the Underwriters
shall purchase such additional shares first from the Company and then from the
selling stockholders on a pro rata basis.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales in excess of five percent of the
number of shares of Common Stock offered hereby to accounts over which they
exercise discretionary authority.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all Selling Stockholders, officers, directors and
certain other stockholders and option holders of the Company have agreed not
to sell or otherwise dispose of Common Stock or convertible securities of the
Company for up to 180 days after the effective date of the offering, without
the prior consent of Morgan Stanley & Co. Incorporated. The Company has agreed
in the Underwriting Agreement that it will not, directly or indirectly,
without the prior
53
<PAGE>
consent of Morgan Stanley & Co. Incorporated, offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or enter into any swap or
similar agreement that transfers, in whole or in part, the economic risk of
ownership of the Common Stock, for a period of 180 days after the date of this
Prospectus.
The Company anticipates that, concurrently with the closing of the offering
contemplated hereby, MIC and MC Silicon Valley will purchase directly from the
Company, and not pursuant to the Underwriting Agreement, shares of Common
Stock having a purchase price of $1,000,000 and $500,000, respectively. The
Company anticipates that the shares of Common Stock will be sold pursuant to
stock purchase agreements between the Company and MIC and MC Silicon Valley,
respectively, and anticipates that such agreements will be executed
concurrently with the closing of the offering contemplated hereby.
PRICING OF THE OFFERING
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company, representatives of the Selling Stockholders and the
Representatives of the Underwriters. Among the factors to be considered in
determining the initial public offering price will be the future prospects of
the Company and its industry in general, sales, earnings and certain other
financial and operating information of the Company in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company. The estimated initial public offering price
range set forth on the cover page of this Preliminary Prospectus is subject to
change as a result of market conditions and other factors.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of Common Stock offered hereby will be passed upon for the Company and
the Selling Stockholders by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto,
California. Arthur F. Schneiderman, a member of Wilson Sonsini Goodrich &
Rosati, is Secretary of the Company. Certain legal matters in connection with
this offering will be passed upon for the Underwriters by Venture Law Group, A
Professional Corporation, Menlo Park, California. A director of Venture Law
Group and an investment partnership of which certain directors of Venture Law
Group are general partners beneficially own an aggregate of 40,000 shares of
the Company's Common Stock.
EXPERTS
The consolidated financial statements and financial statement schedule of
NeoMagic Corporation at January, 31, 1996 and 1997 and for each of the three
years in the period ended January 31, 1997 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
The statements in this Prospectus as set forth under the captions "Risk
Factors--Uncertainty Regarding Patents and Protection of Proprietary Rights"
and "Business--Proprietary Rights," insofar as they relate to patent matters,
have been passed upon by Townsend and Townsend and Crew LLP, Palo Alto,
California, patent counsel to the Company, as experts on such matters.
54
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. 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 the Registration Statement and the exhibits and schedules
filed therewith. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement, and the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the commission's Regional Offices at 75 Park Place, Room
1400, New York, New York 10007 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549, and its
principal reference facilities in New York, New York and Chicago, Illinois, at
a prescribed rate. The Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of the site is http://www.sec.gov.
55
<PAGE>
NEOMAGIC CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors ......................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations ..................................... F-4
Consolidated Statements of Stockholders' Equity ........................... F-5
Consolidated Statements of Cash Flows ..................................... F-6
Notes to Consolidated Financial Statements ................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
NeoMagic Corporation
We have audited the accompanying consolidated balance sheets of NeoMagic
Corporation as of January 31, 1996 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended January 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits 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 consolidated financial position
of NeoMagic Corporation at January 31, 1996 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended January 31, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Jose, California
February 14, 1997
F-2
<PAGE>
NEOMAGIC CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
JANUARY 31, EQUITY
------------------ JANUARY 31,
1996 1997 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 6,877 $ 13,458
Restricted cash equivalents............. -- 2,224
Accounts receivable, less allowance for
doubtful accounts of $0 at January 31,
1996 and $25 at January 31, 1997....... 138 2,205
Inventory............................... 331 5,237
Other current assets.................... 181 344
-------- --------
Total current assets................. 7,527 23,468
Property, plant and equipment, net....... 1,103 3,395
Other assets............................. 119 601
-------- --------
Total assets......................... $ 8,749 $ 27,464
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Working capital line of credit.......... $ 414 $ 14,224
Accounts payable........................ 569 5,175
Accrued expenses........................ 1,723 1,617
Current obligations under capital
leases................................. 752 1,054
-------- --------
Total current liabilities............ 3,458 22,070
Noncurrent obligations under capital
leases.................................. 749 1,170
Other long-term liabilities.............. -- 24
-------- --------
Total liabilities.................... 4,207 23,264
Commitments and contingencies
Stockholders' equity:
Noncumulative convertible preferred
stock, $.001 par value:
Authorized shares--12,868,315
(2,000,000 pro forma)
Issued and outstanding shares--
12,259,614 at January 31, 1996 and
1997 (no shares outstanding pro forma)
(aggregate liquidation preference
$16,913 at January 31, 1997) ......... 12 12 $ --
Common stock, $.001 par value:
Authorized shares--60,000,000
Issued and outstanding shares--
6,922,633 at January 31, 1996 and
8,072,591 at January 31, 1997
(20,332,205 pro forma)................ 7 8 20
Additional paid-in capital.............. 17,302 18,207 18,207
Notes receivable from stockholders...... (362) (822) (822)
Accumulated deficit..................... (12,417) (13,205) (13,205)
-------- -------- --------
Total stockholders' equity........... 4,542 4,200 $ 4,200
-------- -------- ========
Total liabilities and stockholders'
equity.............................. $ 8,749 $ 27,464
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
NEOMAGIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Net sales.......................................... $ -- $ 243 $ 40,792
Cost of sales...................................... -- 165 28,631
------- ------- --------
Gross profit....................................... -- 78 12,161
Operating expenses:
Research and development.......................... 2,423 4,934 8,467
Sales, general, and administrative................ 968 1,606 6,305
Legal costs....................................... 1,500 610 (1,503)
------- ------- --------
Total operating expenses....................... 4,891 7,150 13,269
------- ------- --------
Loss from operations............................... (4,891) (7,072) (1,108)
Other income (expense), net:
Interest income and other......................... 194 385 1,366
Interest expense.................................. (94) (182) (1,046)
------- ------- --------
Net loss....................................... $(4,791) $(6,869) $ (788)
======= ======= ========
Pro forma net loss per share....................... $ (.04)
========
Shares used in computing pro forma net loss per
share............................................. 21,555
</TABLE>
See accompanying notes.
F-4
<PAGE>
NEOMAGIC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NONCUMULATIVE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL NOTES TOTAL
----------------- ------------------ PAID-IN RECEIVABLE FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT EQUITY
---------- ------ ---------- ------ ---------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31,
1994................... 3,050,000 $ 3 5,225,000 $ 5 $ 1,502 -- $ (757) $ 753
Conversion of
outstanding common
stock into Series A
preferred stock....... 10,450 -- (5,225,000) (5) 5 -- -- --
Issuance of common
stock in exchange for
promissory notes...... -- -- 5,213,550 5 126 (131) -- --
Issuance of common
stock under stock
option plan in
exchange for
promissory notes...... -- -- 625,000 1 30 (31) -- --
Issuance of common
stock under stock
option plan........... -- -- 344,480 -- 14 -- -- 14
Exercise of Series B
preferred stock
warrants.............. 2,539,999 3 -- -- 1,595 -- -- 1,598
Issuance of Series C
preferred stock, net
of issuance costs of
$20................... 3,839,165 3 -- -- 5,736 -- -- 5,739
Net loss............... -- -- -- -- -- -- (4,791) (4,791)
---------- --- ---------- --- ------- ----- -------- ------
Balance at January 31,
1995................... 9,439,614 9 6,183,030 6 9,008 (162) (5,548) 3,313
Issuance of Series D
preferred stock, net
of issuance costs of
$18................... 2,820,000 3 -- -- 8,044 -- -- 8,047
Issuance of common
stock under stock
option plan........... -- -- 1,008,257 1 262 (219) -- 44
Repurchase of common
stock at cost and
payments on promissory
notes................. -- -- (268,654) -- (12) 19 -- 7
Net loss............... -- -- -- -- -- -- (6,869) (6,869)
---------- --- ---------- --- ------- ----- -------- ------
Balance at January 31,
1996................... 12,259,614 12 6,922,633 7 17,302 (362) (12,417) 4,542
Issuance of common
stock under stock
option plan........... -- -- 1,465,750 1 997 (592) -- 406
Repurchase of common
stock at cost and
payments on promissory
notes ................ -- -- (315,792) -- (92) 109 -- 17
Payment of promissory
note.................. -- -- -- -- -- 23 -- 23
Net loss............... -- -- -- -- -- -- (788) (788)
---------- --- ---------- --- ------- ----- -------- ------
Balance at January 31,
1997................... 12,259,614 $12 8,072,591 $ 8 $18,207 $(822) $(13,205) $4,200
========== === ========== === ======= ===== ======== ======
</TABLE>
See accompanying notes.
F-5
<PAGE>
NEOMAGIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................... $(4,791) $(6,869) $ (788)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 308 528 813
Changes in operating assets and liabilities:
Accounts receivable............................. -- (138) (2,067)
Inventory....................................... -- (331) (4,906)
Other current assets............................ 54 (46) (163)
Other assets.................................... 10 (103) (482)
Accounts payable................................ 235 314 4,606
Accrued expenses and other...................... 1,471 232 (82)
------- ------- -------
Net cash used in operating activities.............. (2,713) (6,413) (3,069)
------- ------- -------
INVESTING ACTIVITIES
Purchases of property, plant, and equipment....... (917) (728) (3,105)
------- ------- -------
FINANCING ACTIVITIES
Proceeds from sale leaseback liability............ 929 1,243 1,689
Payments on lease liability....................... (278) (639) (966)
Proceeds from working capital line of credit...... -- 414 27,941
Payments on working capital line of credit........ -- -- (14,131)
Amounts held as restricted cash equivalents....... -- -- (2,224)
Net proceeds from issuances of noncumulative
convertible preferred stock...................... 7,337 8,047 --
Proceeds from issuance of common stock............ 14 51 446
------- ------- -------
Net cash provided by financing activities......... 8,002 9,116 12,755
------- ------- -------
Net increase in cash and cash equivalents......... 4,372 1,975 6,581
Cash and cash equivalents at beginning of period... 530 4,902 6,877
------- ------- -------
Cash and cash equivalents at end of period......... $ 4,902 $ 6,877 $13,458
======= ======= =======
Supplemental schedules of cash flow information
Cash paid during the year for:
Interest....................................... $ 81 $ 153 $ 1,045
Supplemental schedule of noncash investing and
financing activities:
Conversion of common stock to Series A preferred
stock............................................ $ 5 $ -- $ --
Issuance of common stock in exchange for
promissory notes................................. $ 162 $ 219 $ 592
</TABLE>
See accompanying notes.
F-6
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
NeoMagic Corporation (the "Company") was incorporated on May 26, 1993 in
California and reincorporated in Delaware on February 13, 1997. The Company
designs, develops and markets multimedia accelerator solutions for sale to
notebook PC manufacturers. The Company's MagicWare technology integrates large
DRAM memory with analog and logic circuitry to provide a high performance
multimedia solution on a single chip.
Basis of Presentation
As of January 1996, the Company adopted a fiscal reporting period consisting
of a fifty-two week period ending on the Sunday closest to the January month
end. Fiscal years 1995, 1996 and 1997 ended on January 31, 28, and 26,
respectively. For convenience, the accompanying financial statements have been
presented as ending on the last day of the calendar month.
Prior to fiscal 1997, the Company was in the development stage, primarily
engaged in product development, product testing and the establishment of
strategic relationships with customers and suppliers. Accordingly, the
majority of the Company's operating expenses during such period were related
to research and development activities.
Principals of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, NeoMagic Japan (KK) and NeoMagic
International. All significant intercompany balances and transactions have
been eliminated.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
All of the Company's products are currently manufactured by a company in
Japan under the terms of a five-year wafer supply agreement. The Company also
has entered into a five-year wafer supply agreement with another manufacturer
in Japan to commence production of the Company's next generation multimedia
accelerator products. NeoMagic does not expect that a significant portion of
the Company's wafer requirements will be met by the new manufacturer before
calendar 1998. The Company expects that, for the foreseeable future, each of
its products will be single source manufactured. A manufacturing disruption
experienced by either of the Company's manufacturing partners would impact the
production of the Company's products for a substantial period of time, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Under the wafer supply agreements, the Company must provide rolling 12-month
forecasts of anticipated purchases and place binding purchase orders four
months prior to shipment. This limits the Company's ability to react to
fluctuations in demand for its products, which can be unexpected and dramatic.
To the extent the Company cannot accurately forecast the number of wafers
required, it may have either a shortage or an excess supply of wafers, which
could have an adverse effect on the Company's financial condition and results
of operations.
F-7
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Foreign Currency Transactions
Foreign operations are measured using the U.S. dollar as the functional
currency. Accordingly, monetary accounts are measured using the foreign
exchange rate at the balance sheet date. Operating accounts and nonmonetary
balance sheet accounts are remeasured at the rate in effect at the date of
transaction. The effects of foreign currency remeasurement are reported in
current operations and have not been material to date.
Derivative Financial Instruments
The Company's wafer inventory purchases are priced in yen. The Company from
time to time enters into foreign currency forward contracts to minimize
foreign currency fluctuation exposures related to these firm purchase
commitments. The Company does not use derivative financial instruments for
speculative or trading purposes. The Company's accounting policies for these
instruments are based on the Company's designation of such instruments as
hedging transactions. The criteria the Company uses for designating an
instrument as a hedge include its effectiveness in risk reduction and one-to-
one matching of derivative instruments to underlying transactions. The
settlement dates of the forward contracts are no more than two months from the
date of contract. As of January 31, 1997 there were no outstanding forward
contracts. There were no significant gains or losses related to currency
forward contracts for fiscal 1995, 1996 and 1997.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid financial instruments, consisting
of investments in money market funds, commercial paper, and municipal bonds
with original maturities of 90 days or less at the time of acquisition.
Effective as of the beginning of fiscal 1995, the Company adopted Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("FAS 115"). Under FAS 115, management
classifies investments as available-for-sale or held-to maturity at the time
of purchase and periodically reevaluates such designations. Investments in
marketable equity securities and debt securities are classified as held-to-
maturity when the Company has the positive intent and ability to hold the
securities to maturity. Held-to-maturity securities are stated at amortized
cost with corresponding premiums or discounts amortized to interest income
over the life of the investment. Debt securities not classified as held-to-
maturity are classified as available-for-sale and are reported at fair value.
Unrecognized gains or losses on available-for-sale securities are included,
net of tax, in stockholders' equity until their disposition. Realized gains
and losses and declines in value judged to be other than temporary on
available-for-sale securities are included in other income or expense. The
cost of securities sold is based on the specific identification method.
While the Company's intent is to hold debt securities to maturity, they are
classified as available-for-sale because the sale of such securities may be
required prior to maturity. All are stated at cost, which approximates fair
market value as of January 31, 1996 and 1997, and consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1997
----------- -----------
<S> <C> <C>
Cash equivalents:
Money market funds.................................... $ 61,000 $ 6,803,000
Commercial paper...................................... 6,479,000 6,594,000
Municipal bonds....................................... -- 800,000
---------- -----------
Total............................................... $6,540,000 $14,197,000
========== ===========
</TABLE>
The above amounts include $254,000 and $1,970,000 of money market funds and
commercial paper, respectively, classified as restricted cash equivalents as
of January 31, 1997.
F-8
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Gross unrealized gains and losses on available-for-sale securities at
January 31, 1996 and 1997 and gross realized gains and losses on sales of
available-for-sale securities during the years ended January 31, 1995, 1996
and 1997 were immaterial.
Inventory
Inventories are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are provided on a
straight-line basis over the estimated useful life of the respective assets,
generally three to five years or, in the case of property under capital
leases, over the lesser of the useful life of the assets or lease term.
Revenue Recognition
Revenue from product sales is recognized upon shipment, net of estimated
returns. Although the Company has made no sales to distributors to date, the
Company's policy is that revenue on shipment to distributors are deferred
until the products are sold by the distributor.
Concentration of Credit Risk
The Company sells its products to notebook PC OEMs as well as to third-party
subsystem manufacturers who design and manufacture notebook PC's on behalf of
the brand name OEMs. The Company performs continuing credit evaluations of its
customers and, generally, does not require collateral. Letters of credit may
be required from its customers in certain circumstances.
Research and Development Expenses
Expenditures for research and development are expensed as incurred. In
connection with the Company's product development efforts, it develops
software (none of which is separately sold) that enable the Company's
multimedia accelerator products to work with various personal computer
operating systems. The development of such software generally occurs in
parallel with the related accelerator product development and, accordingly, is
expensed as incurred.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). The Company adopted FAS 123 in fiscal 1997. The
Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25, and has adopted the "disclosure only"
alternative described in FAS 123.
Income Taxes
Income taxes are accounted for under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). Under this
method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates that will be in
effect when the differences are expected to reverse.
F-9
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net Loss Per Share and Pro Forma Net Loss Per Share
Except as noted below, net loss per share is computed using the weighted
average number of shares of common stock outstanding. Common equivalent shares
from convertible preferred stock (using the as-if-converted method) and from
stock options and warrants (using the treasury stock method) have been
excluded from the computation because their inclusion would be anti-dilutive,
except that pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, common and common equivalent shares issued by the
Company at prices below the initial public offering price during the twelve-
month period prior to the initial public offering have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method and the estimated initial public offering price). Per
share information calculated on this basis is as follows (in thousands except
per share information):
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net loss per share..................................... $(.60) $(.77) $(.08)
===== ===== =====
Shares used in computing net loss per share............ 7,926 8,863 9,296
</TABLE>
The pro forma calculation of net loss per share presented in the
consolidated statements of operations is computed as described above and also
gives effect to the conversion of all outstanding shares of convertible
preferred stock into common stock upon the closing of the Company's initial
public offering using the as-if-converted method.
Unaudited Pro Forma Stockholders' Equity
The Company's unaudited pro forma stockholders' equity as of January 31,
1997 gives effect to the conversion of all convertible preferred stock
outstanding into an aggregate of 12,259,614 shares of common stock, effective
upon the closing of the Company's initial public offering.
2. SUMMARIZED BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
JANUARY 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Inventory:
Raw materials....................................... $ 7,000 $ 464,000
Work in process..................................... 296,000 948,000
Finished goods...................................... 28,000 3,825,000
---------- ----------
Total................................................ $ 331,000 $5,237,000
========== ==========
Property, plant, and equipment:
Computer equipment and software..................... $1,677,000 $4,288,000
Furniture and fixtures.............................. 143,000 495,000
Machinery and equipment............................. 138,000 280,000
---------- ----------
Total................................................ 1,958,000 5,063,000
Less accumulated depreciation and amortization...... (855,000) (1,668,000)
---------- ----------
Property, plant, and equipment, net.................. $1,103,000 $3,395,000
========== ==========
Accrued Expenses:
Legal accrual....................................... $1,500,000 $ --
Compensation and related benefits................... 156,000 1,141,000
Deferred rent....................................... -- 255,000
Other accruals...................................... 67,000 221,000
---------- ----------
Total................................................ $1,723,000 $1,617,000
========== ==========
</TABLE>
F-10
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. WORKING CAPITAL LINE OF CREDIT
The Company maintains a revolving credit agreement ("Credit Agreement") with
Mitsubishi International. The Credit Agreement is used to provide 90 day
extended credit terms to finance wafer inventory purchases. Borrowings of up
to $15,000,000 under the Credit Agreement are permitted, with a compensating
balance requirement that the Company, unless otherwise notified by Mitsubishi
International, place amounts drawn in excess of $12,000,000 into an escrow
account accessible only with Mitsubishi International's approval. As of
January 31, 1997, $2,224,000 was held in escrow. For periods prior to January
31, 1997, the interest rate under the agreement was based on the lender's
internal interest rate which was required to be at least 1.5% below the prime
rate on the date of invoice, generally approximately thirty days after receipt
of the wafers. The Company also paid a commission of 1.25% to 2.00% based on
the lending level during the prior calendar quarter. The Credit Agreement has
been amended to provide (i) that effective January 1997, Mitsubishi
International's sole compensation for the financing of wafer purchases will be
a commission of 1.75% of wafer purchases and (ii) for 60 day extended credit
terms. The term of the Credit Agreement expires on November 20, 1997, subject
to automatic extensions thereafter from year to year unless a termination
notice is given by either party. Under the terms of the Credit Agreement,
Mitsubishi International maintains a security interest in all inventory, cash
and investments, and accounts and notes receivable of the Company. The Credit
Agreement contains standard events of default which if triggered can permit
Mitsubishi International to declare all amounts outstanding under the Credit
Agreement immediately due and payable. Such events of default include failure
to comply with the terms of the Credit Agreement, bankruptcy and default and
acceleration of any other indebtedness of the Company.
4. OBLIGATIONS UNDER CAPITAL LEASES
The Company enters into various capital leases, including sale and leaseback
transactions to finance purchases of property, plant and equipment, software
and masks. As of January 31, 1997, under various lease lines of credit, the
Company had $1,120,000 available for future purchases of property, plant and
equipment, software and masks that expire through June 30, 1997. Obligations
under capital leases represent the present value of future payments under the
equipment lease agreements. Under the terms of the lease agreements, warrants
to purchase the Company's preferred stock have been granted as described in
Note 6. Property, plant and equipment includes the following amounts for
leases that have been capitalized:
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
1996 1997
---------- -----------
<S> <C> <C>
Property, plant and equipment under capital leases. $1,710,000 $ 2,686,000
Accumulated amortization........................... (744,000) (1,474,000)
---------- -----------
Net property, plant and equipment under capital
leases............................................ $ 966,000 $ 1,212,000
========== ===========
</TABLE>
F-11
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum payments under capital leases consist of the following at
January 31, 1997:
<TABLE>
<S> <C>
Fiscal year ending January 31:
1998........................................................... $1,281,000
1999........................................................... 668,000
2000........................................................... 619,000
2001........................................................... 53,000
----------
Total minimum lease payments..................................... 2,621,000
Amount representing interest..................................... 397,000
----------
Present value of net minimum lease payments...................... 2,224,000
Less current portion............................................. 1,054,000
----------
Long-term portion................................................ $1,170,000
==========
</TABLE>
5. INCOME TAXES
As of January 31, 1996 and 1997, the Company had federal net operating loss
carryforwards of approximately $10,800,000 and $13,200,000, respectively. As
of January 31, 1996 and 1997 the Company also had state net operating loss
carryforwards of approximately $2,700,000 and $4,800,000, respectively. The
Company had federal research and development tax credit carryforwards of
approximately $200,000 and $300,000 at January 31, 1996 and 1997,
respectively. The net operating loss and credit carryforwards will expire
beginning in 1999 through 2012, if not utilized.
Utilization of the net operating losses and credits may be subject to an
annual limitation due to the ownership change provision of the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before
utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities for federal and state
income taxes are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 3,800,000 $ 4,800,000
Research credit carryforwards.................... 300,000 500,000
Capitalized research and development............. 200,000 400,000
Litigation reserve............................... 550,000 --
Other............................................ 150,000 --
----------- -----------
Total deferred tax assets...................... 5,000,000 5,700,000
Valuation allowance................................ (5,000,000) (5,700,000)
----------- -----------
Net deferred tax assets............................ $ -- $ --
=========== ===========
</TABLE>
The valuation allowance increased by $1,900,000, $2,800,000 and $700,000 for
the years ended January 31, 1995, 1996 and 1997, respectively.
F-12
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. STOCKHOLDERS' EQUITY
Noncumulative Convertible Preferred Stock
Preferred stock consists of the following:
<TABLE>
<CAPTION>
SHARES ISSUED AND
SHARES DESIGNATED OUTSTANDING
--------------------- ---------------------
JANUARY 31, JANUARY 31,
--------------------- ---------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Series A......................... 3,180,450 3,180,450 3,060,450 3,060,450
Series B......................... 2,631,199 2,631,199 2,539,999 2,539,999
Series C......................... 4,166,666 4,166,666 3,839,165 3,839,165
Series D......................... 2,890,000 2,890,000 2,820,000 2,820,000
---------- ---------- ---------- ----------
12,868,315 12,868,315 12,259,614 12,259,614
</TABLE>
The holder of each share of Series A, B, C, and D preferred stock is
entitled to receive, when and as declared by the Board of Directors,
noncumulative dividends at an annual rate equal to $.04, $.05, $.12, and $.228
per share, respectively. No dividends have been declared to date.
Each share of Series A, B, C, and D preferred stock is convertible, at the
holders' option, into common stock on a one-for-one basis, subject to certain
antidilution adjustments. Each share of preferred stock shall automatically be
converted into common stock immediately upon the closing of an underwritten
initial public offering of the Company's common stock for an aggregate
offering price of at least $15,000,000 and at a per share offering price of
not less that $4.25 per share. The preferred stockholders are entitled to one
vote for each share of common stock into which such shares can be converted.
The Series A, B, C, and D preferred stockholders are entitled to liquidation
preferences of $0.50, $0.625, $1.50, and $2.85 per share, respectively,
adjusted for any combinations, consolidations, or stock splits with respect to
such shares and, in addition, an amount equal to all declared but unpaid
dividends for each share of Series A, B, C, and D preferred stock then held.
If the assets and funds distributed among the holders of the Series A, B, C,
and D preferred stock is insufficient to permit the payment to such holders of
the full preferential amount, the entire assets and funds of the Company
legally available for distribution shall be distributed to the holders of the
Series A, B, C, and D preferred stock in proportion to the full preferential
amount each such holder is otherwise entitled to receive. After payment of
these liquidation preferences, the remaining assets will be distributed to the
holders of common stock and the preferred stock on a pro rata basis as if the
Series A, B, C, and D preferred stock were converted into common stock until
the holders of the Series D preferred stock have received an aggregate amount
equal to $3.28 per share, the holders of Series C preferred stock have
received an aggregate amount equal to $1.80 per share, and the holders of
Series A and B preferred stock have received an aggregate amount equal to $.81
per share. Any remaining amounts will be distributed to the holders of common
stock.
F-13
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Warrants
The Company periodically grants warrants in connection with certain lease
arrangements. The Company had the following warrants outstanding at January
31, 1997 to purchase shares of preferred stock:
<TABLE>
<CAPTION>
NUMBER OF PREFERRED EXERCISE PRICE DATE
SHARES STOCK SERIES PER SHARE ISSUED EXPIRATION OF WARRANTS
--------- ------------ -------------- ------ -------------------------------
<C> <C> <C> <C> <S>
120,000 A $0.50 11/93 November 2003
Later of November 2003 or five
48,000 B $0.625 11/93 years after IPO
Later of May 2001 or five years
43,200 B $0.625 5/94 after IPO
Later of August 2001 or five
36,666 C $1.50 7/94 years after IPO
Later of August 2001 or five
15,789 D $2.85 8/95 years after IPO
35,088 D $2.85 8/95 December 2001
18,000 D $5.70 6/96 December 2001
-------
316,743
</TABLE>
All of the outstanding warrants will become exercisable for common stock if
the Company completes an initial public offering of its common stock.
Stock Plan
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock awards because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("FAS 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation is recognized.
In July 1993, the Company adopted the 1993 Stock Plan (the "Plan") whereby
the Board of Directors may grant incentive stock options, nonstatutory stock
options and stock purchase rights to employees, consultants, and directors.
The Company has reserved 7,775,000 shares of common stock for issuance under
the Plan. Unless terminated sooner, the Plan will terminate automatically in
December 2003. Vesting provisions for stock purchase rights and options
granted under the Plan are determined by the Board of Directors. Stock options
expire no later than ten years from the date of grant. In the event of
voluntary or involuntary termination of employment with the Company for any
reason, with or without cause, all unvested options are forfeited and all
vested options must be exercised within a thirty-day period or they are
forfeited. Options and stock purchase rights are exercisable immediately upon
grant. However, common shares issued on exercise of options prior to vesting
are subject to repurchase by the Company if the holder is no longer employed
by the Company. As of January 31, 1997, 2,372,810 shares of common stock were
subject to this repurchase provision.
F-14
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the Company's stock option activity, and related information
for the three years ended January 31, 1997 follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE
(OPTIONS) PRICE
---------- --------
<S> <C> <C>
Balance at January 31, 1994 -- --
Granted................................................ 1,317,000 $ .07
Exercised.............................................. (969,480) .05
Canceled............................................... (30,000) .05
----------
Balance at January 31, 1995............................. 317,520 .15
Granted................................................ 1,448,100 .27
Exercised.............................................. (1,008,257) .26
Canceled............................................... (182,863) .22
----------
Balance at January 31, 1996............................. 574,500 .22
Granted................................................ 3,385,000 3.02
Exercised.............................................. (1,465,750) .61
Canceled............................................... (53,000) .77
----------
Balance at January 31, 1997............................. 2,440,750 $3.86
==========
</TABLE>
At January 31, 1997, options to purchase 57,125 shares of common stock were
vested at prices ranging from $.15 to $7.50 and 2,427,387 shares of common
stock were available for future grants under the Plan.
The following table summarizes information about stock options outstanding
at January 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND
EXERCISABLE
--------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE
------------------------ ----------- ----------- --------
<S> <C> <C> <C>
$0.15 -- $0.80......................... 995,250 9.01 $0.71
$1.00 -- $2.50......................... 212,000 9.51 1.33
$3.50 -- $7.50......................... 1,233,500 9.87 6.83
---------
2,440,750 9.49 $3.86
=========
</TABLE>
Pro forma information regarding net loss and net loss per share is required
by FAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
January 31, 1995 under the fair value method. The fair value for these options
was estimated at the date of grant using the minimum value method with the
following weighted-average assumptions for fiscal 1996 and 1997:
<TABLE>
<CAPTION>
YEARS
ENDING
JANUARY
31,
----------
1996 1997
---- ----
<S> <C> <C>
Risk-free interest rates...................................... 5.6% 6.3%
Dividend yield................................................ 0% 0%
Volatility.................................................... 0% 0%
Expected life of option in years.............................. 5.0 4.7
</TABLE>
F-15
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except for per share
information):
<TABLE>
<CAPTION>
YEARS ENDING
JANUARY 31,
--------------
1996 1997
------- -----
<S> <C> <C>
Pro forma net loss....................................... $(6,873) $(941)
Pro forma net loss per share............................. $ (.78) $(.10)
</TABLE>
The pro forma net loss per share above does not assume the conversion of
preferred stock effective upon the closing of the Company's initial public
offering.
The weighted average fair value of options granted during the years ended
January 31, 1996 and 1997 were $.06 and $.80, respectively.
Because FAS 123 is applicable only to options granted subsequent to January
31, 1995, its pro forma effect will not be fully reflected until fiscal 1999.
Proposed Public Offering of Common Stock
On October 10, 1996, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock in an
initial public offering. If the initial public offering is consummated as
presently anticipated, all of the currently outstanding preferred stock will
automatically convert into 12,259,614 shares of common stock. Unaudited pro
forma stockholders' equity at January 31, 1997 gives effect to the conversion
of 12,259,614 shares of convertible preferred stock into shares of common
stock upon the closing of the Company's initial public offering.
F-16
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
was adopted by the Board of Directors in December 1996. A total of 500,000
shares of common stock has been reserved for issuance under the 1997 Purchase
Plan. The 1997 Purchase Plan, which is intended to qualify under Section 423
of the Internal Revenue Code, is implemented by consecutive and overlapping
twenty-four month offering periods that begin every six months, commencing
after the completion of the initial public offering. Each twenty-four month
offering period includes four six-month purchase periods, during which payroll
deductions are accumulated and at the end of which shares of common stock are
purchased with a participant's accumulated payroll deductions, except for the
first such offering period which commences on the first trading day on or
after the effective date of the initial public offering. The 1997 Purchase
Plan permits eligible employees to purchase common stock through payroll
deductions of up to 10% of an employee's compensation. The price of common
stock to be purchased under the 1997 Purchase Plan will be 85% of the lower of
the fair market value of the common stock at the beginning of the offering
period or at the end of the relevant purchase period.
Common Stock
On January 28, 1997 the Company amended its Certificate of Incorporation
such that the authorized common stock became 60,000,000 shares.
Preferred Stock
On December 12, 1996, the Board of Directors approved an amendment to the
Certificate of Incorporation to allow, upon the completion of the initial
public offering, the issuance of up to 2,000,000 shares of preferred stock and
to determine the price, rights, preferences, privileges and restrictions,
including voting rights of those shares without any further vote or action by
the stockholders.
7. SAVINGS PLAN
The Company maintains a savings plan under Section 401(k) of the Internal
Revenue Code. Under the plan, employees may contribute up to 20% of their pre-
tax salaries per year, but not more than the statutory limits. The Company
does not contribute to the plan.
8. COMMITMENTS AND CONTINGENCIES
Commitments
In May 1996 the Company moved its principal headquarters to a new facility
in Santa Clara, California, under a noncancellable operating lease that
expires in April 2003. The Company also leases a sales office under an
operating lease that expires in February 1997. Future minimum lease payments
under operating leases at January 31, 1997 are as follows:
<TABLE>
<S> <C>
Fiscal year ending January 31:
1998............................................................ $ 779,000
1999............................................................ 830,000
2000............................................................ 857,000
2001............................................................ 884,000
2002............................................................ 911,000
Thereafter...................................................... 1,175,000
----------
Total minimum lease payments..................................... $5,436,000
==========
</TABLE>
F-17
<PAGE>
NEOMAGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense under operating leases was $70,000, $97,000 and $647,000, for
the years ended January 31, 1995, 1996 and 1997, respectively.
In fiscal 1997, the Company began subletting a portion of its main operating
facility under operating leases expiring through March 1998. As of January 31,
1997, future minimum rentals to be received under noncancelable subleases
totaled $268,000 and $42,000, for the years ending January 31, 1998 and 1999,
respectively. Rental income for the year ended January 31, 1997 was $175,000.
Contingencies
In November 1994, one of the Company's competitors (the "plaintiff") filed
an action against the Company, five of its employees, and its Chairman of the
Board of Directors. The plaintiff alleged that the Company interfered with
employment agreements, and misappropriated certain of the plaintiff's trade
secrets. In June 1996, the litigation was dismissed and no amounts were
required to be paid by the Company. The settlement agreement which gave rise
to the dismissal did however include a non-solicitation provision and certain
contingent cross-licensing provisions. In fiscal 1995 and 1996, the Company
recorded charges to operations totaling $1,500,000 and $610,000, respectively,
for estimated legal costs related to the litigation. In the second quarter of
fiscal 1997, due to the dismissal of the litigation, legal costs were reduced
by $1,503,000 due to the reversal of previously estimated legal fees.
In October 1996 the Company was notified by two of its customers that they
had received a letter from the holder of a United States patent asserting that
the video graphics subsystem in such customers' notebook PCs, which use the
Company's products, infringe certain claims of the patent. The Company
believes that these assertions are without merit.
9. SIGNIFICANT CUSTOMERS AND EXPORT SALES
For the year ended January 31, 1996, three customers accounted for 34.6%,
28.6% and 14.4%, respectively, of net sales. During the year ended January 31,
1997, three customers accounted for 31.6%, 19.8% and 14.6%, respectively, of
net sales. Net sales to customers in Asia-Pacific, Japan, and the United
States totaled 82%, 8% and 10%, respectively, of net sales for the year ended
January 31, 1996 and 61.7%, 34.5% and 3.8%, respectively, of net sales for the
year ended January 31, 1997.
F-18
<PAGE>
<PAGE>
[LOGO OF NEOMAGIC CORPORATION APPEARS HERE]
<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 Registrant in
connection with the sale of Common Stock being registered. All amounts are
estimates except the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
Printer Fee and Expenses.............................................. $200,000
Registration Fee...................................................... 10,455
NASD Fee.............................................................. 3,950
Nasdaq Listing Fee.................................................... 50,000
Legal Fees and Expenses............................................... 300,000
Accounting Fees and Expenses.......................................... 200,000
Blue Sky Fees and Expenses............................................ 10,000
Transfer Agent Fees................................................... 5,000
Miscellaneous......................................................... 120,595
--------
Total............................................................... $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach or
alleged breach of their duty of care. In addition, as permitted by Section 145
of the Delaware General Corporation Law, the Bylaws of the Registrant provide
that: (i) the Registrant is required to indemnify its directors and executive
officers and persons serving in such capacities in other business enterprises
(including, for example, subsidiaries of the Registrant) at the Registrant's
request, to the fullest extent permitted by Delaware law, including in those
circumstances in which indemnification would otherwise be discretionary; (ii)
the Registrant may, in its discretion, indemnify employees and agents in those
circumstances where indemnification is not required bylaw; (iii) the
Registrant is required to advance expenses, as incurred, to its directors and
executive officers in connection with defending a proceeding (except that it
is not required to advance expenses to a person against whom the Registrant
brings a claim for breach of the duty of loyalty, failure to act in good
faith, intentional misconduct, knowing violation of law or deriving an
improper personal benefit; (iv) the rights conferred in the Bylaws are not
exclusive, and the Registrant is authorized to enter into indemnification
agreements with its directors, executive officers and employees; and (v) the
Registrant may not retroactively amend the Bylaw provisions in a way that it
adverse to such directors, executive officers and employees.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum
indemnity allowed to directors and executive officers by Section 145 of the
Delaware General Corporation Law and the Bylaws, as well as certain additional
procedural protections. In addition, such indemnity agreements provide that
directors and executive officers will be indemnified to the fullest possible
extent not prohibited by law against all expenses (including attorney's fees)
and settlement amounts paid or incurred by them in any action or proceeding,
including any derivative action by or in the right of the Registrant, on
account of their services as directors or executive officers of the Registrant
or as directors or officers of any other Company or enterprise when they are
serving in such capacities at the request of the Registrant. The Company will
not be obligated pursuant to the indemnity agreements to indemnify or advance
expenses to an indemnified party with respect to proceedings or claims
initiated by the indemnified party and not
II-1
<PAGE>
by way of defense, except with respect to proceedings specifically authorized
by the Board of Directors or brought to enforce a right to indemnification
under the indemnity agreement, the Company's Bylaw/s or any statute or law.
Under the agreements, the Company is not obligated to indemnify the
indemnified party (i) for any expenses incurred by the indemnified party with
respect to any proceeding instituted by the indemnified party to enforce or
interpret the agreement, if a court of competent jurisdiction determines that
each of the material assertions made by the indemnified party in such
proceeding was not made in good faith or was frivolous; (ii) for any amounts
paid in settlement of a proceeding unless the Company consents to such
settlement; (iii) with respect to any proceeding brought by the Company
against the indemnified party for willful misconduct, unless a court
determines that each of such claims was not made in good faith or was
frivolous; (iv) on account of any suit in which judgment is rendered against
the indemnified party for an accounting of profits made from the purchase or
sale by the indemnified party of securities of the Company pursuant to the
provisions of (S) 16(b) of the Exchange Act and related laws; (v) on account
of the indemnified party's conduct which is finally adjudged to have been
knowingly fraudulent or deliberately dishonest, or to constitute willful
misconduct or a knowing violation of the law; (vi) an account of any conduct
from which the indemnified party derived an improper personal benefit; (vii)
on account of conduct the indemnified party believed to be contrary to the
best interests of the Company or its stockholders; (vii) on account of conduct
that constituted a breach of the indemnified party's duty of loyalty to the
Company or its stockholders; or (ix) if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.
The indemnification provision in the Bylaws and the indemnification
agreements entered into between the Registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
Registrant's officers and directors for liabilities arising under the
Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January, 1994, the Registrant has issued and sold the following
securities:
1. From February 1, 1994 to January 31, 1997, the Registrant has issued
and sold 3,443,487 shares of Common Stock to directors, employees and
consultants at prices ranging from $.025 to $3.50 per share upon exercise
of stock options and restricted stock purchase rights pursuant to the
Registrant's 1993 Stock Plan. Such issuances were made in reliance upon the
exemption from registration set forth in Rule 701 promulgated under the
Securities Act or Section 4(2) of the Securities Act.
2. On July 20, 1993 and September 16, 1993, the Company sold in the
aggregate 3,060,450 shares of Series A Preferred Stock to a group of 7
investors at a price per share of $.50 for aggregate cash consideration of
$1,530,225 and warrants to a group of 7 investors to purchase in the
aggregate 2,539,999 shares of Series B Preferred Stock at a purchase price
of $.0001 per warrant for aggregate cash consideration of $254 and an
exercise price of $.625 per warrant. Such issuances were made in reliance
upon the exemption contained in Section 4(2) of the Securities Act.
3. On February 11, 1994, the Company issued an aggregate of 10,250 shares
of Series A Preferred Stock to employees of the Company and Kamran Elahian
in exchange for an aggregate of 5,125,000 shares of Common Stock held by
such persons. Such issuances were made in reliance upon the exemption
contained in Section 4(2) of the Securities Act.
4. On March 4, 1994, the Company sold in the aggregate 4,989,000 shares
of Common Stock at a price per share of $.025 to five executive officers of
the Company in consideration of execution and delivery of promissory notes
to the Company in the aggregate principal amount of $124,725. Such
issuances were made in reliance upon the exemption contained in Section
4(2) of the Securities Act.
5. On March 10, 1994, the Company issued 2,539,999 shares of Series B
Preferred Stock to a group of 7 investors, at a price per share of $.625
for aggregate cash consideration of $1,587,499 pursuant to the exercise of
warrants issued on July 20, 1993 and September 16, 1993. Such issuances
were made in reliance upon the exemption contained in Section 4(2) of the
Securities Act.
6. On July 15, 1994, the Company sold in the aggregate 300,000 shares of
Common Stock at a purchase price of $.05 per share to an executive officer
of the Company in consideration of execution and
II-2
<PAGE>
delivery of promissory notes to the Company in the aggregate principal
amount of $124,725. Such issuance was made in reliance upon the exemption
from registration set forth in Rule 701 promulgated under the Securities
Act or Section 4(2) of the Securities Act.
7. On July 6, 1994 and August 30, 1994, the Company sold in the aggregate
3,839,165 shares of Series C Preferred Stock to a group of 16 investors at
a price per share of $1.50 to certain institutional and other accredited
investors for aggregate cash consideration of $5,758,747.50. Such issuances
were made in reliance upon the exemption contained in Section 4(2) of the
Securities Act.
8. On June 30, 1995 and August 10, 1995, the Company sold in the
aggregate 2,820,000 shares of Series D Preferred to a group of 34 investors
at a price per share of $2.85 to certain institutional and other accredited
investors for aggregate cash consideration of $8,037,000. Such issuances
were made in reliance upon the exemption contained in Section 4(2) of the
Securities Act.
9. On November 9, 1995, the Company sold in the aggregate 470,000 shares
of Common Stock of the Company to two employees of the Company at a price
per share of $.285 in consideration of execution and delivery of promissory
notes to the Company in the aggregate principal amount of $133,450. Such
issuances were made in reliance upon the exemption from registration set
forth in Rule 701 promulgated under the Securities Act or Section 4(2) of
the Securities Act.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view
to or sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and notes issued in such
transactions. All recipients either received adequate information about the
Registrant or had access, through employment or other relationships, to
such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Registrant.
3.2 Form of Amended and Restated Certificate of Incorporation of Registrant
to be filed upon the closing of the Offering made under the Registration
Statement.
3.3 Bylaws of Registrant.
4.1* Form of Registrant's Common Stock Certificate.
4.2+ Second Amended Rights Agreement, dated as of June 30, 1995, between
Registrant and the parties indicated therein.
4.3* Form of Stock Purchase Agreement between Registrant and MC Silicon
Valley, Inc.
4.4* Form of Stock Purchase Agreement between Registrant and Mitsubishi
International Corporation.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement entered into by Registrant with each
of its directors and executive officers.
10.2 Amended and Restated 1993 Stock Plan and related agreements.
10.3+ Second Amended and Restated Rights Agreement, dated as of June 30, 1995,
between Registrant and the parties indicated therein (included in
Exhibit 4.2).
10.4* Wafer Supply Agreement, dated as of January 21, 1997, between NeoMagic
International Corporation, actually-owned subsidiary of Registrant, and
Mitsubishi Electric Corporation.
10.5 Form of promissory note.
10.6 Lease Agreement, dated as of February 5, 1996, between Registrant and
A&P Family Investments, as landlord.
10.7 Sublease Agreement, dated as of June 25, 1996, between Registrant and
PlanetWeb, Inc.
10.8 Master Lease Agreement, as amended, dated as of November 24, 1993,
between Registrant and Comdisco, Inc., and certain exhibits thereto.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.9 Master Lease Agreement, dated as of July 19, 1995, between Registrant
and Venture Lending & Leasing, Inc., and certain exhibits thereto.
10.10+ Agreement, dated as of November 20, 1995, between Registrant and
Mitsubishi International Corporation as amended.
10.11+ General Security Agreement, dated November 15, 1995, between
Registrant and Mitsubishi International Corporation.
10.12+ Escrow Agreement, dated September 27, 1996, between Registrant and
Mitsubishi International Corporation.
10.13 1997 Employee Stock Purchase Plan, with exhibits thereto.
10.14** Settlement Agreement, dated as of March 8, 1996, by and between
Registrant and Cirrus Logic, Inc.
10.15** Wafer Supply Agreement, dated as of January 21, 1997, between NeoMagic
International Corporation, a wholly-owned subsidiary of Registrant,
and Toshiba Corporation.
10.16** Product Joint Development Agreement, dated as of January 21, 1997,
between NeoMagic International Corporation, a wholly-owned subsisiary
of Registrant and Toshiba Corporation.
10.17 Master Lease Agreement, dated as of June 28, 1996, between Registrant
and Venture Lending & Leasing, Inc., and certain exhibits thereto.
10.18 Sublease Agreement, dated as of June 11, 1996, between Registrant and
Juniper Networks, Inc.
11.1 Statement of computation of Net Loss Per Share and Pro Forma Net Loss
Per Share.
21.1+ Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors (See page II-7).
23.3 Consent of Townsend and Townsend and Crew (See page II-8).
24.1+ Power of Attorney.
27+ Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission. To be supplied by amendment.
+ Previously filed.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
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.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered 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 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.
II-4
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PALO ALTO, STATE OF
CALIFORNIA, ON THIS 25TH DAY OF FEBRUARY, 1997
Neomagic Corporation
/s/ Prakash C. Agarwal
By___________________________________
PRAKASH C. AGARWAL PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
Kamran Elahian * Chairman of the February 25, 1997
- ------------------------------------- Board
KAMRAN ELAHIAN
/s/ Prakash C. Agarwal President and Chief February 25, 1997
- ------------------------------------- Executive Officer
PRAKASH C. AGARWAL (Principal
Executive Officer)
/s/ Merle McClendon Vice President of February 25, 1997
- ------------------------------------- Finance and
MERLE MCCLENDON Administration,
Chief Financial
Officer (Principal
Financial and
Accounting Officer)
Brian Dougherty * Director February 25, 1997
- -------------------------------------
BRIAN DOUGHERTY
Irwin Federman * Director February 25, 1997
- -------------------------------------
IRWIN FEDERMAN
James Lally * Director February 25, 1997
- -------------------------------------
JAMES LALLY
Michael Moritz * Director February 25, 1997
- -------------------------------------
MICHAEL MORITZ
*By /s/ Merle McClendon
----------------------------------
MERLE MCCLENDON
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
CONSENT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 14, 1997, in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-20031) and related Prospectus of
NeoMagic Corporation for the registration of 3,664,000 shares of its Common
Stock.
/s/ Ernst & Young LLP
San Jose, California
February 25, 1997
II-7
<PAGE>
CONSENT OF TOWNSEND AND TOWNSEND AND CREW
We consent to the reference to our firm under the captions "Experts," "Risk
Factors--Uncertainty Regarding Patents and Protection of Proprietary Rights"
and "Business--Proprietary Rights" in the Registration Statement on Form S-1
and related Prospectus of NeoMagic Corporation.
Townsend and Townsend and Crew
/s/ Paul C. Haughey
By___________________________________
PAUL C. HAUGHEY, PARTNER
Palo Alto, California
January 16, 1997
II-8
<PAGE>
REPORT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of NeoMagic
Corporation as of January 31, 1996 and 1997 and for each of the three years in
the period ended January 31, 1997, and have issued our report thereon dated
February 14, 1997 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/Ernst & Young LLP
San Jose, California
February 14, 1997
S-1
<PAGE>
SCHEDULE II
NEOMAGIC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO
BEGINNING COST AND ACCOUNTS BALANCE AT
OF YEAR EXPENSE WRITTEN-OFF END OF PERIOD
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended January 31, 1995. -- -- -- --
Year ended January 31, 1996. -- -- -- --
Year ended January 31, 1997. -- $25 -- $25
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE
------- ------------------- -------------
<C> <S> <C>
1.1+ Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Registrant.
3.2 Form of Amended and Restated Certificate of
Incorporation of Registrant to be filed upon the
closing of the Offering made under the Registration
Statement.
3.3 Bylaws of Registrant.
4.1* Form of Registrant's Common Stock Certificate.
4.2+ Second Amended Rights Agreement, dated as of June 30,
1995, between Registrant and the parties indicated
therein.
4.3* Form of Stock Purchase Agreement between Registrant
and MC Silicon Valley, Inc.
4.4* Form of Stock Purchase Agreement between Registrant
and Mitsubishi International Corporation.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
10.1 Form of Indemnification Agreement entered into by
Registrant with each of its directors and executive
officers.
10.2 Amended and Restated 1993 Stock Plan and related
agreements.
10.3+ Second Amended and Restated Rights Agreement, dated as
of June 30, 1995, between Registrant and the parties
indicated therein (included in Exhibit 4.2).
10.4* Wafer Supply Agreement, dated as of January 21, 1997,
between NeoMagic International Corporation, a wholly-
owned subsidiary of Registrant, and Mitsubishi
Electric Corporation.
10.5 Form of promissory note.
10.6 Lease Agreement, dated as of February 5, 1996, between
Registrant and A&P Family Investments, as landlord.
10.7 Sublease Agreement, dated as of June 25, 1996, between
Registrant and PlanetWeb, Inc.
10.8 Master Lease Agreement, as amended, dated as of
November 24, 1993, between Registrant and Comdisco,
Inc., and certain exhibits thereto.
10.9 Master Lease Agreement, dated as of June 19, 1995,
between Registrant and Venture Lending & Leasing,
Inc., and certain exhibits thereto.
10.10+ Agreement, dated as of November 20, 1995, between
Registrant and Mitsubishi International Corporation as
amended.
10.11+ General Security Agreement, dated November 15, 1995,
between Registrant and Mitsubishi International
Corporation.
10.12+ Escrow Agreement, dated September 27, 1996, between
Registrant and Mitsubishi International Corporation.
10.13 1997 Employee Stock Purchase Plan, with exhibits
thereto.
10.14** Settlement Agreement, dated as of March 8, 1996, by
and between Registrant and Cirrus Logic, Inc.
10.15** Wafer Supply Agreement, dated as of January 21, 1997,
between NeoMagic International Corporation, a wholly-
owned subsidiary of Registrant, and Toshiba
Corporation.
10.16** Product Joint Development Agreement, dated as of
January 21, 1997, between NeoMagic International
Corporation, a wholly-owned subsidiary of Registrant,
and Toshiba Corporation.
10.17 Master Lease Agreement, dated as of June 28, 1996,
between Registrant and Venture Lending & Leasing,
Inc., and related agreements.
10.18 Sublease Agreement, dated as of June 11, 1996, between
Registrant and Juniper Networks, Inc.
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE
------- ------------------- -------------
<C> <S> <C>
11.1 Statement of computation of Net Loss Per Share and Pro
Forma Net Loss Per Share.
21.1+ Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors
(See page II-7).
23.3 Consent of Townsend and Townsend and Crew (See page
II-8).
24.1+ Power of Attorney (See page II-5).
27+ Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities Exchange Commission.
+ Previously filed
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
NEOMAGIC CORPORATION
FIRST: The name of the corporation is NeoMagic Corporation (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware, 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH: This Corporation is authorized to issue two classes of shares
designated Common Stock and Preferred Stock.
1. Authorization To Issue Two Classes. The Corporation is authorized to
----------------------------------
issue 25,000,000 shares of Common Stock, par value $0.001 per share (the "Common
Stock"), and 12,868,315 shares of Preferred Stock, par value $0.001 per share
(the "Preferred Stock"). The Preferred Stock may be issued from time to time in
one or more series. The first series shall be designated Series A Preferred
Stock ("Series A Preferred") and shall consist of 3,180,450 shares. The second
series shall be designated Series B Preferred Stock ("Series B Preferred") and
shall consist of 2,631,199 shares. The third series shall be designated Series
C Preferred Stock ("Series C Preferred") and shall consist of 4,166,666 shares.
The fourth series shall be designated Series D Preferred Stock ("Series D
Preferred") and shall consist of 2,890,000 shares. The relative rights,
preferences, privileges and restrictions granted to or imposed upon the
respective classes or series of Common Stock or Preferred Stock or the holders
thereof are set forth in succeeding provisions of this Fourth Article.
2. Rights, Preferences, Privileges and Restrictions. The rights,
------------------------------------------------
preferences, privileges and restrictions granted to or imposed upon the
respective classes or series of Common Stock or Preferred Stock or holders
thereof are as follows:
(a) Dividends. The holders of the Preferred Stock shall be entitled
---------
to receive, when and as declared by the Board of Directors, noncumulative
dividends at the rate of: (i) $0.04 per share per annum on each outstanding
share of Series A Preferred, (ii) $0.05 per share per annum on each outstanding
share of Series B Preferred, (iii) $0.12 per share per annum on each outstanding
share of Series C Preferred and (iv) $0.228 per share per annum on each
outstanding share of Series D Preferred, payable in each case quarterly as the
Board of Directors may from time to time
<PAGE>
determine out of funds legally available therefor. No dividends (other than
those payable solely in Common Stock) shall be declared or paid on any Common
Stock of the Corporation during any fiscal year of the Corporation until
dividends in the total amount of: (i) $0.04 per share on the Series A Preferred,
(ii) $0.05 per share on the Series B Preferred, (iii) $0.12 per share on the
Series C Preferred and (iv) $0.228 per share on the Series D Preferred shall
have been declared or paid and set apart during that fiscal year. No dividends
shall be paid on any share of Common Stock unless a dividend (including the
amount of any dividends paid pursuant to the above provisions of this Section
2(a)) is paid with respect to all outstanding shares of Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred in an amount for
each such share of Series A Preferred, Series B Preferred, Series C Preferred
and Series D Preferred equal to or greater than the aggregate amount of such
dividends for all shares of Common Stock into which each such share of Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred could
then be converted. No dividend shall be paid on or declared and set apart for
the shares of any series of Preferred Stock for any dividend period unless at
the same time a like proportionate dividend for the same dividend period,
ratably in proportion to the respective annual dividend rates fixed therefor,
shall be paid on or declared and set apart for the shares of all other series of
Preferred Stock. The right to such dividends on shares of the Preferred Stock
shall not be cumulative and no right shall accrue to holders of the Preferred
Stock by reason of the fact that dividends on said shares are not declared in
any prior year.
(b) Liquidation Preference. In the event of any liquidation,
----------------------
dissolution, or winding up of the Corporation, either voluntary or involuntary,
distributions to the shareholders of the Corporation shall be made in the
following manner:
(i) The holders of the Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds (the
"Proceeds") of the Corporation to the holders of the Common Stock by reason of
their ownership of such Preferred Stock, the amount of (i) $0.50 per share of
Series A Preferred (the "Original Series A Issue Price") then held by them, (ii)
$0.625 per share of Series B Preferred (the "Original Series B Issue Price")
then held by them, (iii) $1.50 per share of Series C Preferred (the "Original
Series C Issue Price") then held by them and (iv) $2.85 per share of Series D
Preferred (the "Original Series D Issue Price") then held by them, adjusted for
any combinations, consolidations or stock splits with respect to such shares
and, in addition, an amount equal to all declared but unpaid dividends on the
Series A Preferred, the Series B Preferred, the Series C Preferred and the
Series D Preferred, respectively. If the assets and funds thus distributed among
the holders of the Series A Preferred, Series B Preferred, Series C Preferred
and Series D Preferred shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amount (including dividends as set
forth above), then the entire assets and funds of the Corporation legally
available for distribution shall be distributed among the holders of the Series
A Preferred, Series B Preferred, Series C Preferred and Series D Preferred, in
proportion to the full preferential amount (including dividends as set forth
above) each such holder is otherwise entitled to receive.
-2-
<PAGE>
(ii) After payment has been made to the holders of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred of the
full amounts to which they shall be entitled as provided in Section 2(b)(i)
above, then the remaining Proceeds shall be paid as follows: the holders of the
Common Stock, the Series A Preferred, the Series B Preferred, the Series C
Preferred and the Series D Preferred shall share in the Proceeds on a pro rata
basis as if the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred were converted into Common Stock at the then applicable
Conversion Price for the Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred; provided, however, that the holders of Series
D Preferred shall share in the Proceeds only until the holders of Series D
Preferred shall have received an aggregate amount (including the amount received
pursuant to Section 2(b)(i) above) equal to $3.28 per share (plus an amount
equal to all declared but unpaid dividends on the Series D Preferred), the
holders of Series C Preferred shall share in the Proceeds only until the holders
of Series C Preferred shall have received an aggregate amount (including the
amount received pursuant to Section 2(b)(i) above) equal to $1.80 per share
(plus an amount equal to all declared but unpaid dividends on the Series C
Preferred), the holders of the Series B Preferred shall share in the Proceeds
only until the holders of Series B Preferred shall have received an aggregate
amount (including the amount received pursuant to Section 2(b)(i) above) equal
to $0.81 per share (plus an amount equal to all declared but unpaid dividends on
the Series B Preferred); and the holders of the Series A Preferred shall share
in the Proceeds only until the holders of Series A Preferred shall have received
an aggregate amount (including the amount received pursuant to Section 2(b)(i)
above) equal to $0.81 per share (plus an amount equal to all declared but unpaid
dividends on the Series A Preferred). If the assets and funds thus distributed
among the holders of the Common Stock, the Series A Preferred, the Series B
Preferred, the Series C Preferred and the Series D Preferred shall be
insufficient to permit the payment to such holders of the full aforesaid
amounts, then the assets and funds of the Corporation available for
distribution, after payment with respect to the Preferred Stock as provided in
Section 2(b)(i) above, shall be distributed ratably among the holders of Common
Stock, Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred in proportion to the full amounts each such holder is otherwise
entitled to receive pursuant to this Section 2(b)(ii).
(iii) After payment has been made to the holders of the Common
Stock, Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred of the full amounts to which they shall be entitled as provided in
Sections 2(b)(i) and (ii) above, the holders of the Common Stock shall be
entitled to receive ratably on a per-share basis all the remaining assets of the
Corporation.
(iv) A consolidation or merger of the Corporation with or into
any other corporation or corporations, or a sale of all or substantially all of
the assets of the Corporation, shall be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section 2(b), unless the shareholders
of the Corporation own more than fifty percent (50%) of the surviving entity.
(v) Any securities to be delivered to the holders of the
Preferred Stock pursuant to this Section 2(b) shall be valued as follows:
-3-
<PAGE>
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(i) 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 30-day period ending three (3) days prior to the closing;
(ii) 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 30-day period ending three (3) days prior to the closing;
and
(iii) 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 Preferred Stock which would be entitled to receive such
securities or the same type of securities and which Preferred Stock represents
at least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (i), (ii) or (iii) 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.
(vi) In the event the requirements of Section 2(b)(v) are not
complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until such time as the
requirements of this Section 2(b) have been complied with, or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the 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 Section 2(b)(vii) hereof.
(vii) The Corporation shall give each holder of record of
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 2(b), and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take
-4-
<PAGE>
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 are entitled to such notice rights or similar notice
rights and which represent at least a majority of the voting power of all then
outstanding shares of such Preferred Stock.
(viii) The provisions of this Section 2(b) are in addition to
the Restrictions and Limitations of Section 2(f) hereof.
(c) Voting Rights. The holder of each share of Preferred Stock shall
-------------
be entitled to the number of votes equal to the number of shares of Common Stock
into which such share of Preferred Stock could be converted and shall have
voting rights and powers equal to the voting rights and powers of the Common
Stock. The holder of each share of Preferred Stock shall be entitled to notice
of any shareholders' meeting in accordance with the Bylaws of the Corporation
and shall vote with holders of the Common Stock upon the election of directors
and upon any other matter submitted to a vote of shareholders, except in those
matters required by law or this Fourth Article to be submitted to a class vote.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula shall be rounded to the nearest whole
number (with one-half being rounded upward).
(d) Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
(i) Right to Convert.
----------------
(1) Voluntary Conversion. Subject to subsection (2)(d)(iii),
--------------------
each share of 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 Preferred Stock, into such number
of fully paid and nonassessable shares of this Corporation's Common Stock as is
determined by dividing the Original Series A Issue Price, the Original Series B
Issue Price, the Original Series C Issue Price or the Original Series D Issue
Price, as the case may be, by the Conversion Price at the time in effect for
each respective series. The initial Conversion Price per share for shares of
Series A Preferred shall be the Original Series A Issue Price, the initial
Conversion Price per share for shares of Series B Preferred shall be the
Original Series B Issue Price, the initial Conversion Price per share of Series
C Preferred shall be the Original Series C Issue Price and the initial
Conversion Price per share for shares of Series D Preferred shall be the
Original Series D Issue Price; provided, however, that these Conversion Prices
-----------------
for the Preferred Stock shall be subject to adjustment as set forth in
subsection 2(d)(iii).
(2) Automatic Conversion. Each share of the Preferred Stock
--------------------
shall automatically be converted into shares of Common Stock at the then
effective Conversion Price immediately upon the closing of the sale of the
Corporation's Common Stock in a firm commitment,
-5-
<PAGE>
underwritten public offering registered under the Securities Act of 1933, as
amended (the "Act"), at an offering price to the public equal to or exceeding
$4.25 per share of Common Stock (appropriately adjusted for any stock dividend,
stock split or combination, recapitalization, consolidation or the like of the
Common Stock) and resulting in aggregate gross proceeds to the Corporation which
equal or exceed $15,000,000.
(ii) Mechanics of Conversion. Before any holder of the Preferred
-----------------------
Stock shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for such stock, and
shall give written notice to the Corporation at such office that he or she
elects to convert the same and shall state therein the name or names in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of the Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he or she shall
be entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable in lieu of issuing fractional shares of Common Stock
pursuant to Section 2(d)(ix) hereunder and any declared but unpaid dividends on
the converted Preferred Stock to which the holder may be entitled. Except for a
conversion in connection with an underwritten offer of securities under the Act,
such conversion shall be deemed to have been made immediately prior to the close
of business on the date of surrender of the shares of the 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 on such date. In the
case of a conversion in connection with an underwritten offer of securities
under the Act, at the option of the holder of the Preferred Stock tendered for
conversion, the conversion may be conditioned upon the closing with the
underwriter or underwriters of the sale of securities pursuant to such offering,
and such conversion shall then be deemed to occur immediately prior to the
closing of such sale of securities.
(iii) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(1) Special Definitions. For purposes of this Section 2(d)(iii),
-------------------
the following definitions shall apply:
(a) "Options" shall mean rights, options or warrants to
-------
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(b) "Original Issue Date" shall mean the date on which this
-------------------
Certificate of Incorporation is accepted for filing by the Delaware Secretary of
State.
(c) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares (other than Common Stock) or other securities convertible
into or exchangeable for Common Stock.
-6-
<PAGE>
(d) "Additional Shares of Common Stock" shall mean all
-----------------------------------
shares of Common Stock issued (or, pursuant to Section 2(d)(iii)(3), deemed to
be issued) by the Corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable at any time:
(A) upon conversion of the Series A Preferred,
Series B Preferred, Series C Preferred or Series D Preferred;
(B) to officers, directors, and employees of, and
consultants to, the Corporation to be designated and approved by the Board of
Directors;
(C) in connection with commercial or financial
transactions (including in connection with settlement of disputes or
litigation), as approved by the Board of Directors;
(D) as a dividend or distribution on Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred or any
event for which adjustment is made pursuant to Section 2(d)(iii)(4) hereof;
(E) as a result of an adjustment pursuant to the
provisions of Section 2(d)(iii)(6) or Section 2(d)(iii)(8); or
(F) by way of dividend or other distribution on
shares of Common Stock excluded from the definition of Additional Shares of
Common Stock by the foregoing clauses (A), (B), (C), (D), (E) or this clause (F)
or on shares of Common Stock so excluded.
(2) No Adjustment of Conversion Price. No adjustment in the
---------------------------------
Conversion Price of a particular share of Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred shall be made under Section
2(d)(iii)(4) in respect of the issuance of Additional Shares of Common Stock
unless the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the Conversion
Price in effect on the date of, and immediately prior to such issue, for such
share of Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred, as the case may be.
(3) Deemed Issue of Additional Shares of Common Stock.
-------------------------------------------------
(a) Options and Convertible Securities. Except as
-----------------------------------
otherwise provided in Section 2(d)(iii)(2), in the event the Corporation at any
time, or from time to time, after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent
-7-
<PAGE>
adjustment of such number) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 2(d)(iii)(5) hereof) receivable by the Corporation upon
issuance of such Additional Shares of Common Stock would be less than the
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may, be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(I) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefore was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange; and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the
-8-
<PAGE>
Additional Shares of Common Stock deemed to have been then issued was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have been
received by the Corporation upon the issue of the Convertible Securities with
respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options.
(4) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock. In the event this Corporation shall issue Additional
- ----------------------
Shares of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 2(d)(iii)(3)) without consideration or for a
consideration per share less than the Conversion Price for Series A Preferred,
Series B Preferred, Series C Preferred or Series D Preferred (as the case may
be) in effect on the date of and immediately prior to such issue, then and in
such event, such Conversion Price of the respective Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price; and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; and provided further, that for the
purposes of this Section 2(d)(iii)(4), all shares of Common Stock issuable upon
conversion of outstanding Options and Convertible Securities (including the
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred) shall be deemed to be outstanding, and immediately after any
Additional Shares of Common Stock are deemed issued pursuant to Section
2(d)(iii)(3), such Additional Shares of Common Stock shall be deemed to be
outstanding.
(5) Determination of Consideration. For purposes of this
------------------------------
Section 2(d)(iii), the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property. Such consideration shall:
-----------------
-9-
<PAGE>
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(b) Options and Convertible Securities. The consideration
----------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 2(d)(iii)(3)(a), relating to
Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversions or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(6) Adjustments for Subdivisions, Combinations or Consolidations
------------------------------------------------------------
of Common Stock. In the event the outstanding shares of Common Stock shall be
- ---------------
subdivided (by stock split, stock dividend or otherwise), into a greater number
of shares of Common Stock, the Conversion Price for Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred then in effect shall,
concurrently with the effectiveness of such subdivision, be proportionately
decreased. In the event the outstanding shares of Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, the Conversion Price for Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred then in effect shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
-10-
<PAGE>
(7) Adjustments for Other Distributions. In the event the
-----------------------------------
Corporation at any time, or from time to time, makes or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the Corporation other than shares of
Common Stock and other than as otherwise adjusted in this Section 2(d), then and
in each such event provision shall be made so that the holders of Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Corporation which
they would have received had their Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred been converted into Common Stock on
the date of such event and had they thereafter, during the period from the date
of such event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 2(d) with respect
to the rights of the holders of the Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred.
(8) Adjustments for Reclassification, Exchange and
----------------------------------------------
Substitution. If the Common Stock issuable upon conversion of the Series A
- ------------
Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall
be changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for
above), the Conversion Price for Series A Preferred, Series B Preferred, Series
C Preferred and Series D Preferred then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted such that the Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
equivalent to the number of shares of Common Stock that would have been subject
to receipt by the holders upon conversion of the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred immediately before that
change.
(iv) No Impairment. The Corporation will not, by amendment of
-------------
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 2(d) and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(v) Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section
2(d), the 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 the Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of
-11-
<PAGE>
the Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (1) such applicable adjustments and readjustments, (2)
the applicable Conversion Price at the time in effect, and (3) 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 the Preferred Stock. Any
certificate sent to the holders of the Preferred Stock pursuant to this Section
2(d)(v) shall be signed by an officer of the Corporation.
(vi) Notices of Record Date. In the event of any taking by the
----------------------
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 or other distribution, any security or right convertible into or
entitling the holder thereof to receive Common Stock, or 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, the Corporation shall
mail to each holder of the 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, security
or right, and the amount and character of such dividend, distribution, security
or right.
(vii) Issue Taxes. The Corporation shall pay any and all issue and
-----------
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of the Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(viii) Reservation of Shares Issuable Upon Conversion. The Corporation
----------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the 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 Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(ix) Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of the Preferred Stock. If the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors of the Corporation). Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of 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.
-12-
<PAGE>
(x) Notices. Any notice required by the provisions of this
-------
Section 2(d) to be given to the holders of shares of the Preferred Stock shall
be deemed given if delivered personally or deposited in the United States mail,
first class postage prepaid, and addressed to each holder of record at his or
her other address appearing on the books of the Corporation.
(e) Restrictions and Limitations. In addition to any other rights
----------------------------
provided by law, so long as any Preferred Stock shall be outstanding, the
Corporation shall not, without the vote or written consent by the holders of not
less than a majority of the then outstanding shares of the Preferred Stock,
voting as a single class, take any of the following actions:
(i) Purchase or Redemption of Common Shares. The Corporation
---------------------------------------
shall not purchase, redeem or otherwise acquire (or pay into or set aside for a
sinking fund for such purpose), any of the Common Stock of the Corporation;
provided, however, that this restriction shall not apply to the repurchase of
shares of Common Stock from directors, officers, employees or consultants of the
Corporation or any subsidiary, at the initial purchase price thereof, or at such
other price as may be approved by the Board of Directors, upon termination of
their employment or services pursuant to agreements approved by the Board of
Directors between the Corporation and such persons providing for the right of
the Corporation to repurchase such shares.
(ii) Sale of Assets, Merger, Recapitalization, Reorganization,
--------------------------------------------------------
Liquidation or Dissolution. The Corporation shall not effect any sale or other
- --------------------------
conveyance of all or substantially all of the assets of the Corporation or any
of its subsidiaries, or any consolidation or merger involving the Corporation or
any of its subsidiaries if the Corporation shall not be the continuing or
surviving entity of such consolidation or merger, or any reclassification or
other change of any stock, or any recapitalization or reorganization, or any
liquidation or dissolution.
(iii) Payment of Dividends on Common Stock. The Corporation shall
------------------------------------
not pay any dividends with respect to the Common Stock.
(iv) Issue Other Senior Security. The Corporation shall not
---------------------------
authorize or issue, or obligate itself to issue, any other equity security
senior to or on a parity with the Series A Preferred, Series B Preferred, Series
C Preferred or Series D Preferred as to dividend rights, liquidation
preferences, conversion rights, voting rights or otherwise, or create any
obligation or security convertible into or exchangeable for, or having any
option rights to purchase, any such equity security which is senior to or on a
parity with the Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred.
(v) Increase Authorized Preferred Stock. The Corporation shall
-----------------------------------
not increase or decrease the aggregate number of authorized shares of Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred, other
than an increase pursuant to a stock split.
-13-
<PAGE>
(vi) Change Rights, Preferences, Privileges or Restrictions. The
------------------------------------------------------
Corporation shall not change adversely the rights, preferences, privileges or
restrictions of the Series A Preferred, Series B Preferred, Series C Preferred
or Series D Preferred.
(f) No Reissuance of Preferred Stock. No share or shares of the
--------------------------------
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
or repeal the Bylaws of the Corporation.
SIXTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation. The directors of the
Corporation need not be elected by written ballot unless a stockholder demands
election by written ballot at the meeting and before voting begins, or unless
the Bylaws so provide.
SEVENTH: At all elections of directors of the Corporation, each holder
of stock of any class or series of stock shall be entitled to as many votes as
shall equal the number of votes which such stockholder would be entitled to cast
for the election of directors with respect to his or her shares of stock
multiplied by the number of directors to be elected, and may cast all of such
votes for, or for any two or more of them as such stockholder may see fit.
EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this right.
NINTH: The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
-14-
<PAGE>
Any repeal or modification of this Article Ninth shall be prospective
and shall not affect the rights under this Article Ninth in effect at the time
of the alleged occurrence of any act or omission to act giving rise to liability
or indemnification.
-15-
<PAGE>
TENTH: The name and mailing address of the incorporator are:
Michael J. Danaher, Esq.
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
The undersigned incorporator hereby acknowledges that the foregoing
Certificate of Incorporation is the act and deed of such incorporator and that
the facts stated therein are true.
---------------------------------------------
Michael J. Danaher, Incorporator
-16-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
*****
NeoMagic Corporation, a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the unanimous
written consent of its members, filed with the minutes of the Board adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of NeoMagic Corporation be
amended by changing Section 1 of Article Fourth to read in its entirety as
follows:
"1. Authorization To Issue Two Classes. The Corporation is authorized to
----------------------------------
issue 60,000,000 shares of Common Stock, par value $0.001 per share (the
"Common Stock"), and 12,868,315 shares of Preferred Stock, par value $0.001
per share (the "Preferred Stock"). The Preferred Stock may be issued from
time to time in one or more series. The first series shall be designated
Series A Preferred Stock ("Series A Preferred") and shall consist of
3,180,450 shares. The second series shall be designated Series B Preferred
Stock ("Series B Preferred") and shall consist of 2,631,199 shares. The
third series shall be designated Series C Preferred Stock ("Series C
Preferred") and shall consist of 4,166,666 shares. The fourth series shall
be designated Series D Preferred Stock ("Series D Preferred") and shall
consist of 2,890,000 shares. The relative rights, preferences, privileges
and restrictions granted to or imposed upon the respective classes or
series of Common Stock or Preferred Stock or the holders thereof are set
forth in succeeding provisions of this Fourth Article."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholder of NeoMagic Corporation has given written consent to said amendment
in accordance with the provisions of Section 228 of the General Corporation Law
of the State of Delaware, and written notice of the adoption of the amendment
has been given as provided in Section 228 of the General Corporation Law of the
State of Delaware to the stockholders entitled to such notice.
<PAGE>
THIRD: That the aforesaid amendments was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by , Arthur F. Schneiderman, its Secretary, this 28th day of January,
1997.
/s/ARTHUR F. SCHNEIDERMAN
_________________________________
By: Arthur F. Schneiderman
Secretary
<PAGE>
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
NEOMAGIC CORPORATION
A DELAWARE CORPORATION
(Incorporated on December 19, 1996)
Prakash Agarwal hereby certifies that:
1. He is the sole director of NeoMagic Corporation, a Delaware
Corporation (the "Corporation").
2. The Corporation has not received any payment for any of its stock.
3. The Certificate of Incorporation of the Corporation, filed with
the Secretary of State of the State of Delaware on December 19, 1996, is hereby
amended and restated in its entirety to read as follows:
"FIRST: The name of the corporation is NeoMagic Corporation (the
"Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle, Delaware, 19801. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH: This Corporation is authorized to issue two classes of shares
designated Common Stock and Preferred Stock.
1. The Corporation is authorized to issue 60,000,000 shares of Common
Stock, par value $0.001 per share (the "Common Stock"), and 2,000,000 shares of
Preferred Stock, par value $0.001 per share (the "Preferred Stock").
2. The shares of Preferred Stock may be issued from time to time in
one or more series pursuant to a resolution or resolutions providing for such
issue duly adopted by the Board of Directors. The Board of Directors of the
Corporation is expressly authorized, by filing a certificate pursuant to the
applicable law of the State of Delaware, to: (i) establish from time to time
the number
<PAGE>
of shares to be included in each such series; (ii) fix the rights, preferences,
restrictions and designations of the shares of each such series, including but
not limited to the fixing or alteration of the dividend rights, dividend rate,
conversion rights, conversion rate, voting rights, rights and terms of
redemption (including sinking fund provisions), redemption price or prices,
voting rights and liquidation preferences of any series of Preferred Stock for
which no shares have been issued and are outstanding; (iii) increase number of
shares of any series at any time; and (iv) decrease the number of shares of any
series prior or subsequent to the issue of shares 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.
FIFTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter,
amend, or repeal the Bylaws of the Corporation.
SIXTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside of the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws of the Corporation. The directors of
the Corporation need not be elected by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins, or
unless the Bylaws so provide
SEVENTH: At all elections of directors of the Corporation, each
holder of stock of any class or series of stock shall be entitled to as many
votes as shall equal the number of votes which such stockholder would be
entitled to cast for the election of directors with respect to his or her shares
of stock multiplied by the number of directors to be elected, and may cast all
of such votes for, or for any two or more of them as such stockholder may see
fit.
EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this right.
NINTH: The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be
-2-
<PAGE>
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of this Article Ninth shall be prospective
and shall not affect the rights under this Article Ninth in effect at the time
of the alleged occurrence of any act or omission to act giving rise to liability
or indemnification.
-3-
<PAGE>
TENTH: The name and mailing address of the incorporator are:
Michael J. Danaher, Esq.
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
4. The foregoing Restated Certificate of Incorporation has been duly
approved by the board of directors of the Corporation in accordance with the
provisions of Sections 241 and 245 of the Delaware General Corporation Law.
The undersigned hereby acknowledges that the foregoing Restated
Certificate of Incorporation is his act and deed and that the facts stated
herein are true.
Executed at Santa Clara, California, this _____ day of March, 1997.
- ------------------------------
Prakash Agarwal
President
-4-
<PAGE>
Exhibit 3.3
BYLAWS
------
OF
--
NEOMAGIC CORPORATION
--------------------
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be fixed in the certificate
of incorporation of the corporation.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the first day
of April in each year at 11:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
2.3 SPECIAL MEETING
---------------
<PAGE>
A special meeting of the stockholders 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 stockholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting. No other person or
persons are permitted to call a special meeting.
If a special meeting is called by any person or persons other than the
board of directors, then the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the chairman of the board, the president, or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.6 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of stockholders called by action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings of stockholders shall be sent or otherwise given
in accordance with Section 2.6 of these bylaws not less than ten (10) 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 purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
(a) nominations for the election of directors, and
(b) business proposed to be brought before any stockholder meeting
may be made by the board of directors or proxy committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may
-2-
<PAGE>
nominate one or more persons for election as directors at a meeting or propose
business to be brought before a meeting, or both, only if such stockholder has
given timely notice in proper written form of their intent to make such
nomination or nominations or to propose such business. To be timely, such
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date specified in the corporation's proxy
statement released to stockholders in connection with the previous year's annual
meeting of stockholders; provided, however, that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the time of
the previous year's proxy statement, notice by the stockholder to be timely must
be so received a reasonable time before the solicitation is made. To be in
proper form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person
or persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve as director of
the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing
-3-
<PAGE>
on the books of the corporation or given by the stockholder to the corporation
for the purpose of notice. 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.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
------
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time and place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections
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217 and 218 of the General Corporation Law of Delaware (relating to voting
rights of fiduciaries, pledgors and joint owners, and to voting trusts and other
voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder and stockholders shall not be entitled to
cumulate their votes in the election of directors or with respect to any matter
submitted to a vote of the stockholders.
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
------------------------------------------
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the 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.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these bylaws.
2.11 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, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
2.12 ORGANIZATION
------------
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The president, or in the absence of the president, the chairman of the
board, or, in the absence of the president and the chairman of the board, one of
the corporation's vice presidents, shall call the meeting of the stockholders to
order, and shall act as chairman of the meeting. In the absence of the
president, the chairman of the board, and all of the vice presidents, the
stockholders shall appoint a chairman for such meeting. The chairman of any
meeting of stockholders shall determine the order of business and the procedures
at the meeting, including such matters as the regulation of the manner of voting
and the conduct of business. The secretary of the corporation shall act as
secretary of all meetings of the stockholders, but in the absence of the
secretary at any meeting of the stockholders, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.14 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.15 ACTION BY CONSENT OF STOCKHOLDERS
---------------------------------
Unless otherwise restricted by the certificate of incorporation, any action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were
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<PAGE>
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
2.16 INSPECTORS OF ELECTION
----------------------
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (1) or more shareholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (1) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
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ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
to any limitations in the certificate of incorporation or these bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than five (5)
nor more than nine (9). The exact number of directors shall be six (6) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than six (6) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to fill
a vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the
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<PAGE>
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum). Each director so elected
shall hold office until the next annual meeting of the stockholders and until a
successor has been elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, if and so long as stockholders of the corporation are entitled to
cumulative voting, if less than the entire board is to be removed, no director
may be removed without cause if the votes cast against his
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<PAGE>
removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting of the board, 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 participating
directors shall be deemed to be present in person at the meeting.
3.7 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors. If
any regular meeting day shall fall on a legal holiday, then the meeting shall be
held at the same time and place on the next succeeding full business day.
3.8 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least forty-
eight (48) hours before the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated either to the director or
to a person at the office of the director who the person giving the notice has
reason to believe will promptly communicate it to the director. The notice need
not specify the purpose or the place of the meeting, if the meeting is to be
held at the principal executive office of the corporation.
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3.9 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 3.12
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the quorum for that meeting.
3.10 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.11 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting of the board to another time and place.
3.12 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting of the board
need not be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.9 of these
bylaws, to the directors who were not present at the time of the adjournment.
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board of directors.
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3.14 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 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.15 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all
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of the corporation's property and assets, (iv) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution or (v) amend the
bylaws of the corporation; and, unless the board resolution establishing the
committee, the bylaws or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the following provisions of Article III of these bylaws:
Section 3.6 (place of meetings; meetings by telephone), Section 3.8 (regular
meetings), Section 3.9 (special meetings; notice), Section 3.10 (quorum),
Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section 3.13
(notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
4.3 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The Corporate 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 (however denominated), one or more assistant secretaries, a treasurer
and one or more assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 5.3 of these bylaws. Any
number of offices may be held by the same person.
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In addition to the Corporate Officers of the Company described above, there
may also be such Administrative Officers of the corporation as may be designated
and appointed from time to time by the president of the corporation in
accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
--------------------
The Corporate Officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to appoint,
such other Corporate Officers as the business of the corporation may require,
each of whom shall hold office for such period, have such power and authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.12 of
these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of a Corporate Officer under any contract of
employment, any Corporate 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 a Corporate Officer chosen by the board of directors, by any
Corporate Officer upon whom such power of removal may be conferred by the board
of directors.
Any Corporate 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 Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president may be
removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
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5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if present,
preside at meetings of the board of directors and exercise such other powers and
perform such other duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He
or she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she 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 perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the president, and if there is no chairman of
the board, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors, these bylaws, the president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the board of directors,
committees of directors and stockholders. The minutes shall show the time and
place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
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The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the
stockholders and of the board of directors required to be given by law or by
these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings
and shares. The books of account shall at all reasonable times be open to
inspection by any director for a purpose reasonably related to his position as a
director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He 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 as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, if any, or, if there is more than one, the assistant
secretaries in the order determined by the board of directors (or if there be no
such determination, then in the order of their election) shall, in the absence
of the secretary or in the event of his or her inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
-----------------------
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by
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the president or the board of directors in order to assist the Corporate
Officers in the furtherance of their duties. In the performance of such duties
and the exercise of such powers, however, such Administrative Officers shall
have limited authority to act on behalf of the corporation as the board of
directors shall establish, including but not limited to limitations on the
dollar amount and on the scope of agreements or commitments that may be made by
such Administrative Officers on behalf of the corporation, which limitations may
not be exceeded by such individuals or altered by the president without further
approval by the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing powers, authority and duties, all officers of
the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
-------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware as the same now exists or may hereafter
be amended, indemnify any person against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit,
or proceeding in which such person was or is a party or is threatened to be made
a party by reason of the fact that such person is or was a director or officer
of the corporation. For purposes of this Section 6.1, a "director" or "officer"
of the corporation shall mean any person (i) who is or was a director or officer
of the corporation, (ii) who is or was serving at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
Board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees) incurred
by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final
-17-
<PAGE>
disposition of such action, suit or proceeding shall be made only upon receipt
of an undertaking by the director or officer to repay all amounts advanced if it
should ultimately be determined that the director of officer is not entitled to
be indemnified under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be exclusive of
any other rights which such person may have or hereafter acquire under any
statute, provision of the corporation's Certificate of Incorporation, these
bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Article shall
not adversely affect any right or protection hereunder of any person in respect
of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware as the same now exists or
may hereafter be amended, to indemnify any person (other than directors and
officers) against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred in connection with
any threatened, pending or completed action, suit, or proceeding, in which such
person was or is a party or is threatened to be made a party by reason of the
fact that such person is or was an employee or agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) shall mean any person (i) who is or was an employee
or agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was 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 or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
-18-
<PAGE>
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine (and to make copies of) the
corporation's stock ledger, a list of its stockholders and its other books and
records for a purpose reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, if any, the president, any vice president, the
chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
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<PAGE>
7.5 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 stockholders of the
corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the record date
for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution which
person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize and empower any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
-20-
<PAGE>
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
------------------------------------------------
The shares of the corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
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 summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
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.
The corporation may issue the whole or any part of its shares as partly paid
and subject to call for the remainder of the consideration to be paid therefor.
Upon the face or back of each stock certificate issued to represent any such
partly paid shares, or upon the books and records of the corporation in the case
of uncertificated partly paid shares, the total amount of the consideration to
be paid therefor and the amount paid thereon shall be stated. Upon the
declaration of any dividend on fully paid shares, the corporation shall declare
a dividend upon partly paid shares of the same class, but only upon the basis of
the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional
-21-
<PAGE>
or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
that the corporation shall issue to represent such class or series of stock;
provided, however, that, except as otherwise provided in Section 202 of the
General Corporation Law of Delaware, in lieu of the foregoing requirements there
may be set forth on the face or back of the certificate that the corporation
shall issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, the designations, the preferences and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
8.6 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.6, no new certificates for shares shall
be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
------------------------------
The board of directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of 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.
8.8 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, as used in these bylaws, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both an entity and a natural person.
-22-
<PAGE>
ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote or by the board of directors of
the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power
to adopt, amend or repeal bylaws.
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 the filing of the operative written consent(s) shall be stated in
said book.
-23-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
NEOMAGIC CORPORATION
ADOPTION BY INCORPORATOR
------------------------
The undersigned person appointed in the Certificate of Incorporation to act
as the Incorporator of NeoMagic Corporation hereby adopts the foregoing bylaws,
comprising twenty-one (21) pages, as the Bylaws of the corporation.
Effective as of December ___, 1996.
-------------------------------------
Arthur F. Schneiderman
Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified, and
acting Secretary of NeoMagic Corporation and that the foregoing Bylaws,
comprising twenty-one (21) pages, were adopted as the Bylaws of the corporation
effective as of December ___, 1996, by the person appointed in the Certificate
of Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the
corporate seal this _____ day of December, 1996.
-------------------------------------
Arthur F. Schneiderman
Secretary
<PAGE>
BYLAWS
OF
NEOMAGIC CORPORATION
(a Delaware corporation)
<PAGE>
BYLAWS OF
NEOMAGIC CORPORATION
(a Delaware corporation)
TABLE OF CONTENTS
Page
ARTICLE I
CORPORATE OFFICES..................................................... 1
1.1 REGISTERED OFFICE............................................. 1
1.2 OTHER OFFICES................................................. 1
ARTICLE II
MEETINGS OF STOCKHOLDERS.............................................. 1
2.1 PLACE OF MEETINGS............................................. 1
2.2 ANNUAL MEETING................................................ 1
2.3 SPECIAL MEETING............................................... 1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.............................. 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
STOCKHOLDER BUSINESS.......................................... 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................. 3
2.7 QUORUM........................................................ 4
2.8 ADJOURNED MEETING; NOTICE..................................... 4
2.9 VOTING........................................................ 4
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.................... 5
2.11 PROXIES....................................................... 5
2.12 ORGANIZATION.................................................. 5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE......................... 6
2.14 WAIVER OF NOTICE.............................................. 6
2.15 ACTION BY CONSENT OF STOCKHOLDERS............................. 6
2.16 INSPECTORS OF ELECTION........................................ 6
ARTICLE III
DIRECTORS............................................................. 7
3.1 POWERS........................................................ 7
3.2 NUMBER OF DIRECTORS........................................... 7
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS...................... 8
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
----
3.4 RESIGNATION AND VACANCIES..................................... 8
3.5 REMOVAL OF DIRECTORS.......................................... 9
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE...................... 9
3.7 REGULAR MEETINGS.............................................. 9
3.8 SPECIAL MEETINGS; NOTICE..................................... 10
3.9 QUORUM....................................................... 10
3.10 WAIVER OF NOTICE............................................. 10
3.11 ADJOURNMENT.................................................. 10
3.12 NOTICE OF ADJOURNMENT........................................ 11
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............ 11
3.14 FEES AND COMPENSATION OF DIRECTORS........................... 11
3.15 APPROVAL OF LOANS TO OFFICERS................................ 11
ARTICLE IV
COMMITTEES........................................................... 12
4.1 COMMITTEES OF DIRECTORS...................................... 12
4.2 MEETINGS AND ACTION OF COMMITTEES............................ 12
4.3 COMMITTEE MINUTES............................................ 13
ARTICLE V
OFFICERS............................................................. 13
5.1 OFFICERS..................................................... 13
5.2 ELECTION OF OFFICERS......................................... 13
5.3 SUBORDINATE OFFICERS......................................... 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS.......................... 13
5.5 VACANCIES IN OFFICES......................................... 14
5.6 CHAIRMAN OF THE BOARD........................................ 14
5.7 PRESIDENT.................................................... 14
5.8 VICE PRESIDENTS.............................................. 14
5.9 SECRETARY.................................................... 15
5.10 CHIEF FINANCIAL OFFICER...................................... 15
5.11 ASSISTANT SECRETARY.......................................... 15
5.12 ADMINISTRATIVE OFFICERS...................................... 16
5.13 AUTHORITY AND DUTIES OF OFFICERS............................. 16
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued)
ARTICLE VI Page
----
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS......................................................... 16
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.................... 16
6.2 INDEMNIFICATION OF OTHERS.................................... 17
6.3 INSURANCE.................................................... 17
ARTICLE VII
RECORDS AND REPORTS.................................................. 18
7.1 MAINTENANCE AND INSPECTION OF RECORDS........................ 18
7.2 INSPECTION BY DIRECTORS...................................... 18
7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................. 18
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS............... 18
7.5 CERTIFICATION AND INSPECTION OF BYLAWS....................... 19
ARTICLE VIII
GENERAL MATTERS...................................................... 19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING....... 19
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS.................... 19
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED........... 19
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES............. 20
8.5 SPECIAL DESIGNATION ON CERTIFICATES.......................... 21
8.6 LOST CERTIFICATES............................................ 21
8.7 TRANSFER AGENTS AND REGISTRARS............................... 21
8.8 CONSTRUCTION; DEFINITIONS.................................... 21
ARTICLE IX
AMENDMENTS........................................................... 22
-iii-
<PAGE>
EXHIBIT 10.1
NEOMAGIC CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of
the ___ day of ________, 1997 by and between NeoMagic Corporation, a Delaware
corporation (the "COMPANY") and [__________________] ("INDEMNITEE").
RECITALS
--------
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitees to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify
---------------------------
to the fullest extent permitted by law if Indemnitee was or is or becomes a
party to or witness or other participant in, or are threatened to be made a
party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "CLAIM") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary
<PAGE>
of the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity (hereinafter an "INDEMNIFIABLE EVENT") against any and all
expenses (including attorneys' fees and all other costs, expenses and
obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any such action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if such settlement is approved
in advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on Indemnitees
as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "EXPENSES"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than twenty days after written demand by Indemnitees
therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agree to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commenced legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). The Indemnitee's obligation to reimburse the Company for
any Expense Advance shall be unsecured and no interest shall be charged thereon.
If there has not been a Change in Control (as defined in Section 10(c) hereof),
the Reviewing Party shall be selected by the Board of Directors, and if there
has been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
-2-
<PAGE>
(c) Change in Control. The Company agrees that if there
-----------------
is a Change in Control of the Company (other than a Change in Control which has
been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control) then, with respect to all
matters thereafter arising concerning the rights of Indemnitees to payments of
Expenses and Expense Advances under this Agreement or any other agreement or
under the Company's Certificate of Incorporation or Bylaws as now or hereafter
in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall
be selected by Indemnitees and approved by the Company (which approval shall not
be unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any
-----------------------------
other provision of this Agreement other than Section 9 hereof, to the extent
that Indemnitee has been successful on the merits or otherwise, including,
without limitation, the dismissal of an action without prejudice, in defense of
any action, suit, proceeding, inquiry or investigation referred to in Section
(1)(a) hereof or in the defense of any claim, issue or matter therein,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in
connection therewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance
-----------------------
all Expenses incurred by Indemnitee. The advances to be made hereunder shall be
paid by the Company to Indemnitee as soon as practicable but in any event no
later than twenty days after written demand by Indemnitee therefor to the
Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall,
--------------------------------
as a condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of
--------------------------------
this Agreement, the termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of
nolo contendere, or its equivalent, shall not create a presumption that
- ---------------
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law. In addition, neither the failure of the Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement
-3-
<PAGE>
of legal proceedings by Indemnitee to secure a judicial determination that
Indemnitee should be indemnified under applicable law, shall be a defense to
Indemnitee's claim or create a presumption that Indemnitee has not met any
particular standard of conduct or did not have any particular belief. In
connection with any determination by the Reviewing Party or otherwise as to
whether Indemnitee is entitled to be indemnified hereunder, the burden of proof
shall be on the Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by
------------------
the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company shall
give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitee's counsel in any such Claim at Indemnitee's expense and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee's counsel shall be
at the expense of the Company. The Company shall have the right to conduct such
defense as it sees fit in its sole discretion, including the right to settle any
claim against Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify
-----
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its Board of Directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its Board
of Directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 8(a) hereof.
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<PAGE>
(b) Nonexclusivity. The indemnification provided by this
--------------
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorpora tion, its Bylaws, any agreement,
any vote of stockholders or disinterested directors, the General Corporation Law
of the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable
--------------------------
under this Agreement to make any payment in connection with any Claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, Certificate of Incorporation, Bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee
---------------------
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee understands
and acknowledges that the Company has undertaken or may be required in the
future to undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
7. Liability Insurance. The Company shall, from time to time,
-------------------
make the good faith determination whether or not it is practicable for the
Company to obtain and maintain a policy or policies of insurance with reputable
insurance companies providing the officers and directors of the Company with
coverage for losses from wrongful acts, or to ensure the Company's performance
of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
directors' and officers' liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Company.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
-5-
<PAGE>
(a) Excluded Action or Omissions. To indemnify Indemnitee
----------------------------
for Expenses resulting from acts, omissions or transactions for which Indemnitee
is prohibited from receiving indemnification under this Agreement or applicable
law;
(b) Claims Initiated by Indemnitee. To indemnify or
------------------------------
advance expenses to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i) with respect to
actions or proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance policy
or under the Company's Certificate of Incorporation or Bylaws now or hereafter
in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if
the Board of Directors has approved the initiation or bringing of such Claim, or
(iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be;
(c) Lack of Good Faith. To indemnify Indemnitee for any
------------------
expenses incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee
--------------------------
for expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and
---------------------
no cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a consti tuent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees, agents or fiduciaries, so that if Indemnitee is or was a director,
officer, employee, agent or fiduciary of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, Indemnitee shall
stand in the same position under the provisions of this Agreement with respect
to the resulting or surviving corporation as Indemnitee would have with respect
to such constituent corporation if its separate existence had continued.
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<PAGE>
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control"
shall be deemed to have occurred if, on or after the date of this Agreement,
------------------------------------------
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company
acting in such capacity or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, becomes the "beneficial owner" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing more than 50% of the total voting power represented by the
---
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of related transactions) all or substantially all of the
Company's assets.
(d) For purposes of this Agreement, "Independent Legal
Counsel" shall mean an attorney or firm of attorneys, selected in accordance
with the provisions of Section 1(c) hereof, who shall not have otherwise
performed services for the Company or Indemnitees within the last three years
(other than with respect to matters concerning the rights of Indemnitees under
this Agreement, or of other indemnitees under similar indemnity agreements).
-7-
<PAGE>
(e) For purposes of this Agreement, a "Reviewing Party"
shall mean any appropriate person or body consisting of a member or members of
the Company's Board of Directors or any other person or body appointed by the
Board of Directors who is not a party to the particular Claim for which
Indemnitee are seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities"
shall mean any securities of the Company that vote generally in the election of
directors.
11. Counterparts. This Agreement may be executed
------------
in one or more counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee's counterclaims and cross-claims made in
such action), and shall be entitled to the advancement of Expenses with respect
to such action, unless, as a part of such action, a court having jurisdiction
over such action determines that each of Indemnitee's material defenses to such
action was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or
------
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given (a) five (5) days after deposit with
the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c)
one business day after the business day of deposit with Federal Express or
similar overnight courier, freight prepaid, or (d) one day after the
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<PAGE>
business day of delivery by facsimile transmission, if delivered by facsimile
transmission, with copy by first class mail, postage prepaid, and shall be
addressed if to Indemnitee, at the Indemnitee's address as set forth beneath
Indemnitee's signature to this Agreement and if to the Company at the address of
its principal corporate offices (attention: Secretary) or at such other address
as such party may designate by ten days' advance written notice to the other
party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be
------------
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitations, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
-------------
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification,
-------------------------
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
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21. No Construction as Employment Agreement. Nothing contained in
---------------------------------------
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NEOMAGIC CORPORATION
a Delaware corporation
By: __________________________________
Prakash Agarwal
Address: 3260 Jay Street
Santa Clara, California 95054
AGREED TO AND ACCEPTED BY:
_________________________________
Address: ______________________
______________________
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<PAGE>
EXHIBIT 10.2
NEOMAGIC CORPORATION
1993 STOCK PLAN,
(AS AMENDED AND RESTATED DECEMBER 12, 1996)
1. Purposes of the Plan. The purposes of this Stock Plan are:
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board in
accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means NeoMagic Corporation, a California corporation.
<PAGE>
(h) "Consultant" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Administrator.
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<PAGE>
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding options
are surrendered in exchange for options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or Stock
Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock Purchase
Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1993 Stock Plan, as amended and restated.
(y) "Restricted Stock" means shares of Common Stock acquired pursuant to a
grant of Stock Purchase Rights under Section 11 below.
(z) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
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<PAGE>
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of the
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 7,775,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be administered by
different Committees with respect to different groups of Service Providers.
(ii) Section 162(m). To the extent that the Administrator determines
it to be desirable to qualify Options granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a Committee of two or more "outside directors" within the
meaning of Section 162(m) of the Code.
4
<PAGE>
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be covered
by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Stock Purchase Right shall have declined
since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans established for
the purpose of qualifying for preferred tax treatment under foreign tax laws;
5
<PAGE>
(x) to modify or amend each Option or Stock Purchase Right (subject to
Section 15(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options. For purposes of this Section 6(a),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
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(i) No Service Provider shall be granted, in any fiscal year of the
Company, Options to purchase more than 2,000,000 Shares.
(ii) In connection with his or her initial service, a Service Provider
may be granted Options to purchase up to an additional 1,000,000 Shares which
shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant.
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(B) granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a per
Share exercise price of less than 100% of the Fair Market Value per Share on the
date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is granted,
the Administrator shall fix the period within which the Option may be exercised
and shall determine any conditions which must be satisfied before the Option may
be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
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<PAGE>
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting
of Options granted hereunder shall be tolled during any unpaid leave of absence.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence
of a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as
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<PAGE>
is specified in the Option Agreement to the extent the Option is vested on the
date of termination (but in no event later than the expiration of the term of
such Option as set forth in the Option Agreement). In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for twelve
(12) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider, the
Option may be exercised within such period of time as is specified in the Option
Agreement (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy out
for a payment in cash or Shares, an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either alone,
in addition to, or in tandem with other awards granted under the Plan and/or
cash awards made outside of the Plan. After the Administrator determines that
it will offer Stock Purchase Rights under the Plan, it shall advise the offeree
in writing or electronically, by means of a Notice of Grant, of the terms,
conditions and restrictions related to the offer, including the number of Shares
that the offeree shall be entitled to purchase, the price to be paid, and the
time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service with the Company for any reason (including death or Disability). The
purchase price for Shares repurchased pursuant to the Restricted Stock purchase
agreement shall be the original price paid by the purchaser and may be paid by
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<PAGE>
cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at a rate determined by the Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is exercised,
the purchaser shall have the rights equivalent to those of a shareholder, and
shall be a shareholder when his or her purchase is entered upon the records of
the duly authorized transfer agent of the Company. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised, except as provided in Section 13 of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify each Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Administrator in its discretion may provide for an
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<PAGE>
Optionee to have the right to exercise his or her Option until ten (10) days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable. In
addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Option or Stock Purchase
Right shall lapse as to all such Shares, provided the proposed dissolution or
liquidation takes place at the time and in the manner contemplated. To the
extent it has not been previously exercised, an Option or Stock Purchase Right
will terminate immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Stock Purchase
Right, the Optionee shall fully vest in and have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable. If an Option or
Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Option or Stock Purchase Right
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
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15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder approval
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise
of an Option or Stock Purchase Right unless the exercise of such Option or Stock
Purchase Right and the issuance and delivery of such Shares shall comply with
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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NEOMAGIC CORPORATION
1993 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
[25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates].
<PAGE>
Termination Period:
This Option may be exercised for thirty (30) days after Optionee ceases to be
a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for such longer period as provided in the Plan. In no event
shall this Option be exercised later than the Term/Expiration Date as provided
above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants to
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section
15(c) of the Plan, in the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option under Section
422 of the Code. However, if this Option is intended to be an Incentive Stock
Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d)
it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Secretary of the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
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3. Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan or;
(d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, AND (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set out
in the Notice of Grant, and may be exercised during such term only in accordance
with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to this
Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur regular federal
income tax liability upon exercise of a NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price. If the Optionee is an
Employee or a former Employee, the Company will be required to withhold from his
or her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time of
exercise.
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<PAGE>
(ii) Incentive Stock Option. If this Option qualifies as an ISO, the
Optionee will have no regular federal income tax liability upon its exercise,
although the excess, if any, of the Fair Market Value of the Exercised Shares on
the date of exercise over their aggregate Exercise Price will be treated as an
adjustment to alternative minimum taxable income for federal tax purposes and
may subject the Optionee to alternative minimum tax in the year of exercise. In
the event that the Optionee ceases to be an Employee but remains a Service
Provider, any Incentive Stock Option of the Optionee that remains unexercised
shall cease to qualify as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option on the date three (3) months and one (1)
day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one year, any
gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee
sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on
or before the later of (i) two years after the grant date, or (ii) one year
after the exercise date, the Optionee shall immediately notify the Company in
writing of such disposition. The Optionee agrees that he or she may be subject
to income tax withholding by the Company on the compensation income recognized
from such early disposition of ISO Shares by payment in cash or out of the
current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT
THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING AS A SERVICE PROVIDER AT
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<PAGE>
THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED
AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND
AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE
VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD,
FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: NEOMAGIC CORPORATION
_________________________________ ____________________________________
Signature By
_________________________________ ____________________________________
Print Name Title
_________________________________
Residence Address
_________________________________
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CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms and
conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_______________________________________
Spouse of Optionee
6
<PAGE>
EXHIBIT A
---------
1993 STOCK PLAN
EXERCISE NOTICE
NeoMagic Corporation
3260 Jay Street
Santa Clara, CA 95054
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ________________, 199__, the
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of NeoMagic Corporation (the "Company") under and
pursuant to the 1993 Stock Plan, as Amended and Restated (the "Plan") and the
Stock Option Agreement dated _____________, 19___ (the "Option Agreement"). The
purchase price for the Shares shall be $_____________, as required by the Option
Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse
tax consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing
<PAGE>
signed by the Company and Purchaser. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.
Submitted by: Accepted by:
PURCHASER: NEOMAGIC CORPORATION
_________________________________ _________________________________
Signature By
_________________________________ _________________________________
Print Name Its
Address: Address:
_________________________________ NeoMagic Corporation
_________________________________ 3260 Jay Street, Santa Clara, CA 95054
__________________________________
Date Received
2
<PAGE>
EXHIBIT B
---------
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between NeoMagic
Corporation, a California corporation ("Pledgee"), and _________________________
("Pledgor").
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option Agreement
dated ________ (the "Option"), between Pledgor and Pledgee under Pledgee's 1993
Stock Plan, as Amended and Restated, and Pledgor's election under the terms of
the Option to pay for such shares with his promis sory note (the "Note"),
Pledgor has purchased _________ shares of Pledgee's Common Stock (the "Shares")
at a price of $________ per share, for a total purchase price of $__________.
The Note and the obligations thereunder are as set forth in Exhibit C to the
Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant
to the California Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by certificate number
______, duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for use in
transferring all or a portion of the Shares to Pledgee if, as and when required
pursuant to this Security Agreement) shall be held by the Pledgeholder as
security for the repayment of the Note, and any extensions or renewals thereof,
to be executed by Pledgor pursuant to the terms of the Option, and the Pledge
holder shall not encumber or dispose of such Shares except in accordance with
the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter into
this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum of the
Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
b. Encumbrances. The Shares are free of all other encumbrances, defenses
and liens, and Pledgor will not further encumber the Shares without the prior
written consent of Pledgee.
c. Margin Regulations. In the event that Pledgee's Common Stock is now
or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the
<PAGE>
meaning of the regulations under Part 207 of Title 12 of the Code of Federal
Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making
any amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all payments
of principal and interest are made as they become due under the terms of the
Note, Pledgor shall have the right to vote all of the Shares pledged hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
stock dividend, reclassification, readjustment or other changes are declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
subscription Options or other rights or options shall be issued in connection
with the pledged Shares, such rights, Options and options shall be the property
of Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of this
Security Agreement in the event:
a. Payment of principal or interest on the Note shall be delinquent for a
period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the Option
or contained in this Security Agreement for a period of 10 days after written
notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have the
right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
2
<PAGE>
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of all
indebtedness secured hereby, at which time the remaining pledged stock shall be
promptly delivered to Pledgor, subject to the provisions for prior release of a
portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding
is instituted by or against it, or if a receiver is appointed for the property
of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the
entire amount unpaid on the Note shall become immediately due and payable, and
Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
Pledgeholder shall not be liable to any party for any of his acts, or omissions
to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the
enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms of
this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and governed
under the internal substantive laws, but not the choice of law rules, of
California.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
"PLEDGOR" _________________________________
Signature
_________________________________
Print Name
Address: _________________________________
_________________________________
"PLEDGEE" NeoMagic Corporation,
a California corporation
________________________________
Signature
________________________________
Print Name
________________________________
Title
"PLEDGEHOLDER" ________________________________
Secretary of
NeoMagic Corporation
4
<PAGE>
EXHIBIT C
---------
NOTE
$_______________ Santa Clara, California
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to NeoMagic Corporation, a
California corporation (the "Company"), or order, the principal sum of
_______________________ ($_____________), together with interest on the unpaid
principal hereof from the date hereof at the rate of _______________ percent
(____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal or
interest owing hereunder.
This Note is subject to the terms of the Option, dated as of ________________.
This Note is secured in part by a pledge of the Company's Common Stock under the
terms of a Security Agreement of even date herewith and is subject to all the
provisions thereof.
The holder of this Note shall have full recourse against the undersigned, and
shall not be required to proceed against the collateral securing this Note in
the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
____________________________________
____________________________________
<PAGE>
1993 STOCK PLAN, AS AMENDED AND RESTATED
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR IT
WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the 1993 Stock Plan, as Amended and Restated and
the Restricted Stock Purchase Agreement, attached hereto as Exhibit A-1, both of
which are made a part of this document. You further agree to execute the
attached Restricted Stock Purchase Agreement as a condition to purchasing any
shares under this Stock Purchase Right.
GRANTEE: NEOMAGIC CORPORATION
___________________________ ________________________________
Signature By
___________________________ ________________________________
Print Name Title
<PAGE>
EXHIBIT A-1
-----------
1993 STOCK PLAN, AS AMENDED AND RESTATED
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is a
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Admin istrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and the
Purchaser hereby agrees to purchase shares of the Company's Common Stock (the
"Shares"), at the per Share purchase price and as otherwise described in the
Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be paid
by delivery to the Company at the time of execution of this Agreement of cash, a
check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider for any or
no reason (including death or disability) before all of the Shares are released
from the Company's Repurchase Option (see Section 4), the Company shall, upon
the date of such termination (as reasonably fixed and determined by the Company)
have an irrevocable, exclusive option (the "Repurchase Option") for a period of
sixty (60) days from such date to repurchase up to that number of shares which
constitute the Unreleased Shares (as defined in Section 4) at the original
purchase price per share (the "Repurchase Price"). The Repurchase Option shall
be exercised by the Company by delivering written notice to the Purchaser or the
Purchaser's executor (with a copy to the Escrow Holder) AND, at the Company's
option, (i) by delivering to the Purchaser or the Purchaser's executor a check
in the amount of the aggregate Repurchase Price, or (ii) by cancelling an amount
of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase
Price, or (iii) by a combination of (i) and (ii) so that the combined payment
and cancellation of indebtedness equals the aggregate Repurchase Price. Upon
delivery of such notice and the payment of the aggregate Repurchase Price, the
Company shall become the legal and beneficial owner of the Shares being
repurchased and all
<PAGE>
rights and interests therein or relating thereto, and the Company shall have the
right to retain and transfer to its own name the number of Shares being
repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares
to be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. Release of Shares From Repurchase Option.
(a) _______________________ percent (______%) of the Shares shall be
released from the Company's Repurchase Option [one year] after the Date of Grant
and __________________ percent (______%) of the Shares [at the end of each month
thereafter], provided that the Purchaser does not cease to be a Service Provider
prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the Repurchase
Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option shall be
delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6 or
the transfer of the Shares to the Company or its assignees contemplated by this
Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the provi
sions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's Unreleased
Shares upon repurchase by the Company pursuant to the Repurchase Option, the
Purchaser shall, upon execution of this Agreement, deliver and deposit with an
escrow holder designated by the Company (the "Escrow Holder") the share
certificates representing the Unreleased Shares, together with the stock
assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
Agreement, the
2
<PAGE>
Company may require the spouse of Purchaser, if any, to execute and deliver to
the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or omit to
do with respect to holding the Unreleased Shares in escrow while acting in good
faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires unexercised
or a portion of the Shares has been released from the Repurchase Option, upon
request the Escrow Holder shall promptly cause a new certificate to be issued
for the released Shares and shall deliver the certificate to the Company or the
Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the rights
of a shareholder with respect to the Shares while they are held in escrow,
including without limitation, the right to vote the Shares and to receive any
cash dividends declared thereon. If, from time to time during the term of the
Repurchase Option, there is (i) any stock dividend, stock split or other change
in the Shares, or (ii) any merger or sale of all or substantially all of the
assets or other acquisition of the Company, any and all new, substituted or
additional securities to which the Purchaser is entitled by reason of the
Purchaser's ownership of the Shares shall be immediately subject to this escrow,
deposited with the Escrow Holder and included thereafter as "Shares" for
purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares and
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own tax
advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contem plated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements
3
<PAGE>
or representations of the Company or any of its agents. The Purchaser
understands that the Purchaser (and not the Company) shall be responsible for
the Purchaser's own tax liability that may arise as a result of the transactions
contemplated by this Agreement. The Purchaser understands that Section 83 of
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference between the purchase price for the Shares and the Fair
Market Value of the Shares as of the date any restrictions on the Shares lapse.
In this context, "restriction" includes the right of the Company to buy back the
Shares pursuant to the Repurchase Option. The Purchaser understands that the
Purchaser may elect to be taxed at the time the Shares are purchased rather than
when and as the Repurchase Option expires by filing an election under Section
83(b) of the Code with the IRS within 30 days from the date of purchase. The
form for making this election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY
AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal substantive laws, but
not the choice of law rules of California. This Agreement, subject to the terms
and conditions of the Plan and the Notice of Grant, represents the entire
agreement between the parties with respect to the purchase of the Shares by the
Purchaser. Subject to Section 15(c) of the Plan, in the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Agreement, the terms and conditions of the Plan shall prevail. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given by
either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be transferable
to any one or more persons or entities, and all covenants and agreements
hereunder shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of the Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(d) Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing
4
<PAGE>
any other provision of this Agreement. The rights granted both parties
hereunder are cumulative and shall not constitute a waiver of either party's
right to assert any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further documents or
instruments necessary or desirable to carry out the purposes or intent of this
Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE PROVIDER
AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING
SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: NEOMAGIC CORPORATION
_____________________________ _______________________________
Signature By
_____________________________ _______________________________
Print Name Title
5
<PAGE>
EXHIBIT A-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto
________________________________________________________________________________
________________ (__________) shares of the Common Stock of NeoMagic Corporation
standing in my name of the books of said corporation represented by Certificate
No. _____ herewith and do hereby irrevocably constitute and appoint
____________________________________________ to transfer the said stock on the
books of the within named corporation with full power of substitution in the
premises.
This Stock Assignment may be used only in accordance with the Restricted Stock
Purchase Agreement (the "Agreement") between________________________ and the
undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature:____________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT A-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
_____________, 19__
Corporate Secretary
NeoMagic Corporation
3260 Jay Street
Santa Clara, CA 95054
Dear _________________:
As Escrow Agent for both NeoMagic Corporation, a California corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred to
collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per calendar
year, unless the Company's Repurchase Option has been exercised, you shall
deliver to Purchaser a certificate or certificates representing so many shares
of stock as are not then subject to the Company's Repurchase Option. Within 90
days after Purchaser ceases to be a Service Provider, you shall deliver to
Purchaser a certificate or certificates representing the aggregate number of
shares held or issued pursuant to the Agreement and not purchased by the Company
or its assignees pursuant to exercise of the Company's Repurchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only by
a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the statute
of limitations with respect to these Joint Escrow Instructions or any documents
deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
2
<PAGE>
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection with
these Joint Escrow Instructions or obligations in respect hereto, the necessary
parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect to
the delivery and/or ownership or right of possession of the securities held by
you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon personal delivery or upon deposit in the
United States Post Office, by registered or certified mail with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: NeoMagic Corporation
3260 Jay Street, Santa Clara, CA 95054
PURCHASER: _______________________________________
---------------------------------------
---------------------------------------
ESCROW AGENT: Corporate Secretary
NeoMagic Corporation
3260 Jay Street, Santa Clara, CA 95054
16. By signing these Joint Escrow Instructions, you become a party hereto only
for the purpose of said Joint Escrow Instructions; you do not become a party to
the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
3
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed and
enforced in accordance with, the internal substantive laws, but not the choice
of law rules, of California.
Very truly yours,
NEOMAGIC CORPORATION
_____________________________________
By
_____________________________________
Title
PURCHASER:
_____________________________________
Signature
_____________________________________
Print Name
ESCROW AGENT:
_____________________________________
Corporate Secretary
4
<PAGE>
EXHIBIT A-4
-----------
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ___________________, have read and approve
the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of NeoMagic Corporation, as set forth in the Agreement, I hereby appoint
my spouse as my attorney-in-fact in respect to the exercise of any rights under
the Agreement and agree to be bound by the provisions of the Agreement insofar
as I may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________, 19____
__________________________________________
Signature of Spouse
<PAGE>
EXHIBIT A-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: __________ shares (the "Shares") of the Common Stock of NeoMagic
Corporation (the "Company").
3. The date on which the property was transferred is: ______________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on the
continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never lapse, of
such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, 19____ _______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ ________________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 10.5
EXHIBIT D
---------
PROMISSORY NOTE
$
- ------------------------------ Santa Clara, California
-----------------------
At the times hereinafter stated, for value received, the undersigned
promises to pay NeoMagic Corporation, a California corporation (the "Company"),
or order, at its principal office the principle sum of $ with interest
--------
from the date hereof at a rate of % per annum, compounded annually, on the
----
unpaid balance of said principal sum. Said principal and interest shall be due
and payable on .
----------------------
If the undersigned's consulting services to or employment by or
association with the Company is terminated prior to payment in full of this
Note, this Note shall be immediately due and payable.
Principal and interest are payable in lawful money of the United States
of America. AT ANY TIME, THE PRIVILEGE IS RESERVED TO PAY MORE THAN THE SUM
DUE.
Should suit be commenced to collect this Note or any portion thereof,
such sum as the Court may deem reasonable shall be added hereto as attorney's
fees. The makers and endorsers have severally waived presentment for payment,
protest, notice of protest, and notice of non-payment of this Note.
This Note, which is full recourse, is secured by a pledge of certain
shares of Common Stock of the Company and is subject to the terms of a
Restricted Stock Purchase Agreement between the undersigned and the Company of
even date herewith.
------------------------------------
[NAMES]
<PAGE>
EXHIBIT 10.6
[LOGO OF PERRY/ARRILLAGA APPEARS HERE]
June 18, 1996
Ms. Lori Holland
Chief Financial Officer
Neomagic Corporation
3260 Jay Street
Santa Clara, CA 95054
Re: ALTERATIONS TO LEASED PREMISES at 3260 Jay Street, Santa
Clara, California, Leased to Neomagic Corporation, a California
corporation, as Tenant, by A&P Family Investments, as Landlord, under
Lease Agreement dated February 5, 1996, as amended to date ("Lease")
Gentlemen:
This letter is written with regard to Tenant's request for Landlord's consent to
reconfigure the interior (first and second floors) of the above-leased Premises.
Exhibit A, reflecting said alterations, is attached hereto and is to be
- ---------
initialized by all parties.
Landlord has no objections to Tenant making these modifications; provided,
however, that all such modifications are subject to the provisions of Paragraph
8 ("Acceptance and Surrender of Premises") and Paragraph 9 ("Alterations and
Additions") of said Lease. Notwithstanding anything to the contrary in said
Lease, Tenant shall, upon the expiration or sooner termination of said Lease, at
Tenant's sole cost and expense, pay Landlord a fee in an amount equal to
Landlord's estimated cost to restore the modified Premises to the condition and
physical and systems configuration ("Configuration") that existed at the
commencement of said Lease. This fee shall be paid by Tenant to Landlord
regardless of whether or not Landlord elects to restore all or part of said
Premises as altered hereunder or Tenant may, at Tenant's sole cost and expense,
restore the modifications made hereunder prior to the termination of said Lease.
Notwithstanding anything to the contrary in said Lease, Tenant shall comply with
and shall be one hundred percent responsible for all costs and expenses related
to complying with any and all city or governmental permits, codes and/or
ordinances now and hereinafter in effect in relation to the approved
modifications including the subsequent restoration as stated above.
Landlord's approval of such modifications hereunder shall not be construed as
approval of any construction detail with respect to conformance to any
applicable City or governmental ordinance or code, and by approving such
modifications, Landlord assumes no liability or responsibility therefor, or for
any defect in any modification constructed by
<PAGE>
Tenant. Tenant shall be responsible for obtaining any and all permits, for said
initial alterations and for the subsequent reconfiguration, required by the
governing agencies and Tenant shall be responsible for one hundred percent of
all costs and expenses related thereto.
Tenant shall fully and completely indemnify and hold Landlord harmless from any
cost or expense, or claim, damage, or liability of any kind or nature whatsoever
which occurs as a result of, in connection with, or in any way relating to said
modifications to the Leased Premises as set forth herein.
Tenant shall, at Tenant's expense, have a professionally prepared sepia
reflecting the revised floor plan in 1/8 inch scale prepared and delivered to
Landlord no later than June 27, 1996.
Please execute this letter in the space provided below, and return all copies,
together with the attached Exhibit A, to Landlord by June 27, 1996. A completely
---------
executed copy shall be returned to Tenant by Landlord. This Consent to
Alterations shall be considered null and void unless: (i) returned to Landlord,
fully executed and without alteration, by June 27, 1996 and (ii) Tenant provides
Landlord with two (2) business days written notice of the scheduled commencement
of said work described herein. Thank you for your prompt attention to this
matter.
Respectfully yours,
A&P FAMILY INVESTMENTS
By /s/ Boyd C. Smith
----------------------------------
Boyd C. Smith
Date: 6/21/96
-------------------------------
AGREEMENT:
NEOMAGIC CORPORATION,
a California corporation
By /s/ Lori Holland
----------------------------
VP & CFO
- ------------------------------
Print or Type Name
Title Lori Holland
-------------------------
Date: 6/20/96
-------------------------
<PAGE>
LEASE AGREEMENT OWNER: 60
PROP: 605
UNIT: 1
TENANT: 60503
THIS LEASE, made this 5th day of February 19 96 between
------- ----------- ----
BOYD C. SMITH, Trustee, or his Successor Trustee, UTA dated 12/27/76 (RICHARD T.
- --------------------------------------------------------------------------------
PEERY 1976 CHILDREN TRUSTS) and LOUIS B. SULLIVAN, Trustee, or his Successor
- -------------------------------------------------------------------------------
Trustee, UTA dated 12/27/76 (JOHN ARRILLAGA 1976 CHILDREN TRUSTS) dba A&P FAMILY
- --------------------------------------------------------------------------------
INVESTMENTS, hereinafter called landlord, and NEOMAGIC CORPORATION, a California
- ----------- --------------------------------------
corporation, hereinafter called Tenant.
- -----------
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A"
attached hereto and incorporated herein by this reference thereto more
particularly described as follows
All of that certain 45,000+/- square foot, two-story building located at 3260
Jay Street, Santa Clara, California 95054. Said Premises is more particularly
shown within the area outlined in Red on Exhibit A attached hereto. The entire
parcel,
---------
of which the Premises is a part, is shown within the area outlined in Green on
Exhibit A attached. The Premises is leased on an "as-is" basis, in its
- ---------
present condition, and in the configuration as shown in Red on Exhibit B
---------
attached hereto.
As used herein the Complex shall mean and include all of the land outlined in
Green and described in Exhibit A attached hereto and all of the buildings,
improvements, fixtures and equipment now or hereafter situated on said land.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
-------
office, light manufacturing, research and development, and storage and other
- -------------------------------------------------------------------------------
uses necessary for Tenant to conduct Tenant's business, provided that such uses
- -------------------------------------------------------------------------------
shall be in accordance with all applicable governmental laws and ordinances,
- -------------------------------------------------------------------------------
and for no other purpose. Tenant shall not do or permit to be done in or about
the Premises or the Complex nor bring or keep or permit to be brought or kept in
or about the Premises or the Complex anything which is prohibited by or will in
any way increase the existing rate of (or otherwise affect) fire or any
insurance covering the Complex or any part thereof, or any of its contents, or
will cause a cancellation of any insurance covering the Complex or any part
thereof, or any of its contents. Tenant shall not do or permit to be done
anything in, on or about the Premises or the Complex which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Complex or injure or annoy them, or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in, on or about the Premises or the Complex. No
sale by auction shall be permitted on the Premises. Tenant shall not place any
loads upon the floors, walls, or ceiling, which endanger the structure, or place
any harmful fluids or other materials in the drainage system of the building, or
overload existing electrical or other mechanical systems. No waste materials or
refuse shall be dumped upon or permitted to remain upon any part of the Premises
or outside of the building in which the Premises a part, except in trash
containers placed inside exterior enclosures designated by Landlord for that
purpose or inside of the building proper where designated by Landlord. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to remain
outside the Premises or on any portion of common area of the Complex. No
loudspeaker or other speaker or other device, system or apparatus which can be
heard outside the Premises shall be used in or at the Premises without the prior
written consent of Landlord. Tenant shall not commit or suffer to be committed
any waste in or upon the Premises. Tenant shall indemnify, defend and hold
Landlord harmless against any loss, expense, damage, attorneys' fees or
liability arising out of failure of Tenant to comply with any applicable law.
Tenant shall comply with any covenant, condition or restriction ("CC&Rs")
affecting the Premises. The provisions of this paragraph are for the benefit of
Landlord only and shall not be construed to be for the benefit of any tenant or
occupant of the Complex.
2. TERM*
A. The term of this Lease shall be for a period of SEVEN, (7) years
----- ---
(unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2
(B) and 3, shall commence on the 1st day of May 1996 and end on the 30th day of
----- -------- ------
April, 2003.
- -----------
B. Subject to Paragraph 49, possession of the Premises shall be deemed
tendered and the term of this Lease shall commence on May 1, 1996.
3. POSSESSION. If Landlord, for any reason whatsoever, cannot deliver possession
of said premises to Tenant at the commencement of the said term, as hereinbefore
specified, this Lease shall not be void or voidable: no obligation of Tenant
shall be affected thereby, nor shall Landlord or Landlord's agents be liable to
Tenant for any loss or damage resulting therefrom: but in that 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, as specified in Paragraph 2(b), above. The above is however subject
to the provision that the period of delay, of delivery of the premises shall not
exceed 90 days from the commencement date herein (except those delays caused by
Acts of God, strikes, war, utilities, governmental bodies, weather, unavailable
materials, and delays beyond Landlord's control up to a maximum of 180 days
shall be excluded in calculating such period) in which instance Tenant, at its
option, may by written notice to Landlord, terminate this Lease.
*It is agreed in the event said Lease commences on a date other than the first
day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting partial
month will be pro-rated (for the number of days in the partial month) at the
Basic Rent scheduled for the projected commencement date as shown in Paragraph
43.
page 1 of 8
<PAGE>
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord
may designate without deduction, offset, prior notice, or demand, and Landlord
agrees to accept as Basic Rent for the leased Premises the total sum of FIVE
MILLION EIGHT HUNDRED THREE THOUSAND THREE HUNDRED TWELVE AND 50/100
($ 5,803,312.50) Dollars in lawful money of the United States of America,
payable as follows:
See Paragraph 43 for Basic Rent Schedule
B. Time for Payment. In the event that the term of this Lease commences on a
date other than the first day of a calendar month, on the date of commencement
of the term hereof Tenant shall pay to Landlord as rent for the period from such
date of commencement to the first day of the next succeeding calendar month that
proportion of the monthly rent hereunder which the number of days between such
date of commencement and the first day of the next succeeding calendar month
bears to thirty (30). In the event that the term of this Lease for any reason
ends on a date other than the last day of a calendar month, on the first day of
the last calendar month, of the term hereof Tenant shall pay to Landlord as rent
for the period from said first day of said last calendar month to and including
the last day of the term hereof that proportion of the monthly rent hereunder
which the number of days between said first day of said last calendar month and
the last day of the term hereof bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this Lease, if Tenant
is in default in the payment of rental as set forth in this Paragraph 4 when
due, or any part thereof. Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten (10%) percent of each rental payment so
in default.
D. Additional Rent. Beginning with the commencement date of the term of this
Lease. Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:
(a) Tenant's proportionate share of all Taxes relating to the Complete as set
forth in Paragraph 12, and
(b) Tenant's proportionate share of all insurance premiums relating to the
Complex, as set forth in Paragraph 15, and
(c) Tenant's proportionate share of expenses for the operation, management,
maintenance and repair of the Building (including common areas of the
Building) and Common Areas of the Complex in which the Premises are
located as set forth in Paragraph 7, and
(d) All charges, costs and expenses, which Tenant is required to pay
hereunder, together with all interest and penalties, costs and expenses
including attorney's fees and legal expenses, that may accrue thereto in
the event of Tenant's failure to pay such amounts, and all damages,
reasonable costs and expenses which Landlord may incur by reason of
default of Tenant or failure on Tenant's part to comply with the terms
of this Lease. In the event of nonpayment by Tenant of Additional Rent
Landlord shall have all the rights and remedies with respect thereto as
Landlord has for nonpayment of rent.
The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent
(i) within five days for taxes and insurance and within thirty (30) days for all
other Additional Rent Items after presentation of invoice from Landlord or
Landlord's agent selling forth such Additional Rent and/or (ii) at the option of
Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata
share of an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent items, which estimated amount shall
be reconciled within 120 days of the end of each calendar year or more
frequently if Landlord so elects to do so at Landlord's sole and absolute
discretion, as compared to Landlord's actual expenditure for said Additional
Rent items, with Tenant paying to Landlord, upon demand, any amount of actual
expenses expended by Landlord in excess of said estimated amount, or Landlord
refunding to Tenant (providing Tenant is not in default in the performance of
any of the terms, covenants and conditions of this Lease) any amount of
estimated payments made by Tenant in excess of Landlord's actual expenditures
for said Additional Rent items. Tenant shall have the right to review Landlord's
record's at a time convenient for Landlord at Landlord's office, that are
related to Additional Rent charges within 30 days of Tenant's receipt of notice
for additional amounts owed.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease, and
if the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.
E. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder
and all payments hereunder for Additional Rent shall be paid to Landlord at the
office of Landlord at A&P Family Investments, c/o Peery/Arrillaga, 2560 Mission
College Blvd., #101, Santa Clara, CA 95054 or to such other person or to such
other place as Landlord may from time to time designate in writing.
* F. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of ONE HUNDRED THIRTY EIGHT THOUSAND
AND NO/100 ($ 138,000.00) Dollars. Said sum shall be held by Landlord as a
Security Deposit for the faithful performance by Tenant of all of the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults with respect to any provision of this
Lease, including, but not limited to, the provisions relating to the payment of
rent and any of the monetary sums due herewith. Landlord may (but shall not be
required to) use, apply or retain all or any part of this Security Deposit for
the payment of any other amount which Landlord may spend by reason of Tenant's
default or to compensate Landlord for any other loss or damage which Landlord
may suffer by reason of 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 the amount sufficient to restore the
Security Deposit to its original amount. Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Deposit. If Tenant fully and faithfully performs
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder at the expiration of the Lease term
and after Tenant has vacated the Premises. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer said Deposit to
Landlord's successor in interest whereupon Tenant agrees to release Landlord
from liability for the return of such Deposit or the accounting therefor.
5. RULES AND REGULATIONS AND COMMON AREA Subject to the terms and
conditions of this Lease and such Rules and Regulations at Landlord may from
time to time prescribe, Tenant and Tenant's employees, invitees and customers
shall, in common with other occupants of the Complex in which the Premises are
located, and their respective employees, invitees and customers, and others
entitled to the use thereof, have the non-exclusive right to use the access
roads, parking areas, and facilities provided and designated by Landlord for the
general use and convenience of the occupants of the Complex in which the
Premises are located, which areas and facilities are referred to herein as
"Common Area". This right shall terminate upon the termination of this Lease.
Landlord reserves the right from time to time to make changes in the shape,
size, location, amount and extent of Common Area. Landlord further reserves the
right to promulgate such reasonable rules and regulations relating to the use of
the Common Area, and any part or parts thereof, as Landlord may deem appropriate
for the best interests of the occupants of the Complex. The Rules and
Regulations shall be binding upon Tenant upon delivery of a copy of them to
Tenant, and Tenant shall abide by them and cooperate in their observance. Such
Rules and Regulations may be amended by Landlord from time to time, with or
without advance notice, and all amendments shall be effective upon delivery of a
copy to Tenant. Landlord shall not be responsible to Tenant for the non-
performance by any other tenant or occupant of the Complex of any of said Rules
and Regulations.
Landlord shall operate, manage and maintain the Common Area. The manner
in which the Common Area shall be maintained and the expenditures for such
maintenance shall be at the discretion of Landlord.
* $69,000.00 due upon Lease execution
$69,000.00 Promissory Note due May 1, 1997
page 2 of 8
<PAGE>
6. PARKING Tenant shall have the right to use with other tenants or occupants
of the Complex 150 parking spaces in the common parking areas of the Complex.
Tenant agrees, that Tenant, Tenant's employees, agents, representatives and/or
invitees shall not use parking spaces in excess of said 150 spaces allocated to
Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion,
to specifically designate the location of Tenant's parking spaces within the
common parking areas of the Complex in the event of a dispute among the tenants
occupying the building and/or Complex referred to herein, in which event Tenant
agrees that Tenant, Tenant's employees, agents, representatives and/or invitees
shall not use any parking spaces other than those parking spaces specifically
designated by Landlord for Tenant's use. Said parking spaces, if specifically
designated by Landlord to Tenant, may be relocated by Landlord at any time, and
from time to time. Landlord reserves the right, at Landlord's sole discretion,
to rescind any specific designation of parking spaces, thereby returning
Tenant's parking spaces to the common parking area. Landlord shall give Tenant
written notice of any change in Tenant's parking spaces. Tenant shall not, at
any time, park, or permit to be parked, any trucks or vehicles adjacent to the
loading areas so as to interfere in any way with the use of such areas, nor
shall Tenant at any time park, or permit the parking of Tenant's trucks or other
vehicles or the trucks and vehicles of Tenant's suppliers or others, in any
portion of the common area not designated by Landlord for such use by Tenant.
Tenant shall not park not permit to be parked, any inoperative vehicles or
equipment on any portion of the common parking area or other common areas of the
Complex. Tenant agrees to assume responsibility for compliance by its employees
with the parking provision contained herein. If Tenant or its employees park in
other than such designated parking areas, then Landlord may charge Tenant, as an
additional charge, and Tenant agrees to pay, ten ($10.00) Dollars per day for
each day or partial day each such vehicle is parked in any area other than that
designated. Tenant hereby authorizes Landlord at Tenant's sole expense to tow
away from the Complex any vehicle belonging to Tenant or Tenant's employees
parked in violation of these provisions, or to attach violation stickers or
notices to such vehicles. Tenant shall use the parking areas for vehicle parking
only, and shall not use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE
COMPLEX As Additional Rent and in accordance with Paragraph 4D of this Lease,
Tenant shall pay to Landlord Tenant's proportionate share (calculated on a
square footage or other equitable basis as calculated by Landlord) of all
expenses of operation, management, maintenance and repair of the Common Areas of
the Complex including, but not limited to, license, permit, and inspection fees;
security; utility charges associated with exterior landscaping and lighting
(including water and sewer charges); all charges incurred in the maintenance of
landscaped areas, lakes, parking lots, sidewalks, driveways; maintenance, repair
and replacement of all fixtures and electrical, mechanical, and plumbing
systems; structural elements and exterior surfaces of the buildings; salaries
and employee benefits of personnel and payroll taxes applicable thereto;
supplies, materials, equipment and tools; the cost of capital expenditures which
have the effect of reducing operating expenses, provided, however, that in the
event Landlord makes such capital improvements, Landlord may amortize its
investment in said improvements (together with interest at the rate of fifteen
(15%) percent per annum on the unamortized balance) as an operating expense in
accordance with standard accounting practices, provided, that such amortization
is not at a rate greater than the anticipated savings in the operating expenses.
"Additional Rent" as used herein shall not include Landlord's debt repayments;
interest on charges; expenses directly or indirectly incurred by Landlord for
the benefit of any other tenant; cost for the installation of partitioning or
any other tenant improvements; cost of attracting tenants; depreciation;
interest, or executive salaries.
8. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder. Tenant accepts the
Premises as being in good and sanitary order, condition and repair and accepts
the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner
termination of this Lease, to surrender the Premises promptly and peaceably to
Landlord in good condition and repair (damage by Acts of God, fire, normal wear
and tear excepted), with all interior walls painted, or cleaned so that they
appear freshly painted, and repaired and replaced, if damaged; all floors
cleaned and waxed; all carpets cleaned and shampooed; the airconditioning and
heating equipment serviced by a reputable and licensed service firm and in good
operating condition (provided the maintenance of such equipment has been
Tenant's responsibility during the term of this Lease) together with all
alterations, additions, and improvements which may have been made in, to, or on
the Premises (except movable trade fixtures installed at the expense of Tenant)
except that Tenant shall ascertain from Landlord within thirty (30) days before
the end of the term of this Lease whether Landlord desires to have the Premises
or any part or parts thereof restored to their condition and configuration as
when the Premises were delivered to Tenant and if Landlord shall so desire, then
Tenant shall restore said Premises or such part or parts thereof before the end
of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of
the term or sooner termination of this Lease, shall remove all of Tenant's
personal property and trade fixtures from the Premises, and all property not so
removed on or before the end of the term or sooner terminaton of this Lease
shall be deemed abandoned by Tenant and title to same shall thereupon pass to
Landlord without compensation to Tenant. Landlord may, upon termination of this
Lease, remove all moveable furniture and equipment so abandoned by Tenant, at
Tenant's sole cost, and repair any damage caused by such removal at Tenant's
sole cost. If the Premises be not surrendered at the end of the term or sooner
termination of this Lease, Tenant shall indemnify Landlord against loss or
liability resulting from the delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding tenant founded
on such delay. Nothing contained herein shall be construed as an extension of
the term hereof or as a consent of Landlord to any holding over by Tenant. The
voluntary or other surrender of this Lease or the Premises by Tenant or a mutual
cancellation of this Lease shall not work as a merger and, at the option of
Landlord, shall either terminate all or any existing subleases or subtenancies
or operate as an assignment to Landlord of all or any such subleases or
subtenancies.
9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant, but at the cost of Tenant,
and any addition to, or alteration of, the Premises, except moveable furniture
and trade fixtures, shall at once become a part of the Premises and belong to
Landlord. Landlord reserves the right to approve all contractors and mechanics
proposed by Tenant to make such alterations and additions. Tenant shall retain
title to all moveable furniture and trade fixtures placed in the Premises. All
heating, lighting, electrical, airconditioning, floor to ceiling partitioning,
drapery, carpeting, and floor installations made by Tenant, together with all
property that has become an integral part of the Premises, shall not be deemed
trade fixtures. Tenant agrees that it will not proceed to make such alteration
or additions, without having obtained consent from Landlord to do so, and until
five (5) 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
shall, if required by Landlord, secure at Tenant's own cost and expense, a
completion and lien indemnity bond, satisfactory to Landlord, for such work.
Tenant further covenants and agrees that any mechanic's lien filed against the
Premises or against the Complex for work claimed to have been done for,or
materials claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at
the cost and expense of Tenant. Any exceptions to the foregoing must be made in
writing and executed by both Landlord and Tenant.
10. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary condition. Tenant's
maintenance and repair responsibilities herein referred to include, but are not
limited to, all windows, window frames, plate glass, glazing, truck doors,
plumbing systems (such as water and drain lines, sinks, toilets, faucets,
drains, showers and water fountains), electrical systems (such as panels,
conduits, outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating
and air-conditioning systems (such as compressors, fans, air handlers, ducts,
mixing boxes, thermostats, time clocks, boilers, heaters, supply and return
grills), store fronts, roofs, downspouts, all interior improvements within the
premises including but not limited to wall coverings, window coverings, carpet,
floor coverings, partitioning, ceilings, doors (both interior and exterior,
including closing mechanisms, latches, locks, skylights (if any), automatic fire
extinguishing systems, and elevators and all other interior improvements of any
nature whatsoever. Tenant agrees to provide carpet shields under all rolling
chairs or to otherwise be responsible for wear and tear of the carpet caused by
such rolling chairs if such wear and tear exceeds that caused by normal foot
traffic in surrounding areas. Areas of excessive wear shall be replaced at
Tenant's sole expense upon Lease termination. Tenant hereby waives all rights
under, and benefits of, subsection 1 of Section 1932 and Section 1941 and 1942
of the California Civil Code and under any similar law, statute or ordinance now
or hereafter in effect.
11. UTILITIES Tenant shall pay promptly, as the same become due, all charges for
water, gas, electricity, telephone, telex and other electronic communications
service, sewer service, waste pick-up and any other utilities, materials or
services furnished directly to or used by Tenant on or about the Premises during
the term of this Lease, including, without limitation, any temporary or
permanent utility surcharge or other exactions whether or not hereinafter
imposed.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
12. TAXES Tenant shall not be responsible for any Real Estate tax increase
related to tenant improvements constructed for another tenant's use outside the
Premises leased hereunder. A. As Additional Rent and in accordance with
Paragraph 4 D of this Lease, Tenant shall pay to Landlord Tenant's proportionate
share of all Real Property Taxes, which prorata share shall be allocated to the
leased premises by square footage or other equitable basis, as calculated by
Landlord. The term "Real Property Taxes", as used herein, shall mean (i) all
taxes, assessments, levies and other charges of any kind or nature whatsoever,
general and special, foreseen and unforeseen (including all installments of
principal and interest required to pay any general or special assessments for
public improvements and any increases resulting from reassessments XXXXX by
page 3 of 8
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any change in ownership of the Complex) now or hereafter imposed by any
governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against, or with respect to the value, occupancy or use of, all or any
portion of the Complex (as now constructed or as may at any time hereafter
be constructed, altered, or otherwise changed) or Landlord's interest therein;
any improvements located within the Complex (regardless of ownership); the
fixtures, equipment and other property of Landlord, real or personal, that are
an integral part of and located in the Complex; or parking areas, public
utilities, or energy within the Complex; (ii) all charges, levies or fees
imposed by reason of environmental regulation or other governmental control of
the Complex; and (iii) all costs and fees (including attorneys' fees) incurred
by Landlord in contesting any Real Property Tax and in negotiating with public
authorities as to any Real Property Tax. If at any time during the term of this
Lease the taxation or assessment of the Complex prevailing as of the
commencement date of this Lease shall be altered so that in lieu of or in
addition to any Real Property Tax described above there shall be levied,
assessed or imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value, use or occupancy of the Complex or
Landlord's interest therein or (ii) on or measured by the gross receipts, income
or rentals from the Complex, on Landlord's business of leasing the Complex, or
computed in any manner with respect to the operation of the Complex, then any
such tax or charge, however designated, shall be included within the meaning of
the term "Real Property Taxes" for purposes of this Lease, and if Landlord has
the option to either pay the entire assessment in cash or go to bond, and if
Landlord elects to pay the entire assessment in cash in lieu of going to bond,
the entire portion of the assessment assigned to Tenant's Leased Premises will
be prorated over the same period that the assessment would have been prorated
had the assessment gone to bond. If any Real Property Tax is based upon property
or rents unrelated to the Complex, then only that part of such real Property Tax
that is fairly allocable to the Complex shall be included within the meaning of
the term "Real Property Taxes." Notwithstanding the foregoing, the term "Real
Property Taxes" shall not include estate, inheritance, gift or franchise taxes
of Landlord or the federal or state net income tax imposed on Landlord's income
from all sources.
B. Taxes on Tenant's Property
(a) Tenant shall be liable for and shall pay ten days before delinquency, taxes
levied against any personal property or trade fixtures placed by Tenant in or
about the Premises. If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or if the assessed
value of the Premises is increased by the inclusion therein of a value placed
upon such personal property or trade fixtures of Tenant and if Landlord, after
written notice to Tenant, pays the taxes based on such increased assessment,
which Landlord shall have the right to do regardless of the validity thereof,
but only under proper protest if requested by Tenant, Tenant shall upon demand,
as the case may be, repay to Landlord the taxes so levied against Landlord, or
the proportion of such taxes resulting from such increase in the assessment;
provided that in any such event Tenant shall have the right, in the name of
Landlord and with Landlord's full cooperation, to bring suit in any court of
competent jurisdiction to recover the amount of any such taxes so paid under
protest, and any amount so recovered shall belong to Tenant.
(b) if the Tenant improvements in the Premises, whether installed, and/or
paid for by Landlord or Tenant and whether or not affixed to the real property
so as to become a part thereof, are assessed for real property tax purposes at a
valuation higher than the valuation at which standard office improvements in
other space in the Complex are assessed, then the real property taxes and
assessments levied against Landlord or the Complex by reason of such excess
assessed valuation shall be deemed to be taxes levied against personal property
of Tenant and shall be governed by the provisions of 12Ba above. If the records
of the County Assessor are available and sufficiently detailed to serve as a
basis for determining whether said Tenant improvements are assessed at a higher
valuation than standard office improvements in other space in the Complex, such
records shall be binding on both the Landlord and the Tenant. If the records of
the County Assessor are not available or sufficiently detailed to serve as a
basis for making said determination, the actual cost of construction shall be
used.
13. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general insurance with
combined single limit coverage of not less than Two Million Dollars ($2,000,000)
for injuries to or death of persons occurring in, on or about the Premises or
the Complex, and property damage insurance with limits of $500,000. The policy
or policies affecting such insurance, certificates of insurance of which shall
be furnished to Landlord, shall name Landlord as additional insureds, and shall
insure any liability of Landlord, contingent or otherwise, as respects to
insurable acts or omissions of Tenant, its agents, employees or invitees or
otherwise by any conduct or transactions of any of said persons in or about or
concerning the Premises, including any failure of Tenant to observe or perform
any of its obligations hereunder; shall be issued by an insurance company
admitted to transact business in the State of California; and shall provide that
the insurance effected thereby shall not be canceled, except upon thirty (30)
days' prior written notice to Landlord. If, during the term of this Lease, in
the considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this paragraph 13 is not adequate, Tenant
agrees to increase said coverage to such reasonable amount as Landlord's Lender,
insurance advisor or counsel shall deem adequate.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement insuring the personal
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full replacement value thereof. The proceeds from any of
such policies shall be used for the repair or replacement of such items so
insured.
Tenant shall also maintain a policy or policies of workman's compensation
insurance and any other employee benefit insurance sufficient to comply with all
laws.
15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as
Additional Rent and in accordance with Paragraph 4D of this Lease. Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the deductibles on insurance claims and the cost of
policy or policies of insurance covering loss or damage to the Premises and
Complex in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all
risks" insurance and flood and/or earthquake insurance, if available, plus a
policy of rental income insurance in the amount of one hundred (100%) percent of
twelve (12) months Basic Rent, plus sums paid as Additional Rent and any
deductibles related thereto. If such insurance cost is increased due to Tenant's
use of the Premises or the Complex, Tenant agrees to pay to Landlord the full
cost of such increase. Tenant shall have no interest in nor any right to the
proceeds of any insurance procured by Landlord for the Complex.
Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for loss
or damage caused by fire or any of the extended coverage casualties included in
the releasing party's insurance policies, irrespective of the cause of such fire
or casualty; provided, however, that if the insurance policy of either releasing
party prohibits such waiver, then this waiver shall not take effect until
consent to such waiver is obtained. If such waiver is so prohibited, the insured
party affected shall promptly notify the other party thereof.
16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises or the Complex by
or from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the Premises or the Complex but excluding, however, the willful
misconduct or negligence of Landlord, its agents, servants, employees, invitees,
or contractors of which negligence Landlord has knowledge and reasonable time to
correct. Except as to injury to persons or damage to property to the extent
arising from the willful misconduct or the negligence of Landlord, its agents,
servants, employees, invitees, or contractors. Tenant shall hold Landlord
harmless from and defend Landlord against any and all expenses, including
reasonable attorneys' fees, in connection therewith, arising out of any injury
to or death of any person or damage to or destruction of property occurring in,
on or about the Premises, or any part thereof, from any cause whatsoever.
17. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or
the admission of Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any such law, statute, ordinance
or governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. This paragraph shall not
be interpreted as requiring Tenant to make structural changes or improvements,
except to the extent such changes or improvements are required as a result of
Tenant's use of the Premises. 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 the Premises.
18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred by
Tenant. In the event that Tenant shall not, within ten (10) days following the
imposition of such lien, cause the same to be released of record. Landlord shall
have, in addition to all other remedies provided herein and by law, the right
but no obligation, to cause the same to be released by such means as it shall
deem proper, including payment of the claim giving rise to such lien. All sums
paid by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.
<PAGE>
19. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest herein, and
shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises, or any portion thereof, without, in each case, the prior written
consent of Landlord which consent will not be unreasonably withheld. As a
condition for granting this consent to any assignment, transfer, or subletting.
Landlord may require that Tenant agrees to pay to Landlord, as additional rent,
all rents or additional consideration receive by Tenant from its assignees,
transferees, or subtenants in excess of the rent payable by Tenant to Landlord
hereunder. Tenant shall first be entitled to recover from such excess rent the
amount of reasonable leasing commissions paid by Tenant to third parties not
affiliated with Tenant. Tenant shall, by thirty (30) days written notice, advise
Landlord of its intent to assign or transfer Tenant's interest in the Lease or
sublet the Premises or any portion thereof for any part of the term hereof.
Within thirty (30) days after receipt of said written notice, Landlord may, in
its sole discretion, elect to terminate this Lease as to the portion of the
Premises described in Tenant's notice on the date specified in Tenant's notice
by giving written notice of such election to terminate. If no such notice to
terminate is given to Tenant with said thirty (30) day period, Tenant may
proceed to locate an acceptable sublessee, assignee, or other transferee for
presentment to Landlord for Landlord's approval, all in accordance with the
terms, covenants, and conditions of this paragraph 19. If Tenant intends to
sublet the entire Premises and Landlord elects to terminate this Lease, this
Lease shall be terminated on the date specified in Tenant's notice. If, however,
this Lease shall terminate pursuant to the foregoing with respect to less than
all the Premises, the rent, as defined and reserved hereinabove shall be
adjusted on a pro rata basis to the number of square feet retained by Tenant,
and this Lease as so amended shall continue in full force and effect. In the
event Tenant is allowed to assign, transfer or sublet the whole or any part of
the Premises, with the prior written consent of Landlord, no assignee,
transferee or subtenant shall assign or transfer this Lease, either in whole or
in part, or sublet the whole or any part of the Premises, without also having
obtained the prior written consent of Landlord which consent shall not be
unreasonably withheld. A consent of Landlord to one assignment, transfer,
hypothecation, subletting, occupation or use by any other person shall not
release Tenant from any of Tenant's obligations hereunder or be deemed to be a
consent to any subsequent similar or dissimilar assignment, transfer,
hypothecation, subletting, occupation or use by any other person. Any such
assignment, transfer, hypothecation, subletting, occupation or use without such
consent shall be void and shall constitute a breach of this Lease by Tenant and
shall, at the option of Landlord exercised by written notice to Tenant,
terminate this Lease. The leasehold estate under this Lease shall not, nor shall
any interest therein, be assignable for any purpose by operation of law without
the written consent of Landlord which consent shall not be unreasonably
withheld. As a condition of its consent, Landlord may require Tenant to pay all
expenses in connection with the assignment, and Landlord may require Tenant's
assignee or transferee (or other assignees or transferees) to assume in writing
all of the obligations under this Lease and for Tenant to remain liable to
Landlord under the Lease.
20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender hereinafter referred to as ("Lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Notwithstanding any such subordination, Tenant's possession under this
Lease shall not be disturbed if Tenant is not in default and so long as Tenant
shall pay all rent and observe and perform all of the provisions set forth in
this Lease.
21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have, the right to enter
the Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to submit the Premises to prospective purchasers, mortgagers or
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises and any portion of the Complex, all without abatement of rent, and
may erect scaffolding and other necessary structures in or through the Premises
where reasonably required by the character of the work to be performed;
provided, however that the business of Tenant shall be interfered with to the
least extent that is reasonably practical. For each of the foregoing purposes,
Landlord shall at all times have and retain a key with which to unlock all of
the doors in an emergency in order to obtain entry to the Premises, and any
entry to the Premises obtained by Landlord by any of said means, or otherwise,
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof. Landlord shall
also have the right at any time to change the arrangement or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets or other public parts of the Complex and to change the name, number or
designation by which the Complex is commonly known, and none of the foregoing
shall be deemed an actual or constructive eviction of Tenant, or shall entitle
Tenant to any reduction of rent hereunder.
22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to; (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of the Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold
estate under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided, Tenant shall
have a period of five (5) days from the date of written notice from Landlord
within which to cure any default in the payment of rental or adjustment thereto.
Tenant shall have a period of thirty (30) days from the date of written notice
from Landlord within which to cure any other default under this Lease; provided,
however, that if the nature of Tenant's failure is such that more than thirty
(30) days is reasonably required to cure the same, Tenant shall not be in
default so long as Tenant commences performance within such thirty (30) day
period and thereafter prosecutes the same to completion. Upon an uncured
default of this Lease by Tenant. Landlord shall have the following rights and
remedies in addition to any other rights or remedies available to Landlord at
law or in equity:
(a). The rights and remedies provided for by California Civil Code Section
1951.2, including but not limited to, recovery of the worth at the time of award
of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of rental loss for the same period that Tenant
proves could be reasonably avoided, as computed pursuant to subsection (b) of
said Section 1951.2. Any proof by Tenant under subparagraph (2) and (3) of
Section 1951.2 of the California Civil Code of the amount of rental loss that
could be reasonably avoided shall be made in the following manner: Landlord and
Tenant shall each select a licensed real estate broker in the business of
renting property of the same type and use as the Premises and in the same
geographic vicinity. Such two real estate brokers shall select a third licensed
real estate broker, and the three licensed real estate brokers so selected shall
determine the amount of the rental loss that could be reasonably avoided from
the balance of the term of this Lease after the time of award. The decision of
the majority of said licensed real estate brokers shall be final and binding
upon the parties hereto.
(b). The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c). The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d). To the extent permitted by law, the right and power, to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord, may from time to time sublet the Premises
or any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its sole
discretion, may deem advisable, with the right to make alterations and repairs
to the Premises. Upon such subletting, (i) Tenant shall be immediately liable to
pay Landlord, in addition to indebtedness other than rent due hereunder, the
cost of such subletting, including, but not limited to reasonable attorneys'
fees, and any real estate commissions actually paid, and the cost of such
alterations and repairs incurred by Landlord and the amount, if any, by which
the rent hereunder for the period of such subletting (to the extent such period
does not exceed the term hereof) exceeds the amount to be paid as rent for the
Premises for such period or (ii)at the option of Landlord, rents received from
such subletting shall be applied first to payment of indebtedness other than
rent due hereunder from Tenant to Landlord; second, to the payment of any costs
of such subletting and of such alterations and repairs; third to 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 becomes due hereunder. If Tenant
has been credited with any rent to be received by such subletting under option
(i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or
if such rentals received from such subletting under option (ii) during any month
be less than that to be paid during that month by Tenant hereunder. Tenant shall
pay any such deficiency to Landlord. Such deficiency shall be calculated and
paid monthly. No taking possession of the Premises by Landlord shall be
construed as an election on its part to terminate this Lease unless a written
notice of such
<PAGE>
intention be given to Tenant. Notwithstanding any such subletting without
termination. Landlord may at any time hereafter elect to terminate this Lease
for such previous breach.
(e). The right to have a receiver appointed for Tenant upon application by
Landlord, to take possession of the Premises and to apply any rental collected
from the Premises and to exercise all other rights and remedies granted to
Landlord pursuant to subparagraph d. above.
23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease (except that Tenant may vacate so long as it pays
rent, provides an on-site security guard during normal business hours from
Monday through Friday, and otherwise performs its obligations hereunder) and if
Tenant shall abandon, vacate or surrender said Premises, or be dispossessed by
the 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.
24. DESTRUCTION In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental damage
and destruction caused from vandalism and accidents for which Tenant is
responsible for under Paragraph 10. Landlord may, as its option:
(a) Rebuild or restore the Premises to their condition prior to the damage or
destruction, or
(b) Terminate this Lease, (providing that the Premises is damaged to the
extent of 33 1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing within thirty (30) days
from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease. Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, promptly to rebuild or restore the Premises to their condition prior to
the damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premise. If
[xxxx] or restoration will exceed 180 day or Landlord does not complete the
rebuilding or restoration within one hundred eighty (180) days following the
date of destruction (such period of time to be extended for delays caused by the
fault or neglect of Tenant or because of Acts of God, acts of public agencies,
labor disputes, strikes, fires, freight embargoes, rainy or stormy weather,
inability to obtain materials, supplies or fuels, acts of contractors or
subcontractors, or delay of the contractors or subcontractors due to such causes
or other contingencies beyond the control of Landlord), then Tenant shall have
the right to terminate this Lease by giving fifteen (15) days prior written
notice to Landlord. Notwithstanding anything herein to the contray, Landlord's
obligation to rebuild or restore shall be limited to the building and interior
improvements constructed by Landlord as they existed as of the commencement date
of the Lease and shall not include restoration of Tenant's trade fixtures,
equipment, merchandise, or any improvements, alterations or additions made by
Tenant to the Premises, which Tenant shall forthwith replace or fully repair at
Tenant's sole cost and expense provided this Lease is not cancelled according to
the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly waives
the provisions of Section 1932. Subdivision 2. in Section 1933. Subdivision 4 of
the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33 1/3% of the replacement
cost thereof. Landlord may elect to terminate this Lease, whether the Premises
be injured or not. See Paragraph 48.
25. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business.
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any entity
or body having the right or power of condemnation of its intention to condemn
the premises or any portion thereof, or (ii) any of the foregoing events occur
with respect to the taking of any space in the Complex not leased hereby, or if
any such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue the use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any of such events Landlord
shall have the right to terminate this Lease by giving Tenant written notice
thereof within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed is so substantial that the Tenant
can no longer reasonably conduct its business, Tenant shall have the privilege
of terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.
26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Complex or any interest therein, by any owner of the reversion then constituting
Landlord, the transferor shall thereby be released from any further liability
upon any of the terms, covenants or conditions (express or implied) herein
contained in favor of Tenant provided that the transferee assumes in writing all
obligations hereunder, and in such event, insofar as such transfer is concerned,
Tenant agrees to look solely to the responsibility of the successor in interest
of such transferor in and to the Complex and this Lease. This Lease shall not be
affected by any such sale or conveyance, and Tenant agrees to attorn to the
successor in interest of such transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of power of sale at
private trustee's foreclosure sale. Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to Lease, this Lease
shall nonetheless continue in full force and effect for the remainder of the
unexpired term hereof, at the same rental herein reserved and upon all the other
terms, conditions and covenants herein contained.
28. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises (except as expressly
provided in this Lease. Any holding over after the expiration or other
termination of the term of this Lease, with the consent of Landlord, shall be
construed to be a tenancy from month to month, on the same terms and conditions
herein specified insofar as applicable except that the monthly Basic Rent shall
be increased to an amount equal to one hundred fifty (150%) percent of the
monthly Basic Rent required during the last month of the Lease term.
29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days' prior written notice to Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect for, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, 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 Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord, that there are no uncured defaults in
Landlord's performance, and that not more than one month's rent has been paid in
advance.
30. CONSTRUCTION CHANGES It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes, or
any changes in plans for any other portions of the Complex shall affect this
Lease or entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant. Landlord does not Guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM All items, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder within the time period allowed under this Lease or shall fail to
perform any other term or covenant hereunder on its part to be performed, and
such failure shall continue for five (5) days after written notice thereof by
Landlord. Landlord, without waiving or releasing Tenant from any obligation of
Tenant hereunder, may, but shall not be obligated to, make any such payment or
perform
page 6 of 8
<PAGE>
any such other term or covenant on Tenant's part to be performed. All sums so
paid by Landlord and all necessary costs of such performance by Landlord
together with interest thereon at the rate of the prime rate of interest per
annum as quoted by the Bank of America from the date of such payment or
performance by Landlord, shall be paid (and Tenant covenants to make such
payment) to Landlord on demand by Landlord, and Landlord shall have (in addition
to any other right or remedy of Landlord) the same rights and remedies in the
event of nonpayment by Tenant as in the case of failure by Tenant in the payment
of rent hereunder.
32. ATTORNEYS' FEES.
(A) In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provision of this Lease, or for any other relied
against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgement.
(B) Should Landlord be named as a defendant in any suit brought against Tenant
in connection with or arising out of Tenant's occupancy hereunder, Tenant shall
pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
33. WAIVER The waiver by either party of the other party's failure to perform or
observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such item,
covenant or condition or any subsequent failure of the party failing to perform
or observe the same or any other such term, covenant or condition therein
contained, and no custom or practice which may develop between the parties
hereto during the term hereof shall be deemed a waiver of, or in any way affect,
the right of either party to insist upon performance and observance by the other
party in strict accordance with the terms hereof.
34. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices, demands, requests, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at A&P Family Investments, c/o
---------------------------
Peery/Arrillaga, 2560 Mission College Blvd., #101, Santa Clara, CA, 95054. Each
- -------------------------------------------------------------------------
notice, request, demand, advice or designation referred to in this paragraph
shall be deemed received on the date of the personal service or mailing thereof
in the manner herein provided, as the case may be.
35. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
37. CORPORATE AUTHORITY If Tenant is a corporation, for a partnership each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (for partnership) in accordance with the
by-laws of said corporation for partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation for partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.
38.
39. LIMITATION OF LIABILITY In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in
the event of any actual or alleged failure, breach or default hereunder by
Landlord:
(i) the sole and exclusive remedy shall be against Landlord and
Landlord's assets;
(ii) no partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership);
(iii) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the
partnership);
(iv) no partner of Landlord shall be required to answer or otherwise
plead to any service of process;
(v) no judgment will be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be vacated and
set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(viii) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.
40. MISCELLANEOUS AND GENERAL PROVISIONS
a. Tenant shall not, without the written consent of Landlord, use the name
of the building for any purpose other than as the address of the business
conducted by Tenant in the Premises.
b. This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of California. If any provision of the
Lease shall be invalid, unenforceable or ineffective for any reason
whatsoever, all other provisions hereof shall be and remain in full force
and effect.
c. The term "Premises" includes the space leased hereby and any improvements
now or hereafter installed therein or attached thereto. The term "Landlord"
or any pronoun used in place thereof includes the plural as well as the
singular and the successors and assigns of Landlord. The term "Tenant" or
any pronoun used in place thereof includes the plural as well as the
singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted
assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used
in any gender include other genders. If there be more than on Tenant the
obligations of Tenant hereunder are joint and several. The paragraph
headings of this Lease are for convenience of reference only and shall have
no effect upon the construction or interpretation of any provision hereof.
d. Time is of the essence of this Lease and of each and all of its
provisions.
<PAGE>
e. At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after
written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in
the State of California, to remove the cloud or encumbrance created by this
Lease from the real property of which Tenant's Premises are a part.
f. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Landlord and Tenant relative to
the Premises and this agreement and the exhibits and attachments may be
altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves and their
agents or representatives relative to the leasing of the Premises are
merged in or revoked by this agreement.
g. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
h. Tenant further agrees to execute any amendments required by a lender to
enable Landlord to obtain financing, so long as Tenant's rights hereunder
are not substantially affected.
i. Paragraphs 43 through 50 are added hereto and are included as a part of
this lease.
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shutting off of light,
air or view by any structure which may be hereafter erected (whether or not
by Landlord) shall in any way affect his Lease, entitle Tenant to any
reduction of rent hereunder or result in any liability of Landlord to
Tenant.
41. BROKERS Tenant warrants that it had dealings with only the following real
estate brokers or agents in connection with the negotiation of this Lease: none
------
and that it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.
42. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on, or about the Premises, upon expiration or other sooner
termination of this Lease. Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs or lettering on outside doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the glass
of any window, door partition or wall which may appear unsightly from outside
the Premises.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
RICHARD T. PEERY 1976 CHILDREN TRUSTS NEOMAGIC CORPORATION,
a California corporation
By /s/ Boyd C. Smith By /s/ Lori Holland
--------------------------------------- --------------------------------
Boyd C. Smith, Trustee
Dated: February 20, 1996
------------------------------------
Title VP Finance & CFO
-----------------------------
JOHN ARRILLAGA 1976 CHILDREN TRUSTS
Print or Type Name Lori Holland
----------------
Dated: February 16, 1996
-----------------------------
By /s/ Louis B. Sullivan
----------------------------------------
Louis B. Sullivan, Trustee
Dated: February 20, 1996
------------------------------------
<PAGE>
Paragraphs 43 through 50 to Lease Agreement Dated February 5, 1996, By and
Between A&P Family Investments, as Landlord, and Neomagic Corporation, a
California corporation, as Tenant for 45,000+/- Square Feet of Space Located at
3260 Jay Street, Santa Clara, California.
43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate
----------
sum of FIVE MILLION EIGHT HUNDRED THREE THOUSAND THREE HUNDRED TWELVE AND
50/l00 DOLLARS ($5,803,3l2.50), shall be payable as follows:
On May 1, 1996, the sum of THIRTY TWO THOUSAND SIX HUNDRED TWENTY FIVE AND
NO/100 DOLLARS ($32,625.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including July 1, 1996.
On August 1, 1996, the sum of FORTY THOUSAND SEVEN HUNDRED EIGHTY ONE AND
25/100 DOLLARS ($40,781.25) shall be due, and a like sum due on the first day of
each month thereafter, through and including October 1, 1996.
On November 1, 1996, the sum of FORTY EIGHT THOUSAND NINE HUNDRED THIRTY
SEVEN AND 50/l00 DOLLARS ($48,937.50) shall be due, and a like sum due on the
first day of each month thereafter, through and including January 1, 1997.
On February 1, 1997, the sum of FIFTY SEVEN THOUSAND NINETY THREE AND
75/100 DOLLARS ($57,093.75) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 1997.
On May 1, 1997, the sum of SIXTY SEVEN THOUSAND FlVE HUNDRED AND NO/l00
DOLLARS ($67,500.00) shall be due, and a like sum due on the first day of each
month thereafter, through and including April 1, 1998.
On May 1, 1998, the sum of SIXTY NINE THOUSAND SEVEN HUNDRED FIFTY AND
NO/100 DOLLARS ($69,750.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 1999.
On May 1, 1999, the sum of SEVENTY TWO THOUSAND AND NO/l00 DOLLARS
($72,000.00) shall be due, and a like sum due on the first day of each month
thereafter, through and including April 1, 2000.
On May 1, 2000, the sum of SEVENTY FOUR THOUSAND TWO HUNDRED FIFTY AND
NO/l00 DOLLARS ($74,250.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 2001.
On May 1, 2001, the sum of SEVENTY SIX THOUSAND FIVE HUNDRED AND NO/100
DOLLARS ($76,500.00) shall be due, and a like sum due on the first day of each
month thereafter, through and including April 1, 2002.
On May 1, 2002, the sum of SEVENTY EIGHT THOUSAND SEVEN HUNDRED FIFTY AND
NO/l00 DOLLARS ($78,750.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 2003, or until the entire
aggregate sum of FIVE MILLION EIGHT HUNDRED THREE THOUSAND THREE HUNDRED TWELVE
AND 50/100 DOLLARS ($5,803,312.50) has been paid.
44. "AS-IS" BASIS: It is hereby agreed that the Premises leased hereunder is
------------
leased strictly on an "as-is" basis and in its present condition, and in the
configuration as shown on Exhibit B to be attached hereto, and by reference
---------
made a part hereof. It is specifically agreed between the parties that Landlord
shall not be required to make, nor be responsible for any cost, in connection
with any repair, restoration, and/or improvement to the Premises in order for
this Lease to commence, or thereafter, throughout the Term of this Lease.
Landlord makes no warranty or representation of any kind or nature whatsoever
as to the condition or repair of the Premises, nor as to the use or occupancy
which may be made thereof.
45. CONSENT: Whenever the consent of one party to the other is required
-------
hereunder, such consent shall not be unreasonably withheld.
Page 9
<PAGE>
46. ASSESSMENT CREDITS: The demised property herein may be subject to a
------------------
special assessment levied by the City of Santa Clara as part of an Improvement
District. As a part of said special assessment proceedings (if any), additional
bonds were or may be sold and assessments were or may be levied to provide for
construction contingencies and reserve funds. Interest shall be earned on such
funds created for contingencies and on reserve funds which will be credited for
the benefit of said assessment district. To the extent surpluses are created in
said district through unused contingency funds, interest earnings or reserve
funds, such surpluses shall be deemed the property of Landlord. Notwithstanding
that such surpluses may be credited on assessments otherwise due against the
Leased Premises. Tenant shall pay to Landlord, as additional rent if, and at
the time of any such credit of surpluses, an amount equal to all such surpluses
so credited.
47. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
-------------------
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises
(hereinafter collectively referred to as the "Property") and the Complex:
As used herein, the term "Hazardous Materials" shall mean any hazardous or
toxic substance, material or waste which is or becomes subject to or regulated
by any local governmental authority, the State of California, or the United
States Government. The term "Hazardous Materials" includes, without limitation
any material or hazardous substance which is (i) listed under Article 9 or
defined as "hazardous" or "extremely hazardous" pursuant to Article 11 of Title
22 of the California Administrative Code, Division 4, Chapter 30, (ii) listed
or defined as a "hazardous waste" pursuant to the Federal Resource Conservation
and Recovery Act, Section 42 U.S.C. Section 6901 et. seq., (iii) listed or
defined as a "hazardous substance" pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42
U.S.C. Section 9601), (iv) petroleum or any derivative of petroleum, or (v)
asbestos.
Subject to the terms of this Paragraph 47, Tenant shall have no obligation to
"clean up", reimburse, release, indemnify, or defend Landlord with respect to
any Hazardous Materials or wastes which Tenant (prior to and during the term of
the Lease) or other parties on the Property or Complex, as described below,
(during the term of this Lease) did not store, dispose, or transport in, use,
or cause to be on the Property or which Tenant, its agents, employees,
contractors, vendors, invitees, visitors or its future subtenants and/or
assignees (if any) (during the Term of this Lease), did not store, dispose, or
transport in, use or cause to be on the Complex in violation of applicable law.
Tenant shall be 100 percent liable and responsible for: (i) any and all
"investigation and cleanup" of said Hazardous Materials contamination which
Tenant, its agents, employees, contractors, vendors, invitees, visitors or its
future subtenants and/or assignees (if any), or other parties on the Property,
does store, dispose, or transport in, use or cause to be on the Property, and
which Tenant, its agents, employees, contractors, vendors, invitees, visitors
or its future subtenants and/or assignees (if any) does store, dispose, or
transport in, use or cause to be on the Complex and (ii) any claims, including
third party claims, resulting from such Hazardous Materials contamination.
Tenant shall indemnify Landlord and hold Landlord harmless from any
liabilities, demands, costs, expenses and damages, including, without
limitation, attorney fees incurred as a result of any claims resulting from
such Hazardous Materials contamination.
Tenant also agrees not to use or dispose of any Hazardous Materials on the
Property or the Complex without first obtaining Landlord's written consent.
Tenant agrees to complete compliance with governmental regulations regarding
the use or removal or remediation of Hazardous Materials used, stored, disposed
of, transported or caused to be on the Property or the Complex as stated above,
and prior to the termination of said Lease Tenant agrees to follow the proper
closure procedures and will obtain a clearance from the local fire department
and/or the appropriate governing agency. If Tenant uses Hazardous Materials,
Tenant also agrees to install, at Tenant's expense, such Hazardous Materials
monitoring devices as Landlord deems reasonably necessary. It is agreed that
the Tenant's responsibilities related to Hazardous Materials will survive the
termination date of the Lease and that Landlord may obtain specific performance
of Tenant's responsibilities under this Paragraph 47.
48. DESTRUCTION CONT'D: Notwithstanding anything to the contrary in Paragraph
------------------
24 ("Destruction"), Tenant shall have the right to terminate this Lease if any
damage to the Premises occurs during the last year of the Term of this Lease
and said damage cannot be
Page 10
<PAGE>
repaired within six (6) months. In the event Tenant elects to terminate this
Lease, Tenant shall give written notice to Landlord of Tenant's election to
terminate this Lease within five (5) days of Tenant's receipt of notice from
Landlord identifying the projected time required to make the necessary repairs
of said damage in which event this Lease would terminate thirty (30) days after
Landlord receives written notice from Tenant of Tenant's election to terminate.
Tenant will remain responsible for the full performance of all terms, covenants
and conditions here in contained through the effective date of termination.
49. LEASE CONTINGENT UPON LANDLORD OBTAINING TERMINATION AGREEMENT WITH
-------------------------------------------------------------------
CURRENT TENANT: This Lease is subject to and conditional upon Landlord
- --------------
obtaining from Integrated Systems, Inc., the current tenant occupying the
Premises leased hereunder, a Termination Agreement satisfactory to Landlord on
or before April 30, 1996. In the event Landlord is unable to obtain said
satisfactory Termination Agreement on or before April 30, 1996, this Lease
Agreement shall, at Landlord's option (a) terminate, or (b) the Commencement
Date hereof shall be modified to reflect the date Landlord so obtains said
satisfactory Termination Agreement and receives possession of the Premises
hereunder free and clear of Integrated Systems, Inc.'s occupancy; provided,
however, that said period of delay shall not exceed ninety (90) days from the
scheduled Lease Commencement Date of May 1, 1996, in which event, this Lease
may be terminated by either party by giving the other written notice of its
election to so terminate said Lease no later than July 30, 1996. In the event
Integrated Systems, Inc. fails to timely vacate the Premises and surrender same
to Landlord free and clear of its occupancy, this Lease shall not be void or
voidable, but in such an event, the Commencement Date hereof shall be modified
to reflect the date Landlord so received possession of said Premises and
delivers same to Tenant; provided, however, that such period of delay does not
exceed ninety (90) days, in which event, this Lease may be terminated by either
party.
50. TERMINATION OF PREVIOUS LEASE UPON COMMENCEMENT OF THIS LEASE:
-------------------------------------------------------------
A. It is understood that Tenant is currently occupying
approximately 9,798+/- square feet of space located at 2710 Walsh Avenue, Suite
201, Santa Clara, California, leased under a separate lease agreement, dated
July 8, 1993, between the Arrillaga Family Trust (previously known as the "John
Arrillaga Separate Property Trust") and the Richard T. Peery Separate Property
Trust (collectively "Peery/Arrillaga") and Tenant (the "Walsh Avenue Lease"). It
is therefore agreed that upon commencement of this Lease Agreement, said Walsh
Avenue Lease shall terminate subject to Paragraph 50B herein.
B. As a material consideration for the termination of said Walsh
Avenue Lease, agrees to indemnify and hold Peery/Arrillaga harmless from and
against any and all claims or liabilities, of any nature whatsoever, related to:
(i) the Walsh Avenue Lease, (ii) the early termination of the Walsh Avenue
Lease, (iii) the surrender of the premises leased thereunder, and (iv) any and
all claims or obligation related to the Walsh Avenue Lease and/or the premises
owing to third parties by Tenant.
C. Tenant also agrees that, upon early termination of said Walsh
Avenue Lease, Tenant shall, if so requested by Peery/Arrillaga, at
Peery/Arrillaga's sole discretion, restore all or part of the premises to the
condition that existed prior to the commencement of said Walsh Avenue Lease, and
Tenant shall comply with all surrender requirements as outlined in Paragraph S
("Acceptance and Surrender of Premises") of said Walsh Avenue Lease.
Page 11
<PAGE>
EXHIBIT 10.7
SUBLEASE AGREEMENT
- ------------------
This agreement is entered into on this 25th day of June, 1996 between PlanetWeb,
Inc. ("Sublessee") and NeoMagic Corporation ("Sublessor"). The Sublessor agrees
to rent to Sublessee, on terms and conditions outlined in this agreement,
certain space as described more fully in the "Premises" section below.
1) PREMISES
Approximately 3,166 square feet of office area on the second floor of that
larger building commonly designated as 3260 Jay Street, Santa Clara, California
("Premises") and as further shown on Exhibit "A" attached hereto.
2) USE OF PREMISES
Office, research and development, designing, prototyping, marketing and sales,
and other legal uses.
3) SUBLEASE TERM
The term of this sublease will be for one (1) year commencing on May 28, 1996
and ending May 31, 1997. If NeoMagic requires this space at any time during the
term of this agreement, PlanetWeb agrees to vacate the premises upon three (3)
months written notice from NeoMagic.
4) RENT
Monthly rent shall be:
Months:
1-3 $1.00 per square foot
4-6 $1.50 per square foot
7-12 $1.75 per square foot
Interim rent for the period of May 28 through May 31, 1996 will be paid at $1.00
per square foot for 4 days, or $422.13.
This is a full service rent. Lessor shall be responsible for real property
taxes, utilities and general operating expenses. Lessor shall not be responsible
for providing phone service, network administration and other computer
requirements.
In addition to rent defined above, Sublessee will pay to NeoMagic a flat monthly
fee of $300 for standard janitorial services provided by NeoMagic.
If PlanetWeb occupies more than the agreed upon 3,166 square feet, rent will be
adjusted accordingly. If PlanetWeb vacates the property prior to termination of
this lease, they will pay NeoMagic an amount to bring the average monthly rent
to $4,749 per month for the actual months of occupancy.
PlanetWeb agrees to be bound by the same terms and conditions as those listed in
NeoMagic's Master Lease attached hereto, specifically as related to insurance
requirements and hazardous materials.
<PAGE>
PlanetWeb must provide a certificate of insurance to NeoMagic for the $2 Million
liability umbrella and Worker's Compensation Insurance, as required by the
Master Lease.
5) TENANT IMPROVEMENT ALLOWANCE
None
6) PREPAID RENT AND SECURITY DEPOSIT
At Sublease execution, Sublessee will deposit with Sublessor the first month's
rent and a security deposit of $3,000. Security deposit will be refundable to
Sublessee upon termination of lease and delivery of said space to NeoMagic in
substantially the same condition as it is today.
7) OPERATING EXPENSES
During the term of the Sublease, Sublessee shall not be responsible for
operating expense increases or capital improvement costs.
8) COMMON AREAS AND CONFIDENTIALITY
Sublessee will share the main lobby with NeoMagic and will have access to
NeoMagic's office areas. PlanetWeb agrees to reasonably contain its use of the
building to the common areas (lobbies, restrooms, etc.) and to the areas
specifically rented per this agreement. PlanetWeb agrees to execute a
confidentiality agreement to protect NeoMagic in the event PlanetWeb personnel
become aware of NeoMagic Confidential information, and to instruct their
employees as to the treatment of such information if it inadvertently becomes
available to them.
9) SIGNAGE
NeoMagic will allow PlanetWeb to provide reasonable signage for PlanetWeb at the
driveway entrance to the complex and outside the main lobby, affixed to the
front windows. This signage will be provided at the sole cost of PlanetWeb and
is subject to the advance approval of NeoMagic, which will not be unreasonably
withheld.
10) CUBICLES
PlanetWeb desires to install cubicles to house its employees in the leased
premises. NeoMagic agrees that, if PlanetWeb purchases the same cubicles that
are the standard NeoMagic type and color, that, at the end of the lease, if
PlanetWeb so desires, NeoMagic will purchase those cubicles from PlanetWeb at a
then agreed upon price based on original cost less a reasonable estimate for
depreciation and normal wear and tear.
11) CONTINGENCIES
This proposal to sublease is contingent upon the following items:
1) Sublessee's review and acceptance of the terms of Master Lease Agreement
2) Sublessee's delivery of certificate of insurance as prescribed in said
Master Lease Agreement
3) Agreement by both parties to above terms and conditions.
4) Execution of mutual non-disclosure by both parties.
READ AND APPROVED:
- -----------------
<PAGE>
LESSEE: PLANETWEB
BY: /s/ [signature illegible]
---------------------------
TITLE: VP Engineering, CEO
------------------------
DATE: June 25, 1996
--------------------------
LESSOR: NEOMAGIC, CORP.
BY: /s/ Lori Holland
---------------------------
TITLE: VP, CFO
------------------------
DATE: June 26, 1996
--------------------------
<PAGE>
EXHIBIT A
[2ND FLOORPLAN OF
TENANT IMPROVEMENT
NEOMAGIC
3260 JAY STREET,
SANTA CLARA, CALIFORNIA]
<PAGE>
EXHIBIT 10.8
M A S T E R L E A S E A G R E E M E N T
COMDISCO, INC. - LESSOR
MASTER LEASE AGREEMENT dated November 24, 1993 by and between COMDISCO, INC.
("LESSOR") and NEOMAGIC CORPORATION ("LESSEE").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
Follows (all capitalized terms are defined in Section 14.19):
1. Property Leased.
Lessor leases to Lessee all of the Equipment described on each Schedule. In
the event of a conflict, the terms of a Schedule prevail over this Master Lease.
2. TERM.
Or the Commencement Date, Lessee will be deemed to accept the Equipment, will
be bound to its rental obligations for each item of Equipment and the term of a
Schedule will begin and continue through the Initial Term and thereafter until
terminated by either party upon prior written notice received during the Notice
Period. No termination may be effective prior to the expiration of the Initial
Term.
3. Rent and Payment.
Rent is due and payable in advance, in immediately available funds, on the
first day of each Rent Interval to the payee and at the location specified in
Lessor's invoice. Interim Rent is due and payable when invoiced. If any payment
is not made when due, Lessee will pay interest at the Overdue Rate. Upon
Lessee's execution of each Schedule, Lessee will pay Lessor the Advance
specified on the Schedule. The Advance will be credited towards the final Rent
payment if Lessee is not then in default. No interest will be paid on the
Advance.
4. Selection; Warranty and Disclaimer of Warranties.
4.1 Selection. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that,
so long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Schedule any manufacturer's warranties for the Equipment. LESSOR MAKES NO OTHER
WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A PARTICULAR
PURPOSE. Lessor is not responsible for any liability, claim, loss, damage or
expense of any kind (including strict liability in tort) caused by the Equipment
except for any loss or damage caused by the negligent acts of Lessor. In no
event is Lessor responsible for special, incidental or consequential damages.
5. Title; Relocation or Sublease; and Assignment.
5.1 Title. Lessee holds the Equipment subject and subordinate to the rights
of the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes
Lessor, as Lessee's agent, to prepare, execute and file in Lessee's name
precautionary Uniform Commercial Code financing statements showing the interest
of the Owner, Lessor, and any Assignee or Secured Party in the Equipment and to
insert serial numbers in Schedules as appropriate. Lessee will, at its expense,
keep the Equipment free and clear from any liens or encumbrances of any kind
(except any caused by Lessor) and will indemnify and hold Lessor, Owner, any
Assignee and Secured Party harmless from and against any loss caused by Lessee's
failure to do so.
5.2 Relocation or Sublease. Upon prior written consent, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, (ii) all
additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor
and the Secured Party. Such consent to sublease will be granted if: (i) Lessee
meets the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) the sublease is
not to a leasing entity
<PAGE>
affiliated with the manufacturer of the Equipment described on the Schedule.
Lessor acknowledges Lessee's right to sublease for a term which extends beyond
the expiration of the Initial Term. If Lessee subleases the Equipment for a term
extending beyond the expiration of such Initial Term of the applicable Schedule,
Lessee will remain obligated upon the expiration of the Initial Term to return
such Equipment, or, at Lessor's sole discretion to (i) return Like Equipment or
(ii) negotiate a mutually acceptable lease extension or purchase. If the parties
cannot mutually agree upon the terms of an extension or purchase, the term of
the Schedule will extend upon the original terms and conditions until terminated
pursuant to Section 2.
No relocation or sublease will relieve Lessee from any of its obligations
under this Master Lease and the relevant Schedule.
5.3 Assignment by lessor. The terms and conditions of each Schedule have
been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer
its interest or grant a security interest in each Schedule and/or the Equipment
to a Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other
transfer by Lessor will not relieve Lessor of its obligations to Lessee and will
not materially change Lessee's duties or materially increase the burdens or
risks imposed on Lessee. The Lessee consents to and will acknowledge such
assignments in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights,
but will not be obligated to perform any of the obligations of Lessor.
The Secured Party will not disturb Lessee's quiet and peaceful possession
and unrestricted use of the Equipment so long as Lessee is not in default
and the Secured Party continues to receive all Rent payable under the
Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee
reserves its right to have recourse directly against Lessor for any
defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent
of the Secured Party's rights in that Equipment.
6. Net Lease; Taxes and Fees.
6.1 Net Lease. Each Schedule constitutes a net lease. Lessee's obligation
to pay Rent and all other amounts is absolute and unconditional and is not
subject to any abatement, reduction, set-off, defense, counterclaim,
interruption, deferment or recoupment for any reason whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state and local taxes on the
capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. Care, Use and Maintenance; Attachments and Reconfigurations; and Inspection
by Lessor.
7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available, Lessee will
maintain in force a standard maintenance contract with the manufacturer of the
Equipment, or another party acceptable to Lessor, and will provide Lessor with a
complete copy of that contract. If Lessee has the Equipment maintained by a
party other than the manufacturer, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term. The lease term
will continue upon the same terms and conditions until recertification has been
obtained.
7.2 Attachments and Reconfigurations. Upon receiving the prior written
consent of Lessor, Lessee may reconfigure and install Attachments on the
Equipment. In the event of such a Reconfiguration or Attachment, Lessee will,
upon return of the Equipment, at its expense, restore the Equipment to the
original configuration specified on the Schedule in accordance with the
manufacturer's specifications and in the same operating order, repair and
appearance as when installed (normal wear and tear excluded). If any parts of
the Equipment are removed during a Reconfiguration or Attachment, Lessor may
require Lessee to provide additional security, satisfactory to the Lessor, in
order to ensure performance of Lessee's obligations set forth in this
subsection. Neither Attachments nor parts installed on Equipment in the course
of Reconfiguration will be accessions to the Equipment.
7.3 Inspection by Lessor. Upon request, Lessee, during reasonable business
hours and subject to Lessee's security requirements, will make the Equipment and
its related log and maintenance records available to Lessor for inspection.
2
<PAGE>
8. Representations and Warranties of Lessee. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction
where the Equipment is, or is to be, located) where its ownership or
lease of property or the conduct of its business requires such
qualification; and has full corporate power and authority to hold
property under the Master Lease and each Schedule and to enter into and
perform its obligations under such Lease.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master
Lease and each Schedule are not inconsistent with the Lessee's
Certificate of Incorporation or Bylaws, do not contravene any law or
governmental rule, regulation or order applicable to it, do not and will
not contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument to which it is a party
or by which it is bound, and the Master Lease and each Schedule
constitute legal, valid and binding agreements of the Lessee, enforceable
in accordance with their terms.
(c) There are no actions, suits, proceedings or patent claims pending or, to
the knowledge of the Lessee, threatened against or affecting the Lessee
in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on
the ability of the Lessee to perform its obligations under the Master
Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate,
materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents,
patent applications, trademarks, trade names, inventions, franchises,
licenses, permits, computer software and copyrights necessary for the
operations of its business as now conducted, with no known infringement
of, or conflict with, the rights of others.
(g) All material contracts, agreements and instruments to which the Lessee is
a party are in full force and effect in all material respects, and are
valid, binding and enforceable by the Lessee in accordance with their
respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally, and rules
of Law concerning equitable remedies.
9. Delivery and Return of Equipment.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Schedule, Lessee shall,
pursuant to Lessor's instructions and at Lessee's full expense (including,
without limitation, expenses of transportation and in-transit insurance), return
the Equipment to Lessor in the same operating order, repair, condition and
appearance as when received, less normal depreciation and wear and tear. Lessee
shall return the Equipment to Lessor at its address set forth herein or at such
other address within the continental United States as directed by Lessor,
provided, however, that Lessee's expense shall be limited to the cost of
returning the equipment to Lessor's address as set forth herein. During the
period subsequent receipt of a notice under Section 2, Lessor may demonstrate
the Equipment's operation in place and Lessee will supply any of its personnel
as may reasonably be required to assist in the demonstrations.
10. Labeling.
Upon request, Lessee will mark the Equipment indicating Lessor's interest.
Lessee will keep all Equipment free from any other marking or labeling which
might be interpreted as a claim of ownership.
11. Indemnity.
Lessee will indemnify and hold Lessor, any Assignee and any Secured Party
harmless from and against any and all claims, costs, expenses, damages and
liabilities, including reasonable Attorneys' fees, arising out of the ownership
(for strict liability in tort only), selection, possession, leasing, operation,
control, use, maintenance, delivery, return or other disposition of the
Equipment. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance
3
<PAGE>
during the term of the Master Lease in amounts and against risks customarily
insured against by the Lessee on equipment owned by it; Any amounts received by
Lessor under that insurance will be credited against Lessee's obligations under
this Section.
12. Risk of Loss.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each
item of Equipment in an amount not less than the Casualty Value. All policies
for such insurance will name the Lessor and any Secured Party as additional
insured and as loss payee, and will provide for at least thirty (30) days prior
written notice to the Lessor of cancellation or expiration, and will insure
Lessor's interests regardless of any breach or violation by Lessee of any
representation, warranty or condition contained in such policies and will be
primary without right of contribution from any insurance effected by Lessor.
Upon the execution of any Schedule, the Lessee will furnish appropriate evidence
of such insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such
Equipment has suffered a Casualty Loss. Within fifteen (15) days of a Casualty
Loss, Lessee will provide written notice of that loss to Lessor and Lessee will,
at Lessor's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing, Lessee's obligation to pay further Rent for the item of
Equipment will cease.
13. Default, Remedies and Mitigation.
13.1 Default. The occurrence of any one or more of the following Events of
Default constitutes a default under a Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due
if that failure continues for five (5) days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule
or the material inaccuracy of any representation or warranty made by the
Lessee in the Schedule or in any document or certificate furnished to
the Lessor hereunder if that failure or inaccuracy continues for ten
(10) days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing
by Lessee or the filing against Lessee of any petition under any
bankruptcy or insolvency law or for the appointment of a trustee or
other officer with similar powers, the adjudication of Lessee as
insolvent, the liquidation of Lessee, or the taking of any action for
the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule or other
agreement between Lessee and Lessor or its Assignee or Secured Party.
13.2 Remedies. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and recover
the present value of the remaining payment stream of all Rent due under
the defaulted Schedule (discounted at the same rate of interest at which
such defaulted Schedule was discounted with a Secured Party plus any
prepayment fees charged to Lessor by the Secured Party or, if there is
no Secured Party, then discounted at 6%) together with all Rent and
other amounts currently due as liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and
repossess the Equipment without being liable to Lessee for damages due
to the repossession, except those resulting from Lessor's, its
assignees', agents' or representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by
law, are cumulative and may be exercised successively or concurrently.
4
<PAGE>
13.3 Mitigation. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH
IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY
ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or
otherwise dispose of all or any part of the Equipment at a public or private
sale for cash or credit with the privilege of purchasing the Equipment. The
proceeds from any sale, lease or other disposition of the Equipment are defined
as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the
Default Costs; or
(b) if leased, the present value (discounted at three points over the prime
rate as referenced in the Wall Street Journal at the time of the
mitigation) of the rentals for a term not to exceed the Initial Term,
less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums
due to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor
may recover, the amount by which the proceeds are less than the liquidated
damages and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1 Board Attendance. Lessor or its duly appointed representative will
have the right to attend Lessee's corporate Board of Directors meetings and
Lessee will give Lessor reasonable notice in advance of any special Board of
Directors meeting, which notice will provide an agenda of the subject matter to
be discussed at such board meeting. Lessee will provide Lessor with a certified
copy of the minutes of each Board of Directors meeting within thirty (30) days
following the date of such meeting held during the term of this Lease.
14.2 Financial Statements. Lessee will provide to Lessor the financial
statements specified in this Section, prepared in accordance with generally
accepted accounting principles, consistently applied (the "Financial
Statements"); provided, however, after the effective date of the initial
registration statement covering a public offering of Lessee's securities, the
term "Financial Statements" will be deemed to refer to only those statements
required by the Securities and Exchange Commission, to be provided no less
frequently than quarterly. Lessee will provide to Lessor (i) as soon as
practicable (within thirty (30) days) after the end of each month, the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows, certified by Lessee's Chief Executive or Financial Officer to be
true and correct; and (ii) as soon as practicable (and in any event within
ninety (90) days) after the end of each fiscal year, audited balance sheets as
of the end of such year (consolidated if applicable), and related statements of
income or loss, retained earnings or deficit and changes in the financial
position and capital structure of Lessee for such year, setting forth in
comparative form the corresponding figures for the preceding fiscal year, and
accompanied by an audit report and opinion of the independent certified public
accountants selected by Lessee. Lessee will promptly furnish to Lessor any
additional information (including but not limited to tax returns, income
statements, balance sheets, and names of principal creditors) as Lessor
reasonably believes necessary to evaluate Lessee's continuing ability to meet
financial obligations.
14.3 Obligation to Lease Additional Equipment. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
the indebtedness; (iii) there is a material adverse change in Lessee's credit
standing; or (iv) Lessor determines (in reasonable good faith) that Lessee will
be unable to perform its obligations under this Master Lease.
14.4 Merger and Sale Provisions. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Master Lease
and all relevant Schedules. If Lessor elects to consent to the assignment,
Lessee and its successor will sign the assignment documentation provided by
Lessor. If Lessor elects to terminate the Master Lease and all relevant
Schedules, then Lessee will pay Lessor all amounts then due and owing and a
termination fee equal to the present value (discounted at 6%) of the remaining
Rent for the balance of the Initial Term(s) of all Schedules, and will return
the Equipment in accordance with Section 9.
14.5 Entire Agreement. This Master Lease and associated Schedules supersede
all other oral or written agreements or understandings between the parties
concerning the Equipment including, for example, purchase orders. ANY AMENDMENT
OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A WRITING SIGNED
BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED.
14.6 No Waiver. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by
5
<PAGE>
Lessor or Lessee of a breach of any provision of this Master Lease or a Schedule
will not operate or be construed as a waiver of any subsequent breach.
14.7 Binding Nature. Each Schedule is binding upon, and inures to the
benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
14.8 Survival of Obligations. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule or in any document delivered in
connection with those agreements are for the benefit of Lessor and any Assignee
or Secured Party and survive the execution, delivery, expiration or termination
of this Master Lease.
14.9 Notices. Any notice, request or other communication to either party by
the other will be given in writing and deemed received upon the earlier of
actual receipt or three days after mailing if mailed postage prepaid by regular
or airmail to Lessor (to the attention of "Lease Administrator") or Lessee, at
the address set out in the Schedule or, one day after it is sent by courier or
on the same day as sent via facsimile transmission, provided that the original
is sent by personal delivery or mail by the receiving party.
14.10 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL
HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE
GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE
OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 Severability. If any one or more of the provisions of this Master
Lease or any Schedule is for any reason held invalid, illegal or unenforceable,
the remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 Counterparts. This Master Lease and any Schedule may be executed in
any number of counterparts, each of which will be deemed an original, but all
such counterparts together constitute one and the same instrument. If Lessor
grants a security interest in all or any part of a Schedule, the Equipment or
sums payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate".
14.13 Nonspecified Features and Licensed Products. If the Equipment is
supplied from Lessor's inventory and contains any features not specified in the
Schedule, Lessee grants Lessor the right to remove any such features. Any
removal will be performed by the manufacturer or another party acceptable to
Lessee, upon the request of Lessor, at a time convenient to Lessee, provided
that Lessee will not unreasonably delay the removal of such features.
Lessee will obtain no title to Licensed Products which will at all times
remain the property of the owner of the Licensed Products. A license from the
owner may be required and it is Lessee's responsibility to obtain any required
license before the use of the Licensed Products. Lessee agrees to treat the
Licensed Products as confidential information of the owner, to observe all
copyright restrictions, and not to reproduce or sell the Licensed Products.
14.14 Additional Documents. Lessee will, upon execution of this Master
Lease and as may be requested thereafter, provide Lessor with a secretary's
certificate of incumbency and authority and any other documents reasonably
requested by Lessor. Upon the execution of each Schedule with a purchase price
in excess of $1,000,000, Lessee will provide Lessor with an opinion from
Lessee's counsel in a form acceptable to Lessor regarding the representations
and warranties in Section 8.
14.15 Electronic Communications. Each of the parties may communicate with
the other by electronic means under mutually agreeable terms.
14.16 Lessor's Right to Match. Lessee's rights under Section 5.2 and 7.2
are subject to Lessor's right to match any sublease or upgrade proposed by a
third party. Lessee will provide Lessor with the terms of the third party offer
and Lessor will have three (3) business days to match the offer. Lessee will
obtain such upgrade from or sublease the Equipment to Lessor if Lessor has
timely matched the third party offer.
14.17 Landlord/Mortgage Waiver. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.18 Equipment Procurement Charges/Progress Payments. Lessee hereby agrees
that Lessor shall not, by virtue of its entering into this Lease, be required to
remit any payments to any manufacturer or other third party until Lessee accepts
the Equipment subject to this Lease.
14.19 Definitions.
6
<PAGE>
Advance - means the amount due to Lessor by Lessee upon Lessee's execution of
- -------
each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights as
- --------
owner and Lessor of Equipment.
Attachment - means any accessory, equipment or device and the installation
- ----------
thereof that does not impair the original function or use of the Equipment and
is capable of being removed without causing material damage to the Equipment and
is not an accession to the Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
- -------------
Casualty Value - means the greater of the aggregate Rent remaining to be paid
- --------------
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
Commencement Certificate - means the Lessor provided certificate which must be
- ------------------------
signed by Lessee within ten (10) days of the Commencement Date as requested by
Lessor.
Commencement Date - is defined in each Schedule.
- -----------------
Default Costs - means reasonable attorney's fees and remarketing costs resulting
- -------------
from a Lessee default or Lessor's enforcement of its remedies.
Equipment - means the property described on a Schedule and any replacement for
- ---------
that property required or permitted by this Master Lease or a Schedule but not
including any Attachment.
Event of Default - means the events described in Subsection 13.1.
- ----------------
Fair Market Value - means the aggregate amount which would be obtainable in an
- -----------------
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
Initial Term - means the period of time beginning on the first day of the first
- ------------
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
Installation Date - means the day on which Equipment is installed and qualified
- -----------------
for a commercially available manufacturer's standard maintenance contract or
warranty coverage, if available.
Interim Rent - means the pro-rata portion of Rent due for the period from the
- ------------
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
Licensed Products - means any software or other licensed products attached to
- -----------------
the Equipment.
Like Equipment - means replacement Equipment which is lien free and of the same
- --------------
model, type, configuration and manufacture as Equipment.
Like Part - means a substituted part which is lien free and of the same
- ---------
manufacturer and part number as the removed part, and which when installed on
the Equipment will be eligible for maintenance coverage with the manufacturer of
the Equipment.
Merger - means any consolidation or merger of the Lessee with or into any other
- ------
corporation or entity, any sale or conveyance of all or substantially all of the
assets of the Lessee to any other person or entity or any stock acquisition of
the Lessee by any other person or entity.
Notice Period - means the time period described in a Schedule during which
- -------------
Lessee may give Lessor notice of the termination of the term of that Schedule.
Overdue Rate - means the lesser of five percent (5%) of the payment due or the
- ------------
maximum rate permitted by the law of the state where the Equipment is located.
Owner - means the owner of Equipment.
- -----
Reconfiguration - means any change to Equipment that would upgrade or downgrade
- ---------------
the performance capabilities of the Equipment in any way.
Rent - means the rent, including Interim Rent, Lessee will pay for each item of
- ----
Equipment expressed in a Schedule either as a specific amount or an amount equal
to the amount which Lessor pays for an item of Equipment multiplied by a lease
rate factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
Rent Interval - means a full calendar month or quarter as indicated on a
- -------------
Schedule.
7
<PAGE>
Schedule - means an Equipment Schedule which incorporates all of the terms and
- --------
conditions of this Master Lease and, for purposes of Section 14.12, its
associated Commencement Certificate(s).
Secured Party - means an entity to whom Lessor has granted a security interest
- -------------
in a Schedule and related Equipment for the purpose of securing a loan.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or
as of the day and year first above written.
NeoMagic Corporation COMDISCO, INC.
as Lessee as Lessor
By: /s/ P.C. Agarwal By: /s/ [XXXXXXXXXXXXX]
--------------------------------- ---------------------------------
Title: President/CEO Title: [XXXXXXXXXXXX]
------------------------------ -------------------------------
04/20/93 12/9/93
8
<PAGE>
EXHIBIT A
(MULTIPLE MONTHLY DELIVERY)
SCHEDULE NO. VL-1 DATED AS OF NOVEMBER 24, 1993
----- -----------------
TO MASTER LEASE AGREEMENT DATED AS OF NOVEMBER 24, 1993 ("MASTER LEASE")
-----------------
LESSEE: NEOMAGIC CORPORATION LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------ -----------------------
Mr. Marshall Smith
(408) 970-3763 6111 North River Road
Rosemont, Illinois 60018
Address for Notice.: Attn.: Capital Equipment Lease
- ------------------- Administration
2710 Walsh Avenue
Santa Clara, CA 95051
Attn.:
Central Billing Location: PAYING AGENT:
- ------------------------ ------------
Same as above
Comdisco, Inc.
P.O. Box 91744
Attn.: Chicago, Illinois 60693
Lessee Reference No.: ______________
(24 digits maximum)
Location of Equipment: Initial Term: 42
- --------------------- ------------ -----------
Same as above
Attn.: Lease Rate Factor: 2.764%
----------------- --------
EQUIPMENT (as defined below): Advance: $8,292.00
------- -------------------
Item Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
- ---- ----- ------------ ------------ ----------- ------ -----
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period November 17, 1993 through November 17,
1994, for which Lessor receives vendor invoices approved for payment, up to
an aggregate purchase price of $300,000; not including upgrades thereto and
further excluding customer use equipment, leasehold improvements,
installation costs and delivery costs, rolling stock, special tooling,
custom equipment, "stand-alone" software, application software bundled into
computer hardware, hand held items, molds and fungible items. In no event
shall any furniture exceed fifteen percent (15%) of Lessor's aggregate cost
hereunder.
<PAGE>
1. NOTICE PERIOD: Not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed ***** Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the "Sale-
Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted). For Equipment installed
prior to the date hereof Lessee must submit request to Lessor no
later than December 17, 1993 and if approved for inclusion under
this Lease, at Lessor's actual net appraised Equipment value
pursuant to the schedule below.
ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S
MANUFACTURER'S SHIP DATE NET EQUIPMENT COST PAID BY LESSOR
------------------------------ ----------------------------------
Between 09/18/93 and 12/17/93 100%
Between 07/18/93 and 09/17/93 80%
For Equipment installed after the date hereof Lessee must submit
request to Lessor within the last ten (10) days of each month and
Lessor will not perform a Sale-Leaseback transaction on such
installed Equipment which arrives ninety (90) days after the
original purchase of the Equipment.
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to: (1)
Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor with
Invoices containing the Equipment location, description, serial number and cost,
the Installation Date and Lessee's signature. Lessor will summarize all Invoices
and/or IAFs received in the same calendar month into a Commencement Certificate
in the form attached to this Schedule as Exhibit 1 and the Initial Term will
begin the first day of the calendar month thereafter provided, however that each
Commencement Certificate must cover equipment with an equipment cost of at lease
$10,000 or Lessor shall ????????????? include such equipment on the Commencement
Certificate for the next succeeding month. Each Commencement Certificate will
incorporate the terms and conditions of the Master Lease and this Schedule and
will constitute a separate Schedule. Notwithstanding the foregoing, if the
Equipment pertains to Sale-Leaseback Equipment the Commencement Date will be the
date Lessor tenders the purchase price.
4. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least ninety (90) days written notice
prior to the expiration of the Initial Term. In such event, the rent to be paid
during said extended period shall be mutually agreed upon and if the parties
cannot mutually agree, then the Lease shall continue in full force and effect
pursuant to the existing terms and conditions until terminated in accordance
with its terms. This Schedule will continue in effect following said extended
period until terminated by either party upon not less than ninety (90) days
prior written notice, which notice shall be effective as of the Rent Interval
next following receipt.
5. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term, Lessee will have
the option at the expiration of the Initial Term of this Schedule to purchase
all, but not less than all, of the Equipment listed herein for a purchase price
and upon terms and conditions to be mutually agreed upon by the parties
following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least thirty (30) days
before the expiration date of the Initial Term. Title to the Equipment shall
automatically pass to Lessee upon payment in full of the purchase price but, in
no event, earlier than the expiration of the fixed Initial Term. If the parties
are unable to agree on the purchase price or the terms and conditions with
respect to said purchase, then the Lease with respect to this Equipment shall
remain in full force and effect. It is agreed and understood that Lessor is
retaining a purchase money security interest in the Equipment listed herein and
this Schedule shall constitute a Security Agreement under the Uniform Commercial
Code of the state in which the Equipment is located. Lessor and Lessee agree
that for purposes of this paragraph, any licensed software will not be
considered part of the Equipment.
6. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to
this Schedule are hereby modified and amended as follows:
(a) Section 4.2, "Warranty and Disclaimer of Warranties"
---------------------------------------
In the last line of this Section before the words "negligent acts",
insert the words "willful or".
(b) Section 6.2, "Taxes and Fees"
----------------
To the end of this Section, add the following:
"Lessee shall not be liable for any taxes, fees or charges to the
extent the same result from any sale or assignment
<PAGE>
or grant of security interest by Lessor, or to the extent any such
action increases the taxes, fees or charges that would otherwise be
payable. Lessee shall have the right to contest by proper legal
proceedings any taxes levied, as agent for or in the name of Lessor,
and to withhold payment of any disputed amount of taxes. Lessor will
cooperate in any legal proceedings being prosecuted by Lessee with
regard to any taxes, but Lessee shall pay the expenses in such
litigation. Lessee shall not be obligated to pay any taxes so long as
it shall be in good faith and by appropriate proceeding contesting the
validity or the amount thereof unless such contest would adversely
affect the title of the Lessor to the Equipment or would subject it to
forfeiture or sale."
(c) Section 8, "Representations and Warranties of Lessee"
------------------------------------------
To the end of subsection (b), add the following:
", subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies."
(d) Section 12, "Risk of Loss"
--------------
In line 3 of paragraph 2, delete the words "at Lessors's option" and
replace with the words "at Lessee's option".
(e) Section 14.1, "Board Attendance"
------------------
Delete the first sentence of this Section in its entirety.
(f) Section 14.2, "Financial Statements"
----------------------
Change the beginning of subsection (ii) as follows:
"beginning with the year ended December 31, 1994, as soon as
practicable (and in any event within one hundred twenty (120) days)
after the end of each fiscal year,".
(g) Section 14.4, "Merger and Sale Provisions"
----------------------------
At the end of the first sentence, add the following:
"provided, however, that Lessor shall consent to the assignment in the
event of a proposed Merger which would qualify as an Accelerating
Merger for purposes of the Warrant Agreement dated as of the date
hereof."
Delete the language in line 7 after the words "and will" and replace
with the following:
"either (a) return the Equipment in accordance with Section 9, or (b)
pay to Lessor an additional amount to pay for the purchase price of
the Equipment as of the expiration of the Initial Term."
(h) SECTION 14.19 DEFINITIONS
-----------
Delete Interim Rent definition and replace with
"Interim Rent - means 13% per annum of Lessor's Cost for the period
------------
from the Commencement Date through but not including the first day of
the first full Rent Interval included in the Initial Term."
MASTER LEASE: This Schedule is issued pursuant to the Master Lease identified
on page 1 of this Schedule. All of the terms and conditions of the Master Lease
are incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
NEOMAGIC CORPORATION COMDISCO, INC.
as Lessee as Lessor
By: /s/ P.C. Agarwal By: SIGNATURE ILLEGIBLE
----------------------- -------------------------
Title: President/CEO Title: TITLE ILLEGIBLE
-------------------- ----------------------
Date: 11/30/93 Date: 12/7/93
--------------------- -----------------------
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
------------------------
This Certificate dated is executed pursuant to Schedule No. to the Master
Lease Agreement dated between Comdisco, Inc. ("Lessor") and ("Lessee"). All of
the terms, conditions, representations and warranties of the Master Lease and
Schedule No. are incorporated herein and made a part hereof and this
Commencement Certificate constitutes a Schedule for the Equipment described
below.
1. EQUIPMENT:
---------
EQUIPMENT
QTY MFGR TYPE/MODEL SERIAL # LOCATION
--- ---- ---------- -------- --------
(See attached Invoices)
2. INSTALLATION DATE: (See attached Invoices)
-----------------
3. INITIAL TERM STARTS ON:
----------------------
4. TOTAL EQUIPMENT COST:
--------------------
5. RENT:
----
6. REPRESENTATIONS OF LESSEE:
-------------------------
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the
Lessee on its Installation Date.
<PAGE>
EXHIBIT A
(MULTIPLE MONTHLY DELIVERY)
SCHEDULE NO. VL-2 DATED AS OF May 17, 1994
------- ------------
To MASTER LEASE AGREEMENT DATED AS OF November 17, 1993 ("MASTER LEASE")
-------------------
LESSEE: NEOMAGIC CORPORATION LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------ -----------------------
Valene Newton
(408) 988-7020 6111 North River Road
Rosemont, Illinois 60018
Attn.: Capital Equipment Lease
Administration
Address for Notices:
- -------------------
2710 Walsh Avenue
Santa Clara, CA 95051
Attn.:
Central Billing Location: PAYING AGENT:
- ------------------------ ------------
Same as above
Comdisco, Inc.
P.O. Box 91744
Chicago, Illinois 60693
Attn.:
Lessee Reference No.: __________________
(24 digits maximum)
Location of Equipment: Initial Term: 42
- --------------------- ------------ --------------
Same as above
Lease Rate Factor: 2.764%
----------------- -----------
Attn.:
EQUIPMENT (as defined below): Advance: $7,462.80
------- ---------------------
Item Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
- ---- ---- ------------ ------------- ----------- ------ ----
One Quickturn LBM-3D (as described on the attached Exhibit II) and additional
Equipment approved by Lessor, which shall be delivered to and accepted by Lessee
during the period May 17, 1994 through November 17, 1994, for which Lessor
receives vendor invoices approved for payment, up to an aggregate purchase price
of $270,000 not including upgrades thereto and further excluding customer use
equipment, leasehold improvements, installation costs and delivery costs,
rolling stock, special tooling, custom equipment, "stand-alone" software,
application software bundled into computer hardware, hand held items, molds and
fungible items.
<PAGE>
1. NOTICE PERIOD: Not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation of the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the "Sale-
Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted). For Equipment installed
prior to the date hereof Lessee must submit request to Lessor no
later than June 17, 1994 and if approved for inclusion under this
Lease, at Lessors's actual net appraised Equipment value pursuant to
the schedule below.
ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S
MANUFACTURER'S SHIP DATE NET EQUIPMENT COST PAID BY LESSOR
----------------------------- ----------------------------------
Between 03/19/94 and 06/17/94 100%
For Equipment installed after the date hereof Lessee must submit
request to Lessor within the last ten (10) days of each month and Lessor will
not perform a Sale-Leaseback transaction on such installed Equipment which
arrives ninety (90) days after the original purchase of the Equipment.
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained form a third party by Lessee for its use subject to: (1)
Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor with
Invoices containing the Equipment location, description, serial number and cost,
the Installation Date and Lessee's signature. Lessor will summarize all Invoices
and/or IAFs received in the same calendar month into a Commencement Certificate
in the form attached to this Schedule as Exhibit 1 and the Initial Term will
begin the first day of the calendar month thereafter provided, however that each
Commencement Certificate must cover equipment with an equipment cost of at lease
$10,000 or Lessor shall instead include such equipment on the Commencement
Certificate for the next succeeding month. Each Commencement Certificate will
incorporate the terms and conditions of the Master Lease and this Schedule and
will constitute a separate Schedule. Notwithstanding the foregoing, if the
Equipment pertains to Sale-Leaseback Equipment the Commencement Date will be the
date Lessor tenders the purchase price.
4. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least ninety (90) days written notice
prior to the expiration of the Initial Term. In such event, the rent to be paid
during said extended period shall be mutually agreed upon and if the parties
cannot mutually agree, then the Lease shall continue in full force and effect
pursuant to the existing terms and conditions until terminated in accordance
with its terms. This Schedule will continue in effect following said extended
period until terminated by either party upon not less than ninety (90) days
prior written notice, which shall be effective as of the Rent Interval next
following receipt.
PURCHASE OPTION
So long as no Event of Default shall has occurred and is continuing
hereunder, and upon written notice no earlier than twelve (12) months and no
later than ninety (90) days prior to the expiration of the Initial Term, Lessee
will have the option at the expiration of the Initial Term of this Schedule to
purchase all, but not less than all, of the Equipment listed herein for a
purchase price and upon terms and conditions to be mutually agreed upon by the
parties following
<PAGE>
Lessee's written notice, plus any taxes applicable at time of purchase. Said
purchase price shall be paid to Lessor at least thirty (30) days before the
expiration date of the Initial Term. Title to the Equipment shall automatically
pass to Lessee upon payment in full of the purchase price but, in no event,
earlier than the expiration of the fixed Initial Term. If the parties are unable
to agree on the purchase price or the terms and conditions with respect to said
purchase, then the Lease with respect to this Equipment shall remain in full
force and effect. It is agreed and understood that Lessor is retaining a
purchase money security interest in the Equipment listed herein and this
Schedule shall constitute a Security Agreement under the Uniform Commercial Code
of the state in which the Equipment is located. Lessor and Lessee agree that for
purposes of this paragraph, any licensed software will not be considered part of
the Equipment.
6. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to
this Schedule are hereby modified and amended as follows:
(a) Section 4.2, "Warranty and Disclaimer of Warranties"
---------------------------------------
In the last line of this Section before the words "negligent acts",
insert the words "willful or"
(b) Section 6.2, "Taxes and Fees"
----------------
To the end of this Section, add the following:
"Lessee shall not be liable for any taxes, fees or charges to the
extent the same result from any sale or assignment or grant of
security interest by Lessor, or to the extent any such action
increases the taxes, fees or charges that would otherwise be payable.
Lessee shall have the right to contest by proper legal proceedings any
taxes levied, as agent for or in the name of Lessor, and to withhold
payment of any disputed amount of taxes. Lessor will cooperate in any
legal proceedings being prosecuted by Lessee with regard to any taxes,
but Lessee shall pay the expenses in such litigation. Lessee shall not
be obligated to pay any taxes so long as it shall be in good faith and
by appropriate proceeding contesting the validity or the amount
thereof unless such contest would adversely affect the title of the
Lessor to the Equipment or would subject it to forfeiture or sale."
(c) Section 8, "Representations and Warranties of Lessee"
------------------------------------------
To the end of subsection (b), add the following:
", subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies."
(d) Section 12, "Risk of Loss"
--------------
In line 3 of paragraph 2, delete the words "at Lessor's option" and
replace with the words "at Lessee's option".
(e) Section 14.1, "Board Attendance"
------------------
Delete the first sentence of this Section in its entirety.
(f) Section 14.2, "Financial Statements"
----------------------
Change the beginning of subsection (ii) as follows:
"beginning with the year ended December 31, 1994, as soon as
practicable (and in any event within one hundred twenty (120) days)
after the end of each fiscal year,".
(g) Section 14.4, "Merger and Sale Provisions"
----------------------------
At the end of the first sentence, add the following:
"provided, however, that Lessor shall consent to the assignment in the
event of a proposed Merger which would qualify as an Accelerating
Merger for purposes of the Warrant Agreement dated as of the date
hereof."
Delete the language in line 7 after the words "and will" and replace
with the following:
"either (a) return the Equipment in accordance with Section 9, or (b)
pay to Lessor an additional amount to pay for the purchase price of
the Equipment as of the expiration of the Initial Term."
<PAGE>
(H) SECTION 14.19 DEFINITIONS
-----------
Delete Interim Rent definition and replace with
"Interim Rent - means 13% per annum of Lessor's Cost for the period
------------
from the Commencement Date through but not including the first day of
the first full Rent Interval included in the Initial Term."
MASTER LEASE: This Schedule is issued pursuant to the Master Lease identified
on page 1 of this Schedule. All of the terms and conditions of the Master Lease
are incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
NEOMAGIC CORPORATION COMDISCO, INC.
as Lessee as Lessor
By: /s/ P.C. Agarwal By:/s/ Jill C. Hansen
----------------------- -------------------------
Title: President/CEO Title: HVP/Venture Lease
-------------------- ----------------------
Date: 5/23/94 Date: 5/31/94
--------------------- -----------------------
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
------------------------
This Certificate dated is executed pursuant to Schedule No. to the Master
Lease Agreement dated between Comdisco, Inc. ("Lesssor") and ("Lessee"). All of
the terms, conditions, representations and warranties of the Master Lease and
Schedule No. are incorporated herein and made a part hereof and this
Commencement Certificate constitutes a Schedule for the Equipment described
below.
1. EQUIPMENT:
---------
EQUIPMENT
QTY MFGR TYPE/MODEL SERIAL # LOCATION
--- ---- ---------- -------- --------
(See attached Invoices)
2. Installation Date: (See attached Invoices)
-----------------
3. Initial Term Starts on:
----------------------
4. Total Equipment Cost:
--------------------
5. Rent:
----
6. Representations of Lessee:
-------------------------
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the
Lessee on its Installation Date.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Quickturn Design Systems, Inc. EXHIBIT II INVOICE SHIPMENT ID NUMBER: 1001748
[LOGO APPEARS HERE] 440 Clyde Avenue -----------------------------------------
Mountain View, California 94043-2232 INVOICE NO 1709N DATE PAGE
415 967 3300 fax 415 967 3199 102915 0 03/22/94 1
-----------------------------------------
- ----------------------------------------- ------------------------------------------- CUSTOMER ORDER NO SALES ORDER NO TAXABLE
Lt 10: SHIP TO: *SEE BELOW 11806 NO
- ----------------------------------------- ------------------------------------------- -----------------------------------------
BILL OF LADING NO. DATE OF SHIPMENT
NEO MAGIC CORPORATION NEO MAGIC CORPORATION 03/22/94
ATTN: ACCOUNTS PAYABLE ATTN: CLEMENT LEUNG -----------------------------------------
2710 WALSH AVENUE 2710 WALSH AVENUE SHIPPED VIA FOB PPD
SANTA CLARA 95051 SANTA CLARA, CA 95051 GROUND 1
-----------------------------------------
SA.
TG-2
-----------------------------------------
TERMS
NET 60
-----------------------------------------
BILL TO CUSTOMER:- NEOMAG-100 SHIP TO CUSTOMER:- NEOMAG-200 *P.O.: 1017
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EM PRODUCT NUMBER DESCRIPTION TAX DTY. SHIPPED *** UNIT PRICE EXTENSION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 LBM3000 LBM-30 ASSEMBLY 1 0 0 91200.00 91200.00
S/N: 4312-275
2 DBW1000 DEBUGWARE 1 0 0 72200.00 72200.00
3 PRM3000 PROBE ASSEMBLY 8 0 0 6095.20 48761.60
4 CKP3020 CLOCK POD 3 1 0 0 1056.40 1056.40
5 DAP3020 DATA POD 64 16 0 0 1140.00 18240.00
6 TKY3000 TESTER KEY 16 0 0 60.80 972.80
7 EIK3000 ETHERNET INTERFACE KIT 1 0 0 532.00 532.00
8 IOC3100 I/O CABLE 16 0 0 288.80 4620.80
9 DCA3000 JTAG/DOWNLOAD CABLE 1 0 0 76.00 76.00
10 CKC3000 CLOCK CABLE 4 FT 2 0 0 53.20 106.40
11 PIA3100 PIA MODULE 2 2 0 0 630.80 1261.60
12 ICCB3000 CONSOLE CABLE 1 0 0 98.04 98.04
13 IXPR1000 XILINX P&R NETWORK LICENSE 1 0 0 7600.00 7600.00
14 MUG3000 MARS USER'S GUIDE 1 0 0 190.00 190.00
15 SW3000 MARS III SOFTWARE 1 0 0 .00 .00
MARS BASE SOFTWARE INCLUDES:
* EMULATION SOFTWARE
* FUNCTIONAL ACCELERATOR
SOFTWARE
* HIERARCHICAL NETWORK
NAVIGATOR SOFTWARE
* LBM MEMORY COMPILER
SOFTWARE
----------
TOTAL: 246915.64
- -----------------------------------------------------------------------------------------------------------------------
***
</TABLE>
<PAGE>
EXHIBIT A
(MULTIPLE MONTHLY DELIVERY)
SCHEDULE NO. VL-4 DATED AS OF AUGUST 1, 1994
------ --------------
MASTER LEASE AGREEMENT DATED AS OF NOVEMBER 17, 1993 ("MASTER LEASE")
----------------------
LESSEE: NEOMAGIC CORPORATION LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------ ------------------------
Ms. Valerie Hinebaugh
(408) 988-7020 6111 North River Road
Rosemont, Illinois 60018
Attn.: Capital Equipment Lease
Administration
Address for Notices:
- -------------------
2710 Walsh Avenue
Santa Clara, CA 95051
Attn.:
Central Billing Location: PAYING AGENT:
- ------------------------ ------------
Same as above
Comdisco, Inc.
P.O. Box 91744
Chicago, Illinois 60693
Attn.:
Lessee Reference No.: ________________
(24 digits maximum)
Location of Equipment: Initial Term: 30
- --------------------- ------------ ----------------
Same as above
Lease Rate Factor: 4.102%
----------------- -----------
Attn.:
EQUIPMENT (as defined below): Phase I Advance: $20,510
--------------- ------------
Phase II Advance: $20,510
---------------- ------------
Item Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
- ---- ---- ------------ ------------ ----------- ------ ----
Software approved by Lessor, which shall be delivered to and accepted by Lessee
during the period August 1, 1994 through February 1, 1996, for which Lessor
receives vendor invoices approved for payment, up to an aggregate purchase price
of $500,000 available in two (2) consecutive phases of $250,000 each ("Phase I"
and Phase II"). Both Phases are available immediately.
<PAGE>
1. NOTICE PERIOD: Not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation or the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the "Sale-
Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted). For Equipment installed
prior to the date hereof Lessee must submit request to Lessor no
later than September 1, 1994 and if approved for inclusion under
this Lease, at Lessor's actual net appraised Equipment value
pursuant to the schedule below.
PERCENT OF ORIGINAL
ORIGINAL EQUIPMENT MANUFACTURER'S MANUFACTURER'S NET
SHIP DATE EQUIPMENT COST PAID BY LESSOR
--------------------------------- -----------------------------
Between 6/3/94 and 9/1/94 100%
Between 4/3/94 and 6/2/94 80%
Between 1/2/94 and 4/2/94 70%
For Equipment installed after the date hereof Lessee must submit request to
Lessor within the last ten (10) days of each month and Lessor will not perform a
Sale-Leaseback transaction on such installed Equipment which arrives ninety (90)
days after the original purchase of the Equipment.
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to: (1)
Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor with
Invoices containing the Equipment location, description, serial number and cost,
the Installation Date and Lessee's signature. Lessor will summarize all Invoices
and/or IAFs received in the same calendar month into a Commencement Certificate
in the form attached to this Schedule as Exhibit 1 and the Initial Term will
begin the first day of the calendar month thereafter provided, however that each
Commencement Certificate must cover equipment with an equipment cost of at least
$10,000 or Lessor shall instead include such equipment on the Commencement
Certificate for the next succeeding month. Each Commencement Certificate will
incorporate the terms and conditions of the Master Lease and this Schedule and
will constitute a separate Schedule. Notwithstanding the foregoing, if the
Equipment pertains to Sale-Leaseback Equipment the Commencement Date will be the
date Lessor tenders the purchase price.
4. ADVANCE
The Phase I Advance due under this schedule will be due upon execution of
this schedule and Phase II Advance will be due at the time the Lessee utilizes
any portion of the amount available under Phase II.
5. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to
this Schedule are hereby modified and amended as follows:
(a) Section 4.2, "Warranty and Disclaimer of Warranties"
---------------------------------------
In the last line of this Section before the words "negligent acts",
insert the words "willful or".
(b) Section 6.2, "Taxes and Fees"
----------------
To the end of this Section, add the following:
"Lessee shall not be liable for any taxes, fees or charges to the
extent the same
<PAGE>
result from any sale or assignment or grant of security interest by
Lessor, or to the extent any such action increases the taxes, fees
or charges that would otherwise be payable. Lessee shall have the
right to contest by proper legal proceedings any taxes levied, as
agent for or in the name of Lessor, and to withhold payment of any
disputed amount of taxes. Lessor will cooperate in any legal
proceedings being prosecuted by Lessee with regard to any taxes, but
Lessee shall pay the expenses in such litigation. Lessee shall not
be obligated to pay any taxes so long as it shall be in good faith
and by appropriate proceeding contesting the validity or the amount
thereof unless such contest would adversely affect the title of the
Lessor to the Equipment or would subject it to forfeiture or sale."
(c) Section 8, "Representations and Warranties of Lessee"
------------------------------------------
To the end of subsection (b), add the following:
", subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies."
(d) Section 12, "Risk of Loss"
--------------
In line 3 of paragraph 2, delete the words "at Lessor's option" and
replace with the words "at Lessee's option".
(e) Section 14.1, "Board Attendance"
------------------
Delete the first sentence of this Section in its entirety.
(f) Section 14.2, "Financial Statements"
----------------------
Change the beginning of subsection (ii) as follows:
"beginning with the year ended December 31, 1994, as soon as
practicable (and in any event within one hundred twenty (120) days)
after the end of each fiscal year,".
(g) Section 14.4, "Merger and Sale Provisions"
----------------------------
At the end of the first sentence, add the following:
"provided, however, that Lessor shall consent to the assignment in
the event of a proposed Merger which would qualify as an
Accelerating Merger for purposes of the Warrant Agreement dated as
of the date hereof."
Delete the language in line 7 after the words "and will" and replace
with the following:
"either (a) return the Equipment in accordance with Section 9, or
(b) pay to Lessor an additional amount to pay for the purchase price
of the Equipment as of the expiration of the Initial Term."
(h) Section 14.19 Definitions
-----------
Delete Interim Rent definition and replace with
"Interim Rent - means 13% per annum of Lessor's Cost for the period
-------------
from the Commencement Date through but not including the first day
of the first full Rent Interval included in the Initial Term."
MASTER LEASE: This Schedule is issued pursuant to the Master Lease identified
on page 1 of this Schedule. All of the terms and conditions of the Master Lease
are incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
NEOMAGIC CORPORATION COMDISCO, INC.
as Lessee as Lessor
By: /s/ P. C. Agarwal By: SIGNATURE ILLEGIBLE
-------------------- -----------------------
Title: President/CEO Title: TITLE ILLEGIBLE
----------------- -------------------
Date: 8/13/94 Date: 8/31/94
----------------- -----------------
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
------------------------
This Certificate dated is executed pursuant to Schedule No. to the Master
Lease Agreement dated between Comdisco, Inc. ("Lessor") and ("Lessee"). All of
the terms, conditions, representations and warranties of the Master Lease and
Schedule No. are incorporated herein and made a part hereof and this
Commencement Certificate constitutes a Schedule for the Equipment described
below.
1. Equipment:
---------
Equipment
Qty Mfgr Type/Model Serial # Location
--- ---- ---------- -------- --------
(See attached Invoices)
2. Installation Date: (See attached Invoices)
-----------------
3. Initial Terms Starts on:
-----------------------
4. Total Equipment Cost:
--------------------
5. Rent:
----
6. Representations of Lessee:
-------------------------
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the
Lessee on its Installation Date.
<PAGE>
EXHIBIT A
(MULTIPLE MONTHLY DELIVERY)
SCHEDULE NO. VL-3 DATED AS OF AUGUST 1, 1994
---------- --------------
MASTER LEASE AGREEMENT DATED AS OF November 17, 1993 ("MASTER LEASE")
---------------------
LESSEE: NEOMAGIC CORPORATION LESSOR: COMDISCO, INC.
Admin.Contact/Phone No.: Address for all Notices:
- ---------------------- -----------------------
Ms. Valerie Hinebaugh 6111 North River Road
(408) 988-7020 Rosemont, Illinois 60018
Attn.: Capital Equipment Lease
Administration
Address for Notices:
- -------------------
2710 Walsh Avenue
Santa Clara, CA 95051
Attn.:
Central Billing Location: PAYING AGENT:
- ------------------------ ------------
Same as above
Comdisco, Inc.
P.O. Box 91744
Attn.: Chicago, Illinois 60693
Lessee Reference No.: __________________
(24 digits maximum)
Location of Equipment: Initial Term: 42
- --------------------- ------------ -----------------
Same as above
Attn.: Lease Rate Factor: 2.786%
----------------- ------------
EQUIPMENT (as defined below): Advance: $13,930.00
------- ----------------------
Item Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
- ---- ---- ------------ ------------ ----------- ------ ----
One Quickturn LBM-3D and additional Equipment approved by Lessor, which shall be
delivered ** accepted by Lessee during the period August 1, 1994 through
February 1, 1996, for which L****** receives vendor invoices approved for
payment, up to an aggregate purchase price of $500,000 including upgrades
thereto and further excluding custom use equipment, leasehold improvement
installation costs and delivery costs, rolling stock, special tooling, custom
equipment, "s*** alone" software, application software bundled into computer,
hardware, hand held items, mold fungible items.
<PAGE>
1. NOTICE PERIOD: Not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by
Lessor, consisting of amounts financed under Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the "Sale-
Leaseback Transaction"). Any request for a Sale-Leaseback Transaction
must be submitted to Lessor in writing (along with accompanying
evidence of Lessee's Equipment ownership satisfactory to Lessor for
all Equipment submitted). For Equipment installed prior to the date
hereof Lessee must submit request to Lessor no later than September
1, 1994 and if approved for inclusion under this Lease, at Lessors's
actual net appraised Equipment value pursuant to the schedule below.
ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S
MANUFACTURER'S SHIP DATE NET EQUIPMENT COST PAID BY LESSOR
------------------------ ----------------------------------
Between 6/3/94 and 9/1/94 100%
Between 4/3/94 and 6/2/94 80%
Between 1/2/94 and 4/2/94 70%
For Equipment installed after the date thereof Lessee must submit
request to Lessor within the last ten (10) days of each month and Lessor will
not perform a Sale-Leaseback transaction on such installed Equipment which
arrives ninety (90) days after the original purchase of the Equipment.
(iii) USER EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to: (1)
Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor with
Invoices containing the Equipment location, description, serial number and cost,
the Installation Date and Lessee's signature. Lessor will summarize all Invoices
and/or IAFs received in the same calender month into a Commencement Certificate
in the form attached to this Schedule as Exhibit 1 and the Initial Term will
begin the first day of the calendar month thereafter provided, however that each
Commencement Certificate must cover equipment with an equipment cost of at least
$10,000 or Lessor shall instead include such equipment on the Commencement
Certificate for the next succeeding month. Each Commencement Certificate will
incorporate the terms and conditions of the Master Lease and this Schedule and
will constitute a separate Schedule. Notwithstanding the foregoing, if the
Equipment pertains to Sale-Leaseback Equipment the Commencement Date will be the
date Lessor tenders the purchase price.
4. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least ninety (90) days written notice
prior to the expiration of the Initial Term. In such event, the rent to be paid
during said extended period shall be mutually agreed upon and if the parties
cannot mutually agree, then the Lease shall continue in full force and effect
pursuant to the existing terms and conditions until terminated in accordance
with its terms. This Schedule will continue in effect following said extended
period until terminated by either party upon not less than ninety (90) days
prior written notice, which notice shall be effective as of the Rent Interval
next following receipt.
PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term, Lessee will have
the option at the expiration of the Initial Term of this Schedule to purchase
all, but not less than all, of the Equipment listed herein for a
<PAGE>
purchase price and upon terms and conditions to be mutually agreed upon by the
parties following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least thirty (30) days
before the expiration date of the Initial Term. Title to the Equipment shall
automatically pass to Lessee upon payment in full of the purchase price but, in
no event, earlier than the expiration of the fixed Initial Term. If the parties
are unable to agree on the purchase price or the terms and conditions with
respect to said purchase, ***** the Lease with respect to this Equipment shall
remain in full force and effect. It is agreed ***** understood that Lessor is
retaining a purchase money security interest in the Equipment listed herein and
this Schedule shall constitute a Security Agreement under the Uniform Commercial
Code of the state in which the Equipment is located. Lessor and Lessee agree
that for purposes of this paragraph, any licensed software will not be
considered part of the Equipment.
6. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to
this Schedule are hereby modified and amended as follows:
(a) Section 4.2, "Warranty and Disclaimer of Warranties"
---------------------------------------
In the last line of this Section before the words "negligent acts",
insert the words "willful or".
(b) Section 6.2, "Taxes and Fees"
----------------
To the end of this Section, add the following:
"Lessee shall not be liable for any taxes, fees or charges to the
extent the same result from any sale or assignment or grant of
security interest by Lessor, or to the extent any such action
increases the taxes, fees or charges that would otherwise be payable.
Lessee shall have the right to contest by proper legal proceedings any
taxes levied, as agent for or in the name of Lessor, and to withhold
payment of any disputed amount of taxes. Lessor will cooperate in any
legal proceedings being prosecuted by Lessee with regard to any taxes,
but Lessee shall pay the expenses in such litigation. Lessee shall not
be obligated to pay any taxes so long as it shall be in good faith and
by appropriate proceeding contesting the validity or the amount
thereof unless such contest would adversely affect the title of the
Lessor to the Equipment or would subject it to forfeiture or sale."
(c) Section 8, "Representations and Warranties of Lessee"
------------------------------------------
To the end of subsection (b), add the following:
", subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies."
(d) Section 12, "Risk of Loss"
--------------
In line 3 of paragraph 2, delete the words "at Lessor's option" and
replace with the words "at Lessee's option".
(e) Section 14.1, "Board Attendance"
------------------
Delete the first sentence of this Section in its entirety.
(f) Section 14.2, "Financial Statements"
----------------------
Change the beginning of subsection (ii) as follows:
"beginning with the year ended December 31, 1994, as soon as
practicable (and in any event within one hundred twenty (120) days)
after the end of each fiscal year,".
(g) Section 14.4, "Merger and Sale Provisions"
----------------------------
At the end of the first sentence, add the following:
"provided, however, that Lessor shall consent to the assignment in the
event of a proposed Merger which would qualify as an Accelerating
Merger for purposes of the Warrant Agreement dated as of the date
hereof."
Delete the language in line 7 after the words "and will" and replace
with the following:
"either (a) return the Equipment in accordance with Section 9, or (b)
pay to Lessor an additional amount to pay for the purchase price of
the Equipment as of the expiration of the Initial Term."
<PAGE>
(H) SECTION 14.19 DEFINITIONS
-----------
Delete Interim Rent definition and replace with
"Interim Rent - means 13% per annum of Lessor's Cost for the period
------------
from the Commencement Date through but not including the first day of
the first full Rent Interval included in the Initial Term."
MASTER LEASE: This Schedule is issued pursuant to the Master Lease identified
on page 1 of this Schedule. All of the terms and conditions of the Master Lease
are incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
NEOMAGIC CORPORATION COMDISCO, INC.
as Lessee as Lessor
By: /s/ P.C. Agarwal By: SIGNATURE ILLEGIBLE
----------------------- -------------------------
Title: President/CEO Title: TITLE ILLEGIBLE
-------------------- ----------------------
Date: 8/13/94 Date: 8/31/94
--------------------- -----------------------
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
------------------------
This Certificate dated is executed pursuant to Schedule No. to the Master
Lease Agreement ***** between Comdisco, Inc. ("Lessor") and ("Lessee"). All of
the terms, conditions, representations and warranties of the Master Lease and
Schedule No. are incorporated herein and made a part hereof and this
Commencement Certificate constitutes a Schedule for the Equipment described
below.
1. EQUIPMENT:
---------
EQUIPMENT
QTY MFGR TYPE/MODEL SERIAL # LOCATION
--- ---- ---------- -------- --------
(See attached Invoices)
2. INSTALLATION DATE: (See attached Invoices)
-----------------
3. INITIAL TERM STARTS ON:
----------------------
4. TOTAL EQUIPMENT COST:
--------------------
5. RENT:
----
6. REPRESENTATIONS OF LESSEE:
-------------------------
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the
Lessee on its Installation Date.
<PAGE>
EXHIBIT 10.9
TO THE EXTENT THAT THIS LEASE AND ANY LEASE SCHEDULE CONSTITUTES CHATTEL
PAPER (AS DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN OR THEREIN MAY BE CREATED EXCEPT
THROUGH THE TRANSFER AND POSSESSION OF THE ORIGINAL EXECUTED COUNTERPART OF SUCH
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED AS THE ORIGINAL EXECUTED COUNTERPART
NO. 1 BY THE LESSOR ON THE SIGNATURE PAGE THEREOF. NO SECURITY INTEREST CAN BE
CREATED IN THIS LEASE BY TRANSFER OR POSSESSION OF THIS LEASE ALONE WITHOUT AN
ACCOMPANYING ORIGINAL COUNTERPART OF A LEASE SCHEDULE. NO TRANSFER, SALE,
MORTGAGE OR OTHER DISPOSITION OF ANY INTEREST IN THIS LEASE CAN BE EFFECTED BY
DISPOSITION OF THIS INSTRUMENT ALONE.
MASTER EQUIPMENT LEASE AGREEMENT
--------------------------------
MASTER EQUIPMENT LEASE AGREEMENT dated as of July 19, 1995 (this
"Lease"), by and between VENTURE LENDING & LEASING, INC., a Maryland corporation
("Lessor"), and NeoMagic Corporation, a California corporation ("Lessee").
Lessee desires to obtain from Lessor purchase money financing for
certain items of equipment used in Lessee's business, which equipment is
described more particularly under the caption "Description of Equipment" in one
or more Lease Schedules (as defined below) to this Lease (such equipment
together with all substitutions, renewals or replacements of, and all additions,
improvements and accessions to, any and all thereof, being hereinafter
collectively and separately referred to as the "Equipment").
Lessor is willing to provide financing for the Equipment to Lessee,
all on the terms and conditions hereinafter set forth, and on such additional
terms as are set forth in Lessor's commitment letter to Lessee dated May 12,
1995 (the "Commitment").
Accordingly, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto hereby agree as follows:
1. Lease. This Lease establishes the general terms and conditions
-----
by which Lessor may provide financing to Lessee with respect to the Equipment
listed on each lease schedule (sometimes, a "Lease Schedule" or "Schedule")
executed periodically pursuant to this Lease. Each Schedule shall be in the form
provided by Lessor, shall incorporate by reference the terms of this Lease, and
shall be and constitute a separate agreement as to the Equipment listed thereon
for all purposes, including default. If any provision of a Lease Schedule
conflicts with or supplements the provisions of this Lease, the provisions of
such Schedule shall be controlling. Pursuant to the Commitment, Lessor has
<PAGE>
agreed to arrange for the furnishing and lease to Lessee, and Lessee has agreed
to accept and lease Equipment having an aggregate Equipment Cost (as defined in
each Schedule) of not in excess of One Million Dollars ($1,000,000.00).
Notwithstanding anything in the Lease to the contrary, it is understood and
agreed that Lessee is purchasing the Equipment and Lessor is financing such
purchases. Accordingly, title to the Equipment shall be vested in Lessee upon
its acceptance thereof. To secure its obligations hereunder to Lessor, Lessee
hereby grants to Lessor a security interest in: (i) all Equipment, whether now
owned or hereafter acquired by Lessee; (ii) all leases and other agreements
covering the Equipment and any and all subleases of such Equipment (whether or
not permitted under this Lease); (iii) all software, source code, source code
escrow arrangements, object code, user manuals and other technical
documentation, and licenses purchased as part of or for use with the Equipment;
and (iv) all additions and accessions to, substitutions for and proceeds
(whether cash or non-cash) and products of any of the foregoing, including,
without limitation, all payments under insurance. Upon payment in full of all
rentals for such Equipment in accordance with the applicable Schedule and the
other terms of this Lease, the provisions of Sections 6 through 10 of this Lease
shall no longer apply to such items of Equipment and such security interest
shall be released.
2. Term. The term of this Lease as to each item of Equipment leased
----
hereunder, shall commence on the date of acceptance of such item and shall end
at the expiration of the term therefor specified under "Term" in the applicable
Schedule.
3. Rent. Lessee shall pay to Lessor as rent for each item of
----
Equipment during the applicable Term, on each Rent Payment Date (as defined in
the Schedule), the amount specified under "Lease Rental Payments" in the
Schedule (hereinafter referred to as "Rent"). If any amount due hereunder is not
paid, within five days of its due date, Lessee shall pay to Lessor, on demand, a
reasonable late charge in the amount of 5% of such overdue amount and interest
on such overdue amount at the rate of 2% per month (the "Late Payment Rate");
such late charge and interest shall apply only if permitted by applicable law,
and if not so permitted, such late charge and interest shall be calculated at
the maximum rates permitted by applicable law. All payments of Rent and other
amounts payable by Lessee to Lessor hereunder shall be made at the office of
Lessor specified under "Lessor's Address" in the Schedule, or to such other
person, firm or corporation or Assignee (as defined in Section 20, "Assignment
by Lessor") and at such other place as Lessor or Assignee, as the case may be,
may from time to time designate in writing to Lessee. Notwithstanding any
provisions hereof to the contrary, any
2
<PAGE>
payment, including Rent, required under this Lease which is due on a day which
is not a business day shall be made on the business day next preceding the day
on which such payment is due. This Lease is non-cancellable and irrevocable for
the entire term set forth in the Schedule. Lessee's obligation to pay all
rentals and other amounts payable hereunder are absolute and unconditional and
shall not be subject to any abatement, reduction, setoff, defense, counterclaim
or recoupment for any reason whatsoever, including but not limited to Lessee's
right to possession of the Equipment being terminated or Lessor retaking
possession of the Equipment because of a default by Lessee hereunder.
4. Lessee's Selection, Inspection and Acceptance. Lessee has
---------------------------------------------
selected or will select all items of Equipment to be leased hereunder from the
manufacturer or vendor thereof on the basis of its own judgment, and is not
relying on any statements, representations or warranties made by Lessor or its
representatives. Upon delivery, Lessee, at its own expenses, shall make all
necessary inspections and tests of the Equipment in order to determine whether
the Equipment conforms to specifications and is in good condition and repair. If
the Equipment is in good condition and repair, Lessee shall execute and deliver
to Lessor a Certificate of Acceptance, in substantially the form thereof
attached hereto. Lessee warrants that each item of the Equipment is leased
solely for commercial or business use.
5. DISCLAIMER OF WARRANTIES BE LESSOR. LESSOR DOES NOT MAKE, HAS
----------------------------------
NOT MADE, AND SHALL NOT BE DEEMED TO MAKE OR HAVE MADE, ANY REPRESENTATION OR
WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING,
WITHOUT LIMITATION, THE DESIGN OR CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY, DURABILITY, SUITABILITY OR ITS FITNESS FOR ANY PARTICULAR
PURPOSE, THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE EQUIPMENT, OR THE
CONFORMITY OF THE EQUIPMENT TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE
ORDER OR ORDERS RELATING THERETO OR TITLE TO THE EQUIPMENT OR ANY COMPONENT
THEREOF, AND LESSOR HEREBY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY (WHICH
DISCLAIMER LESSEE HEREBY ACKNOWLEDGES). WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, LESSOR SHALL NOT BE LIABLE OR RESPONSIBLE FOR ANY DEFECTS, EITHER
PATENT OR LATENT (WHETHER OR NOT DISCOVERABLE BY LESSEE OR LESSOR), IN ANY UNIT
OF THE EQUIPMENT, OR FOR ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR PROPERTY
RESULTING THEREFROM, OR FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING
STRICT OR ABSOLUTE LIABILITY IN TORT), it being agreed that all such risks, as
between Lessor and Lessee, are to be borne solely by Lessee. Lessee acknowledges
that Lessor is not a dealer in or manufacturer of equipment of any kind, and
that each item of Equipment subject to this Lease is of a type, size, design and
capacity selected solely by Lessee. If the Equipment is not properly installed,
does not operate as represented or warranted by
3
<PAGE>
the manufacturer or seller thereof, or is unsatisfactory for any reason, Lessee
shall make any claim on account thereof solely against the manufacturer or
seller, and, once the Equipment is accepted by Lessee, no such occurrence shall
relieve Lessee of any of its obligations hereunder. Lessor hereby assigns to
Lessee any interest Lessor may have in any manufacturer's or seller's warranty,
whether express or implied, on such item. All claims or actions on any warranty
shall be made or prosecuted by Lessee, at its sole expense, and Lessor shall
have no obligation whatsoever to make any claim on such warranty. At Lessor's
option, all cash proceeds or equivalent thereof from such warranty recovery
shall be used to repair or replace the Equipment.
6. Equipment to be and Remain Personal Property. Lessee shall take
--------------------------------------------
all such actions as may be required to assure that the Equipment shall be, and
at all times shall remain, personal property, notwithstanding the manner in
which the Equipment may be attached or affixed to real property. Lessee shall
give Lessor prompt notice of any circumstances which may permit any person to
acquire, and shall obtain and record such instruments and take such steps as may
be reasonably requested by Lessor to prevent any such person from acquiring, any
rights in the Equipment by reason of the Equipment being claimed or deemed to be
real property. If requested by Lessor, Lessee shall obtain and deliver to Lessor
valid and effective waivers, in recordable form, by the owners, landlords and
mortgagees of any real property upon which the Equipment is located, or
certificates of Lessee that it is the owner of such real property and that such
real property is not leased and/or mortgaged. Lessee will at all times protect
and defend, at its own cost, Lessor's security interests in the Equipment from
and against all claims, liens and legal process of creditors of Lessee.
7. Location and Right of Inspection. The Equipment at all times
--------------------------------
shall be located at the address of Lessee specified under "Location of
Equipment" in the Schedule or such other place as shall be agreed upon in
writing between Lessor and Lessee. Lessor shall at all reasonable times during
customary business hours (but with the minimum practicable interference to
Lessees business operations) have the right to enter into and upon the premises
where the Equipment may be located for the purpose of inspecting the Lessee's
business premises and properties, including its use of the Equipment. Lessee
shall not move the Equipment from its agreed location except with the prior
written consent of Lessor which consent shall not unreasonably be withheld.
Lessee shall promptly advise Lessor of any circumstances with respect to
location which may adversely affect the Equipment or Lessor's security
interests therein.
4
<PAGE>
8. Markings and Filings. Lessee shall affix to the Equipment such labels,
--------------------
plates or decals as may be provided by Lessor, or conspicuously mark the
Equipment with such language as Lessor may reasonably request, to reflect the
interest of Lessor therein and, if there is an Assignee of Lessor, that such
Assignee has such interest in the Equipment specified by Lessor. Lessor is
hereby authorized at Lessee's expense to cause this Lease or any financing or
other statement in respect thereto, showing the interest of Lessor and any
Assignee in and to this Lease and the Equipment, to be filed or recorded with
any governmental office deemed appropriate by Lessor. Lessee shall execute any
such financing statements presented to it by Lessor or any Assignee, and shall
be responsible for the payment of any fees for filing or recording such
statements, which filing or recording shall be the sole responsibility of
Lessor.
9. Alterations. Lessee shall not make any alterations, additions or
-----------
improvements to the Equipment without the prior written consent of Lessor which
consent shall not unreasonably be withheld. Except as may be otherwise agreed
between Lessor and Lessee, all such alterations, additions and improvements
shall be considered accessions to the Equipment.
10. Use, Maintenance and Repair. Lessee shall use the Equipment solely in
---------------------------
the conduct of its business and shall comply with all laws, ordinances or
regulations, and all conditions contained in any insurance policies or
manufacturers' warranties, relating to the Equipment or its use, operation or
maintenance. Lessee shall put the Equipment only to the use contemplated by the
manufacturers thereof. Lessee shall at Lessee's own expense maintain the
Equipment in good operating condition, repair and appearance, furnish all parts
and labor required to keep the Equipment in such condition, and protect same
from deterioration other than normal wear and tear. Lessee shall cause the
Equipment to be maintained in accordance with the supplier's standard preventive
maintenance contract, if available.
11. Insurance. Lessee will maintain at all times, at its own expense, with
---------
insurers of recognized standing, (i) insurance against "all physical loss"
perils subject to standard exclusions in an amount not less than the greater of
the full replacement value or the Stipulated Loss Value of such item of
Equipment as set forth on any Schedule B attached to the Lease Schedule, and
----------
(ii) public liability and property damage insurance policies insuring against
third party personal and property damage in respect of the use and operation of
the Equipment in an amount not less than $1,000,000 for each occurrence. Each
policy shall: (i) name Lessor and Assignee, if any, as an additional insured and
loss payee, as their interests may appear to the extent of outstanding amounts
owed under the lease
5
<PAGE>
obligation. Any excess should be remitted to NeoMagic; (ii) contain an agreement
by the insurer that any loss thereunder shall be payable to Lessor and Assignee
notwithstanding any breach of representation or warranty by Lessee; (iii)
provide that there shall be no recourse against Lessor or Assignee for payment
of premiums or other amounts with respect thereto; and (iv) provide that at
least thirty (30) days' prior written notice of cancellation, change or lapse
shall be given to Lessor and Assignee by the insurer. All insurance for loss or
damage shall provide that losses, if any, shall be adjusted only with and
payable to Lessor or its Assignee, if any to the extent of outstanding amounts
owed under the lease obligation. Any excess should be remitted to NeoMagic.
Lessee shall pay all premiums for such insurance and shall deliver to Lessor
evidence of such payment and of the maintenance of the insurance coverages
required hereunder.
12. All Risk of Loss. All risk of loss, damage, theft or destruction
----------------
(a "Loss") to the Equipment shall be borne entirely by Lessee, whether or not
the Loss is insured. Except as expressly provided in this Section, no Loss of
any kind shall relieve or release Lessee of its Rent and other obligations under
this Lease, all of which shall continue in full force and effect. In the event
of a Loss to any Equipment, Lessee shall promptly notify Lessor in writing of
such fact and of all details with respect thereto, and shall promptly, at
Lessee's option (or if an Event of Default has occurred and is continuing, at
the option of Lessor):
(a) repair and restore the item of Equipment to good mechanical
condition and working order;
(b) replace the Equipment with other equipment of the same type,
capacity and condition, and free and clear of claims or encumbrances in
favor of any third party other than Lessor, whereupon such replacement
equipment shall be subject to this Lease and be deemed Equipment for
purposes hereof; or
(c) pay to Lessor, on the Rent Payment Date next succeeding the
date on which the Loss occurred, an amount equal to the sum of (A) all
accrued and unpaid Rent payable for such Equipment through and including
such Rent Payment Date, and (B) the Stipulated Loss Value of the Equipment
as of such Rent Payment Date as set forth on any Schedule B attached to the
----------
Lease Schedule pertaining to such Equipment.
13. Licensing, Registration and Taxes. Lessee shall, at its sole cost
---------------------------------
and expense, (i) obtain any licensing and registration of the Equipment as may
be required by law, (ii) pay and discharge when due all license and registration
fees, assessments, taxes (excluding any tax measured by
6
<PAGE>
Lessor's net income), including, without limitation, sales, use, excise,
personal property, ad valorem, stamp, documentary and other taxes, and all other
governmental charges, fees, fines or penalties whatsoever, whether payable by or
assessed to Lessor or Lessee, on or relating to the Equipment or the use,
registration, rental, shipment, transportation, delivery, ownership, operation
or disposition thereof, and on or relating to this Lease, (iii) file all returns
required therefor and furnish copies thereof to Lessor at its request, and (iv)
indemnify and hold Lessor harmless from any of the foregoing.
14. Liens. Lessee will not directly or indirectly, voluntarily or by
-----
operation of law, create, incur, assume or permit to exist any claim, mortgage,
security interest, pledge, lien, charge or other encumbrance ("Liens") against
the Equipment, except the following: (i) the rights of Lessee, Lessor and any
Assignee under this Lease; (ii) Liens against Lessor's interests in the
Equipment created or granted by Lessor or resulting from claims against Lessor
not related to the transactions contemplated hereby; (iii) Liens for taxes,
assessments or governmental charges or levies, not due and delinquent; (iv)
undetermined or inchoate materialmen's, mechanics', workmen's, repairmen's or
other like Liens arising in the ordinary course of business which in each case,
either are not delinquent or have been bonded ("Permitted Liens"). Lessee, at
its own cost and expense, will promptly pay, satisfy, discharge and otherwise
take such action as may be necessary to keep the Equipment free and clear of,
and duly to discharge, any Lien other than Permitted Liens.
15. Indemnification. Lessee assumes liability for, will pay when due
---------------
and will indemnify, protect, save, defend and hold Lessor, its agents,
employees, successors and assigns harmless from and against, any and all
obligations, liabilities, losses, damages, injuries, fines, penalties, interest,
claims, demands, actions, suits, costs and expenses, including reasonable
attorneys' fees and expenses, of every kind and nature whatsoever imposed on,
incurred by or asserted against, Lessor, its agents, employees, successors and
assigns in any way relating to or arising out of (a) the manufacture, ordering,
purchase, acceptance or rejection, ownership, delivery, leasing, possession,
use, operation or disposition of the Equipment, including, without limitation,
any of such as may arise from patent or latent defects in the Equipment (whether
or not discoverable by Lessee or Lessor), any claims based on strict liability
in tort, and any claims based on patent, trademark or copyright infringement,
except to the extent any of the foregoing arises out of gross negligence or
willful misconduct of Lessor or (b) any failure on the part of Lessee to perform
or comply with any of the terms of this Lease required to be performed or
complied with by Lessee. Lessee shall give
7
<PAGE>
written notice to Lessor of any occurrence, event or condition known to Lessee
as a consequence of which Lessor may be entitled to indemnification hereunder.
If any action, suit or proceeding is brought against any indemnified party in
connection with any claim indemnified against under this Section, Lessee may,
and upon the reasonable request of such indemnified party shall, at Lessee's
expense, resist and defend such action, suit or proceeding, or cause the same to
be resisted or defended, by counsel selected by Lessee and reasonably approved
by such indemnified party, and Lessee shall pay all costs and expenses
(including without limitation attorneys' fees and expenses) incurred by such
indemnified party in connection with such action, suit or proceeding. If a claim
is made against any indemnified party with respect to which such indemnified
party is entitled to indemnification from Lessee under this Section, lessor
shall reasonably promptly notify Lessee thereof. Lessee shall forthwith upon
demand of Lessor reimburse Lessor and any other indemnified party for amounts
expended by Lessor or such other indemnified party in connection with any of the
foregoing or pay such amounts directly. The provisions of this Section shall
apply from the date of the execution of this Lease and shall survive the
expiration or earlier termination of this Lease.
16. Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an "Event of Default" hereunder (whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
(a) Default by Lessee in payment of any installment of Rent or
other monetary obligation now or hereafter owed by Lessee to Lessor under
this Lease or under any other lease of equipment now or hereafter existing
between Lessee and Lessor or any affiliate of Lessor, and the continuance
of such default for 5 consecutive days (for purposes of this subparagraph
(a) "affiliate of Lessor" shall mean any person or entity which controls or
is controlled by or under common control with Lessor);
(b) Default by Lessee in the performance of any of the covenants
of Lessee set forth in Sections 7 ("Location and Right of Inspection"), 11
("Insurance"), 18 ("Return of Equipment") and 19 ("Assignment by Lessee")
hereof;
(c) Default by Lessee in the payment or performance of any
obligation with respect to any indebtedness for any borrowing or the
deferred purchase of property or any lease of property, in excess of 10%
8
<PAGE>
of Lessee's net worth or a default by Lessee under any agreement, license
or other document relating to software used in connection with the
Equipment, the effect of which would permit any licensor or third party to
terminate either Lessee's or Lessor's license or other rights with respect
to such software;
(d) Any representation or warranty made by Lessee in this Lease
or in any other document or certificate furnished to Lessor in connection
herewith or pursuant hereto, shall prove to be untrue or incorrect in any
material respect as of the date of issuance or making thereof;
(e) Lessee becomes insolvent or bankrupt or admits in writing
its inability or fails to pay its debts as they mature, or makes an
assignment for the benefit of creditors, or applies for or consents to the
appointment of a trustee or receiver for any of its properties or assets;
(f) Any proceedings shall be authorized by corporate action
taken by Lessee's shareholders or directors, or shall be commenced by or
against Lessee, for any relief under any bankruptcy or insolvency laws, or
laws relating to the relief of debtors, readjustments of indebtedness,
reorganizations, arrangements, compositions or extensions, unless, in the
case of involuntary proceedings only, such proceedings shall have been
dismissed within 60 days after such proceedings shall have been commenced;
(g) Default by Lessee under any warrant to purchase capital
stock of Lessee issued to Lessor in connection with the execution of this
Agreement (a "Warrant"), or material breach of any undertaking, covenant or
material representation or warranty made by Lessee for the benefit of
Lessor in any document, instrument or agreement relating to the Warrant or
made in connection therewith, including any registration rights or anti-
dilution provisions; or
(h) Default by Lessee in the performance or observance of any
other obligation, covenant or liability of Lessee contained in this Lease
and the continuance of such default for 30 consecutive days after written
notice thereof by Lessor to Lessee.
17. Remedies of Lessor. Upon the occurrence of any Event of Default
------------------
and at any time thereafter while such Event of Default is continuing, Lessor (i)
shall have no further obligations under the Commitment, and (ii) may, without
any further notice, exercise one or more of the
9
<PAGE>
following remedies as Lessor in its sole discretion shall elect:
(a) Declare all unpaid Rent and other sums due or to become due
under this Lease to be immediately due and payable;
(b) Terminate this Lease, whereupon all rights of Lessee to the
use of the Equipment shall absolutely cease and terminate but Lessee shall
remain liable as herein provided, and thereupon Lessee will permit Lessor
to store the Equipment on Lessee's premises or wherever the Equipment may
then be located, without charge, until sold or otherwise disposed of and,
if so requested by Lessor, shall at the expense of Lessee, promptly deliver
possession of the Equipment to Lessor at such place as Lessor shall
designate in the manner provided in Section 18 hereof;
(c) Take possession of the Equipment wherever found, and for
this purpose enter upon any premises of Lessee and remove the Equipment all
without liability on the part of Lessor for or by reason of such entry or
taking of possession, whether for the restoration of damage to property
caused by such taking or otherwise. Taking possession of the Equipment
shall not be construed to be an election to terminate this Lease and this
Lease shall remain in effect and Lessee shall remain liable for all
payments to be made hereunder. Lessee consents to the granting of one or
more applications for a writ of possession on an ex parte basis by a court
of competent jurisdiction upon posting of such undertaking or bond as may
be required by law, and agrees that the amount of such undertaking may be
limited to the depreciated value of the Equipment determined by Lessor as
of the proposed date of repossession;
(d) Sell the Equipment at public or private sale, in such
commercially reasonable manner as Lessor may deem appropriate (giving
Lessee at least ten (10) days' prior written notice of the time and place
of any such public sale, or the time after which a private sale may be
made, which notice Lessee hereby agrees is reasonable), or otherwise
dispose of, hold, use, operate or keep idle the Equipment, all as Lessor,
in its sole discretion, may determine and all free and clear of any rights
of Lessee and without any duty to account to Lessee (except as hereinafter
provided) for such action or inaction or for any proceeds resulting
therefrom. Lessor shall apply the net proceeds (the proceeds of any sale
minus all costs and expenses incurred with the recovery, repair, storage,
sale) of any such sale to the payment of Lessee's obligations hereunder,
Lessee
10
<PAGE>
remaining liable for any deficiency (and any excess to be paid over to
Lessee), which at Lessor's option, shall be paid monthly, as suffered, or
immediately in a lump sum, or at the end of the term, as damages for
Lessee's default;
(e) By written notice to Lessee, cause Lessee to pay Lessor (as
liquidated damages for loss of a bargain and not as a penalty) on the date
specified in such notice, an amount equal to the sum of: (A) any unpaid
Rent that accrued on or before the occurrence of the Event of Default, and
(B) the Stipulated Loss Value of such Equipment, as of the date of
occurrence of the Event of Default, as set forth on any Schedule B attached
----------
to the Lease Schedule pertaining to such Equipment. Should Lessor, however,
estimate its actual damages to exceed the foregoing, Lessor may, at its
option, recover its actual damages in lieu of or in addition thereto. If
Lessor proceeds pursuant to this subsection (e), Lessor hereby appoints
Lessee its agent to dispose of the Equipment at the best price obtainable
on an "as-is", "where is" basis, without representation or warranty,
express or implied. If Lessee has previously paid the amount of liquidated
damages specified above to Lessor, Lessee shall be entitled to the proceeds
of such sale of the Equipment; or
(f) Avail itself of any other remedy provided by any statute or
otherwise available at law, in equity or in bankruptcy.
No remedy referred to in this Section is intended to be exclusive, but each
shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law, in equity or in bankruptcy, and the
exercise or beginning of exercise by Lessor of any one or more of such remedies
shall not preclude the simultaneous or later exercise by Lessor of any or all
such other remedies. No waiver by Lessor of any Event of Default hereunder shall
in any way be or be construed to be a waiver of any future or subsequent Event
of Default. Lessee shall be liable for all costs and expenses (including
reasonable attorneys' fees and disbursements and the costs of any retaking)
incurred by reason of the occurrence of any Event of Default and the exercise of
Lessor's remedies with respect thereto.
18. Return of Equipment After Default. Upon early termination of this
---------------------------------
Lease pursuant to Section 17 ("Remedies of Lessor"), Lessee shall return each
item of Equipment to Lessor in good condition, ordinary wear and tear resulting
from proper use thereof excepted, in the following manner: by forthwith
delivering possession of the Equipment to Lessor. Lessee will, at its sole cost
and risk, forthwith prepare, dismantle, crate and deliver the Equipment
11
<PAGE>
at the place designated by Lessor, arrange for storage of the Equipment until
the Equipment has been sold or otherwise disposed of by Lessor, and/or deliver
the same to any carrier for shipment (insurance and freight prepaid) to such
place within the continental United States as shall be designated by Lessor, all
as directed by Lessor. The preparation, dismantling, crating, delivery, storage
and transporting of the Equipment shall be at the expense and risk of Lessee and
are of the essence of this Lease, and upon application to any court of equity
having jurisdiction Lessor shall be entitled to a decree against Lessee
requiring specific performance of the covenants of Lessee so to prepare,
dismantle, crate, deliver, store and transport the Equipment. During any storage
period, Lessee will, at its own expense and risk, maintain and keep the
Equipment fully insured and in good order and repair and will permit Lessor or
any person designated by it, including the authorized representative or
representatives of any prospective purchaser of any item of the Equipment, to
inspect the same. Lessee shall be responsible, at its sole cost and expense, for
any repairs necessary to place the Equipment in the condition hereinabove
required upon return, and for the discharge of all Liens (other than Permitted
Liens) thereon at the time of such return.
19. Assignment by Lessee. Lessee shall not assign, pledge or
--------------------
hypothecate this Lease in whole or in part, or any interest therein, nor shall
Lessee sublease or otherwise relinquish possession of, any item of the Equipment
without the prior written consent of Lessor. Lessee's interest herein may not be
assigned or transferred by operation of law. Consent to any of the foregoing
acts by Lessor shall not be deemed to be consent to any subsequent similar act
by Lessor. Any assignment by Lessee in violation of the provisions of this
Section shall be void.
20. Assignment by Lessor. Lessor may at any time, with or without
--------------------
notice to Lessee, transfer, sell, mortgage, grant a security interest in or
assign this Lease, any Lease Schedule (each such schedule constituting a
separate Lease as to the Equipment described therein), any Rent due or to become
due hereunder, or its security interests in the Equipment; and in such event
Lessor's transferee, purchaser, mortgagee, secured party or assignee (an
"Assignee") shall have all of Lessor's rights, powers, privileges and remedies
hereunder and shall not be obligated to perform any duty, covenant or condition
required to be observed or performed by Lessor, subject only to the rights of
Lessee to possession and quiet enjoyment of the Equipment as long as no Event of
Default has occurred under this Lease. All amounts payable to Lessor under this
Lease shall be payable to Assignee at such address as Assignee may designate in
writing to Lessee. Lessee acknowledges and agrees that the rights of any
Assignee in and to the sums payable by Lessee under any
12
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provision of this Lease shall not be subject to any abatement whatsoever and
shall not be subject to any defense, setoff, counterclaim or recoupment of any
nature whatsoever by reason of any liability or obligation, howsoever and
whenever arising, of Lessor to Lessee or to any other person, firm or
corporation or governmental authority, or for any other cause whatsoever.
21. Successors and Assigns. All of the covenants, conditions and
----------------------
obligations of each party contained in this Lease shall be binding upon, and,
subject to the provisions of Section 19, inure to the benefit of, the respective
successors and assigns of the parties hereto.
22. Lessor's Performance of Lessee's Obligations. If Lessee shall fail
--------------------------------------------
to duly and promptly perform any of its obligations under this Lease with
respect to the Equipment, Lessor may (at its option) perform any act or make any
payment required of Lessee, and Lessee shall reimburse Lessor (payable by Lessee
on demand) for all sums so paid or incurred by Lessor, together with interest at
the Late Payment Rate and any reasonable legal fees incurred by Lessor in
connection therewith. The performance of any act or payment by Lessor as
aforesaid shall not be deemed a waiver or release of any obligation or default
on the part of Lessee.
23. Managerial Assistance. During the Term and so long as any
---------------------
obligations under this Lease remain outstanding:
(a) Lessor shall make available to Lessee "significant managerial
assistance" , as defined in Section 2(a) (47) of the Investment Company Act
of 1940, as amended, either in the form of: (i) consulting arrangements
with Lessor or any of its officers, directors, employees or affiliates,
(ii) Lessee's allowing Lessor to designate members of Lessee's Board of
Directors, or (iii) Lessor, at Lessee's request, seeking the services of
third-party consultants to aid Lessee with respect to its management and
operations; and
(b) Lessee may in its discretion, permit Lessor, as a "venture
capital operating company," to participate in, and influence the conduct of
management of Lessee through the exercise of "management rights", as those
terms are defined in Section 2510.3-101 of the U.S. Department of Labor's
regulations, Title 29 of the Code of Federal Regulations.
24. Financial and Other Reports. During the Term and so long as any
---------------------------
obligations under this Lease remain outstanding, Lessee shall:
13
<PAGE>
(a) Furnish to Lessor and any Assignee of Lessor identified to
Lessee (i) within 90 days after the close of each fiscal year of Lessee, an
audited balance sheet and statement of changes in financial position of Lessee
at and as of the end of such fiscal year, together with an audited statement of
income of Lessee for such fiscal Year; (ii) within 45 days after the close of
each calendar month (or, if the stock of Lessee is publicly traded, each fiscal
quarter) of each fiscal year of Lessee, an unaudited balance sheet of Lessee at
and as of the end of such month (or quarter, as the case may be), together with
an unaudited statement of income of Lessee for such month or quarter, as the
case may be; and (iii) from time to time, such other information as Lessor or
Assignee may reasonably request regarding Lessee's business, financial condition
and prospects; and
(b) Consider permitting lessor, upon reasonable request, to
substantially participate in management of Lessee by consulting with and
advising officers of Lessee regarding Lessee's equipment acquisition and
financing plans, and such other matters affecting the business, financial
condition and prospects of Lessee as Lessor shall reasonably deem relevant; and
(c) If Lessor reasonably believes that financial or other
developments affecting Lessee have impaired or are likely to impair Lessee's
ability to perform its obligations under this Lease, permit Lessor reasonable
access to lessee's management and/ or Board of Directors and opportunity to
present Lessor's views with respect to such developments.
Lessee hereby warrants and represents that all financial statements delivered to
Lessor or such Assignee by or upon behalf of Lessee, and any statements and data
submitted in writing to Lessor or such Assignee in connection with this Lease,
are true and correct and fairly present the financial condition of Lessee for
the Periods involved, and are prepared in accordance with generally accepted
accounting principles consistently applied, and that there has occurred no
material adverse change in the financial condition of Lessee since the date of
the last financial statement delivered to Lessor which has not been disclosed in
writing to Lessor.
25. Power; Absence of Conflict. Lessee is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The execution, delivery and performance of
this Lease, and the obligations of Lessee hereunder have been duly authorized by
all necessary corporate action, and constitute the valid and binding obligations
of Lessee
14
<PAGE>
enforceable in accordance with their terms. The performance by Lessee of its
obligations hereunder will not result in a material breach or violation of, or
constitute a material default under, any statute, note, agreement, lease or
other instrument to which Lessee is a party or by which Lessee is bound,
Lessee's Articles of Incorporation or Bylaws, or, to Lessee's knowledge any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over Lessee.
26. Attorneys' Fees. If Lessor or Lessee institutes legal action
---------------
against the other to interpret or enforce this Lease or to obtain damages for
any alleged breach thereof, the prevailing party in such action shall be
entitled to an award of reasonable attorneys' fees and costs.
27. Notices. All notices required or permitted under this Lease shall
-------
be in writing and shall be deemed to have been duly given on the date of service
if served personally on the party to whom notice is to be given, or on the third
calendar day after deposit in the mail, if sent by first class mail, registered
or certified, postage prepaid, and properly addressed to Lessor or Lessee, as
the case may be, at their respective addresses set forth in the Schedule, or at
such other address as either party shall from time to time designate in the
manner provided above to the other party.
28. Governing Law. This Lease shall be governed by, and construed in
-------------
accordance with, the laws of the State of California, without regard to the
conflicts of laws provisions thereof. The parties acknowledge and agree that
this agreement and the transactions contemplated hereunder involve the
provision of equipment financing by Lessor and the creation of security
interests in such equipment, and shall not be deemed a lease as defined in
Division 10 of the California Commercial Code.
29. Entire Agreement; Amendments; Waivers. This Lease, together with
-------------------------------------
any and all Schedules and exhibits attached hereto, constitutes the entire
agreement between Lessor and Lessee, and supersedes all prior oral or written
agreements or understandings, with respect to the subject matter hereof, and it
shall not be amended, altered or changed, except by written agreement signed by
the parties hereto. No waiver of any provision of this Lease and no consent to
any departure by Lessee therefrom shall be effective unless the same shall be in
writing and signed by both parties, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
30. Severability. If any term or provision of this Lease or the
------------
application thereof shall, to any extent,
15
<PAGE>
be invalid or unenforceable, such invalidity or unenforceability shall not
affect or render invalid or unenforceable any other provision of this Lease, and
this Lease shall be valid and enforced to the fullest extent permitted by law.
31. Headings. The Section headings used herein are solely for
--------
convenience of reference and shall not be construed to define or limit any of
the terms or provisions hereof.
32. Further Assurances. Lessee shall execute and deliver to Lessor,
------------------
upon Lessor's request, such instruments and assurances as Lessor deems necessary
or desirable for the confirmation of Lessor's rights hereunder. In furtherance
thereof, Lessee agrees to take whatever action as may be necessary to enable
Lessor or any Assignee to file, register or record, and refile, re-register and
re-record, this Lease and any financing statements or other documents requested
by Lessor or any Assignee pursuant to the Uniform Commercial Code or otherwise.
Lessee authorizes Lessor to effect any such filing (including, where permitted
by applicable law, the filing of any financing statements without the signature
of Lessee) and Lessor's expenses with respect hereto shall be payable by Lessee
on demand.
TO THE EXTENT THAT THIS LEASE AND ANY LEASE SCHEDULE CONSTITUTES CHATTEL
PAPER (AS DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN OR THEREIN MAY BE CREATED EXCEPT
THROUGH THE TRANSFER AND POSSESSION OF THE ORIGINAL EXECUTED COUNTERPART OF SUCH
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED AS THE ORIGINAL EXECUTED COUNTERPART
NO. 1 BY THE LESSOR ON THE SIGNATURE PAGE THEREOF. NO SECURITY INTEREST CAN BE
CREATED IN THIS LEASE BY TRANSFER OR POSSESSION OF THIS LEASE ALONE WITHOUT AN
ACCOMPANYING ORIGINAL COUNTERPART OF A LEASE SCHEDULE. NO TRANSFER, SALE,
MORTGAGE OR OTHER DISPOSITION OF ANY INTEREST IN THIS LEASE CAN BE EFFECTED BY
DISPOSITION OF THIS INSTRUMENT ALONE.
16
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Lease as of the day
and year first above written.
LESSOR:
VENTURE LENDING & LEASING, INC.,
a Maryland corporation
By: SIGNATURE ILLEGIBLE
-----------------------------
Its: President
----------------------------
LESSEE:
NeoMagic Corporation
a California corporation
By: /s/ P.C. Agarwal
-----------------------------
Its: President/CEO
----------------------------
17
<PAGE>
LEASE SCHEDULE NO. 22-001
TO
MASTER EQUIPMENT LEASE AGREEMENT
--------------------------------
TO THE EXTENT THAT THIS LEASE SCHEDULE CONSTITUTES CHATTEL PAPER (AS
DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN MAY BE CREATED EXCEPT THROUGH THE
TRANSFER OR POSSESSION OF THE ORIGINAL EXECUTED "COUNTERPART NO. 1" OF THIS
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED ON THE SIGNATURE PAGE HEREOF.
This Lease Schedule is executed in accordance with the terms of the
Master Equipment Lease Agreement ("Master Lease") dated as of July 19, 1995 by
and between Venture Lending & Leasing, Inc., ("Lessor"), and NeoMagic
Corporation, a California corporation ("Lessee"). Unless otherwise expressly
defined herein, capitalized terms used herein shall have the same meaning as in
the Master Lease. All terms and conditions of the Master Lease are incorporated
herein by this reference.
I. Delivery and Acceptance Period:
------------------------------
Not later than July 31, 1995
II. Location(s) of Equipment:
------------------------
2710 Walsh Avenue
Santa Clara, CA 95051
Mitsubishi Electric Corporation Saijo Factory
8-6 Hiuchi Saijo City
Ehime-Prefecture, 793 Japan
III. Term:
----
With respect to each item of Equipment, a Term of 24 months,
commencing on the first day of the month next following the date of
acceptance of such item hereunder by Lessee; with an interim Term
commencing on the date of acceptance of such item and continuing to
but not including the first day of the Term.
IV. Equipment Cost:
--------------
"Equipment Cost" shall mean the total purchase price, paid or
financed by Lessor in respect of each item of Equipment.
<PAGE>
V. Rent Payment Dates:
------------------
August 1, 1995 two (2) Rental Payments, first and last in
advance, and the payment of Rent for any interim Term; twenty two
(22) consecutive monthly Rent payments on the first day of each
month commencing on September 1, 1995 to and including June 1,
1997 and August 1, 1997.
VI. Lease Rental Payments:
---------------------
With respect to each item of Equipment, a monthly amount equal to
4.61% multiplied by the Equipment Cost of such item, in advance;
plus a final payment in an amount equal to 10% multiplied by the
Equipment Cost of such item, payable on the first day of the
month next following the last day of the Term. Rent for any
period less than a month shall be prorated daily on the basis of
a 30-day month.
VII. Lessee's Address:
----------------
2710 Walsh Avenue
Santa Clara, CA 95051
VIII. Name and address of Lessor:
--------------------------
Venture Lending & Leasing, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131-2038
Address to which Rental and other payments are to be sent:
Bank of Boston
Payment Unit
P.O. Box 1323
Providence, RI 02901-1323
2
<PAGE>
IX. Description of Equipment:
------------------------
<TABLE>
<CAPTION>
Mfg. or I.D. or Unit Equipment
Quantity Vendor Description Serial Cost Cost
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
(EQUIPMENT FULLY DESCRIBED ON ATTACHED EQUIPMENT LIST)
3
<PAGE>
NEOMAGIC CORPORATION
EQUIPMENT LIST FOR LEASE SCHEDULE NO 22-001
<TABLE>
<CAPTION>
MANUFACTURER QTY DESCRIPTION SERIAL INVOICE INVOICE EQUIPMENT
OR NUMBER NUMBER DATE COST
VENDOR
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DNP AMERICA, INC. 1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 62AT 50302 2/27/95 35,500.00
0.25U SPOT SIZE/+/-0.15UM CD
2 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 56AU
0.125U SPOT SIZE/+/-0.1UM CD 61AU
DNP AMERICA, INC. 4 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 85AQ 40719 10/07/94 36,900.00
0.5U SPOT SIZE/+/-0.15UM CD 72AQ
73AT
64AT
1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 51AQ
0.125U SPOT SIZE/+/-0.1UM CD
DNP AMERICA, INC. 2 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 77AT 40998 11/28/94 60,200.00
0.5U SPOT SIZE/+/-0.15UM CD 99AU
1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 69AQ
0.25U SPOT SIZE/+/-0.15UM CD
3 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 54AU
0.125U SPOT SIZE/+/-0.1UM CD 91AU
76AU
DNP AMERICA, INC. 2 PHOTOMASK 7" QZ EB PELLICLIZED 1X MASTER 57AP 41027 11/28/94 8,000.00
0.5U SPOT SIZE 65AP
DNP AMERICA, INC. 2 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 90AU 40857 10/25/94 38,000.00
(PHASE 0.125U SPOT SIZE/+/-0.1UM PHASE 75AU
SHIFT MASK
DNP AMERICA, INC. 3 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 79AQ 40851 10/25/94 61,500.00
0.25U SPOT SIZE/+/-0.15UM CD 67AT
62AT
4 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 53AU
0.125U SPOT SIZE/+/-0.1UM CD 55AQ
56AU
61AU
DNP AMERICA, INC. 1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 62DT 50752 6/12/95 35,500.00
0.25UM ADDRESS/CD+/-0.15UM 56DU
2 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 61DU
</TABLE>
Page 1
<PAGE>
NEOMAGIC CORPORATION
EQUIPMENT LIST FOR LEASE SCHEDULE NO 22-001
<TABLE>
<CAPTION>
MANUFACTURER QTY DESCRIPTION SERIAL INVOICE INVOICE EQUIPMENT
OR NUMBER NUMBER DATE COST
VENDOR
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TYPE 1:0.125UM ADDRESS CD+/-0.1UM
--------------
TOTAL 295,600.00
</TABLE>
Page 2
<PAGE>
X. Additional Terms and Conditions:
-------------------------------
By execution of this Lease Schedule, Lessee and Lessor agree that
the additional terms, conditions and/or provisions set forth in
any Rider(s) attached hereto shall be incorporated by this
reference in this Lease Schedule and the Master Lease with
respect to the items of Equipment described in this Lease
Schedule. In the event of any conflict between the provisions of
any Rider and the Master Lease, the terms of the Rider shall be
controlling.
If a Schedule B is attached hereto, such Schedule B sets forth
----------
the Stipulated Loss Value of the accepted Equipment.
XI. Entire Agreement:
----------------
LESSEE REPRESENTS THAT IT HAS READ, RECEIVED, RETAINED A COPY OF
AND UNDERSTANDS THIS LEASE SCHEDULE, AND AGREES TO BE BOUND BY
ITS TERMS AND CONDITIONS. LESSOR AND LESSEE AGREE THAT THIS LEASE
SCHEDULE, ALL RIDERS AND SCHEDULES HERETO, AND THE MASTER LEASE
SHALL CONSTITUTE THE ENTIRE LEASE AND AGREEMENT AND SUPERSEDE ALL
PROPOSALS, ORAL OR WRITTEN, ALL PRIOR NEGOTIATIONS AND ALL OTHER
COMMUNICATIONS BETWEEN LESSOR AND LESSEE WITH RESPECT TO ANY ITEM
OF EQUIPMENT.
THIS LEASE SCHEDULE IS NOT CANCELLABLE BY LESSEE FOR THE TERM HEREOF.
4
<PAGE>
TO THE EXTENT THAT THIS LEASE SCHEDULE CONSTITUTES CHATTEL PAPER (AS
DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN MAY BE CREATED EXCEPT THROUGH THE
TRANSFER OR POSSESSION OF THE ORIGINAL EXECUTED "COUNTERPART NO. 1" OF THIS
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED AS THE ORIGINAL EXECUTED COUNTERPART
NO. 1 BELOW.
IN WITNESS WHEREOF, the parties hereto have caused this Lease Schedule
to be duly executed on the date set forth below by their authorized
representative.
LESSOR: LESSEE:
VENTURE LENDING & LEASING, INC. NEOMAGIC CORPORATION
By: /s/ R. W. Swenson By: /s/ Karin Walker
-------------------- -----------------------
Name: R. W. Swenson Name: Karin Walker
------------------- ---------------------
Title: President Title: Finance Manager
------------------ --------------------
Date: 7/31/95 Date: 7/31/95
------------------- --------------------
This is Counterpart No. 2 of 2 counterparts
--- ---
R.W.S
--------------------
(Lessor's initials)
5
<PAGE>
SCHEDULE B
This schedule is attached to and becomes a part of Lease Schedule No.
22-001 to Master Equipment Lease Agreement dated July 19, 1995 between the
undersigned, as Lessee, and VENTURE LENDING & LEASING, INC., as Lessor.
STIPULATED LOSS VALUE SCHEDULE FOR BASIC TERM
<TABLE>
<CAPTION>
Lease Period Prior to Stipulated Lease Period Prior to Stipulated
Rental Payment No. Loss Value(1) Rental Payment No. Loss Value(1)
- ------------------ ---------- ------------------ ---------
<S> <C> <C> <C>
1 115.00
2 110.62
3 106.24
4 101.86
5 97.48
6 93.10
7 88.72
8 84.34
9 79.96
10 75.58
11 71.20
12 66.82
13 62.44
14 58.06
15 53.68
16 49.30
17 44.92
18 40.54
19 36.16
20 31.78
21 27.40
22 23.03
23 18.64
24 14.26
Thereafter 10.00
</TABLE>
(1) Percentage of Equipment Cost
This Schedule B is hereby verified by the undersigned who acknowledges receipt
of a Copy.
LESSEE: NEOMAGIC CORPORATION
BY: /s/ Karin Walker
----------------------------
TITLE: Finance Manager
-------------------------
<PAGE>
[LETTERHEAD OF WESTERN TECHNOLOGY INVESTMENT APPEARS HERE]
PAYMENT INSTRUCTION LETTER
EQUIPMENT LEASE SCHEDULE NUMBER 22-001
Date: July 21, 1995
NEOMAGIC CORPORATION
2710 Walsh Avenue
Santa Clara, CA 95051
RE: Equipment Lease Schedule No. 22-001 ("Lease Schedule") to Master Equipment
Lease Agreement dated July 19, 1995 ("Lease") between NEOMAGIC CORPORATION,
as Lessee and VENTURE LENDING & LEASING, Inc., as Lessor
Dear Karin:
Pursuant to Article 3 of the above referenced Lease and Sections V and VI of the
above referenced Lease Schedule, Rent Payment Dates and Lease Rental Payments
are due and payable as follows:
Advance Payment Breakdown:
<TABLE>
<CAPTION>
Description Rent Payment Payment Date
----------- ------------ -------- ----
<S> <C> <C>
Partial Interim Payment $ 620.76 In Advance
First Rent Payment 13,627.16 In Advance
Last Rent Payment 13,627.16 In Advance
==========
Total Advance Payments $27,875.08
</TABLE>
Commencing on September 1, 1995 consecutive Rent Payments are due and
payable on the first day of each month as indicated below:
22 Lease Rental Payments in the amount of $13,627.16 each
1 final payment due on August 1, 1997 as indicated in Item
VI of Equipment Lease Schedule No. 22-001
Commencing on September 1, 1995, please send your remittance to the following
address using the loan transaction Number indicated below on each remittance.
Your checks should be made payable to Venture Lending & Leasing, Inc.
Loan payment remittance address:
Bank of Boston
Payment Unit
P.O. Box 1323
Providence, RI 02901-1323
Loan Transaction No. ________
<PAGE>
NEOMAGIC CORPORATION
Payment Instruction Letter for Lease Schedule No. 22-001
July 21, 1995
Page 2
PLEASE BE ADVISED THAT THIS IS THE ONLY PAYMENT NOTICE YOU WILL RECEIVE. WE DO
- ------ -- ------- ---- ---- -- --- ---- ------- ------ --- ---- ------- -- --
NOT PROCESS MONTHLY INVOICES.
- --- ------- ------- --------
Please acknowledge your receipt of this letter by signing the enclosed
counterpart of this letter where indicated below.
Sincerely,
/s/ Linda Carrigan
Linda Carrigan
Lease Administrator
Acknowledged and agreed to:
By: /s/ Karin Walker
------------------------------
Title: Finance Manager
---------------------------
Date: July 24, 1995
----------------------------
<PAGE>
LEASE SCHEDULE NO. 22-002
TO
MASTER EQUIPMENT LEASE AGREEMENT
--------------------------------
TO THE EXTENT THAT THIS LEASE SCHEDULE CONSTITUTES CHATTEL PAPER (AS
DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN MAY BE CREATED EXCEPT THROUGH THE
TRANSFER OR POSSESSION OF THE ORIGINAL EXECUTED "COUNTERPART NO. 1" OF THIS
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED ON THE SIGNATURE PAGE HEREOF.
This Lease Schedule is executed in accordance with the terms of the Master
Equipment Lease Agreement ("Master Lease") dated as of July 19, 1995 by and
between Venture Lending & Leasing, Inc., ("Lessor"), and NeoMagic Corporation, a
California corporation ("Lessee"). Unless otherwise expressly defined herein,
capitalized terms used herein shall have the same meaning as in the Master
Lease. All terms and conditions of the Master Lease are incorporated herein by
this reference.
I. Delivery and Acceptance Period:
------------------------------
Not later than November 30, 1995
II. Location(s) of Equipment:
------------------------
2710 Walsh Avenue
Santa Clara, CA 95051
Mitsubishi Electric Corporation, Saijo Factory 8-6 Hiuchi Saijo-City
Erime-Prefecture 793 Japan
III. Term:
----
With respect to each item of Equipment, a Term of 24 months,
commencing on the first day of the month next following the date of
acceptance of such item hereunder by Lessee; with an interim Term
commencing on the date of acceptance of such item and continuing to
but not including the first day of the Term.
IV. Equipment Cost:
--------------
"Equipment Cost" shall mean the total purchase price, paid or
financed by Lessor in respect of each item of Equipment.
<PAGE>
V. Rent Payment Dates:
------------------
December 1, 1995 two (2) Rental Payments, first and last in advance,
and the payment of Rent for any interim Term; twenty two (22)
consecutive monthly Rent payments on the first day of each month
commencing on January 1, 1996 to and including October 1, 1997 and
December 1, 1997.
VI. Lease Rental Payments:
---------------------
With respect to each item of Equipment, a monthly amount equal to
4.61% multiplied by the Equipment Cost of such item, in advance;
plus a final payment in an amount equal to 10% multiplied by the
Equipment Cost of such item, payable on the first day of the month
next following the last day of the Term. Rent for any period less
than a month shall be prorated daily on the basis of a 30-day month.
VII. Lessee's Address:
----------------
2710 Walsh Avenue
Santa Clara, CA 95051
VIII. Name and address of Lessor:
--------------------------
Venture Lending & Leasing, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131-2038
Address to which Rental and other payments are to be sent:
Bank of Boston
Payment Unit
P.O. Box 1323
Providence, RI 02901-1323
2
<PAGE>
IX. Description of Equipment:
------------------------
Mfg. or I.D. or Unit Equipment
Quantity Vendor Description Serial Cost Cost
- --------------------------------------------------------------------------------
(EQUIPMENT FULLY DESCRIBED ON ATTACHED EQUIPMENT LIST)
3
<PAGE>
NEOMAGIC CORPORATION
EQUIPMENT LIST FOR LEASE SCHEDULE NO 22-002
<TABLE>
<CAPTION>
MANUFACTURER QTY DESCRIPTION SERIAL INVOICE INVOICE EQUIPMENT
OR NUMBER NUMBER DATE COST
VENDOR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DNP AMERICA, INC. 4 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 85AQG 51521 10/19/95 59,900.00
0.5U SPOT SIZE 72AQG
73ATG
64ATG
1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 69AQG
0.25U SPOT SIZE
2 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 51AQG
0.125U SPOT SIZE 54AUG
DNP AMERICA, INC. 2 PHOTOMASK 6" QZ EB PELLICLIZED PHASE 90AVG 51522 10/19/95 115,100.00
SHIFT 5X 0.125U SPIT SIZE 75AVG
1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 77ATG
0.5U SPOT SIZE
2 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 79AQG
0.25U SPOT SIZE 67ATG
4 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 91AUG
0/125U SPOT SIZE 76AUG
53AUG
55AQG
DNP AMERICA, INC. 1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 62ET 51276 9/13/95 35,500.00
0.25UM ADDRESS, CD+/-0.15UM
2 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 56EU
0.125 UM ADDRESS, CD+/-0.1 UM 61EU
------------
210,500.00
</TABLE>
Page 1
<PAGE>
X. Additional Terms and Conditions:
-------------------------------
By execution of this Lease Schedule, Lessee and Lessor agree
that the additional terms, conditions and/or provisions set
forth in any Rider(s) attached hereto shall be incorporated
by this reference in this Lease Schedule and the Master
Lease with respect to the items of Equipment described in
this Lease Schedule. In the event of any conflict between
the provisions of any Rider and the Master Lease, the terms
of the Rider shall be controlling.
If a Schedule B is attached hereto, such Schedule B sets
----------
forth the Stipulated Loss Value of the accepted Equipment.
XI. Entire Agreement:
----------------
LESSEE REPRESENTS THAT IT HAS READ, RECEIVED, RETAINED A
COPY OF AND UNDERSTANDS THIS LEASE SCHEDULE, AND AGREES TO
BE BOUND BY ITS TERMS AND CONDITIONS. LESSOR AND LESSEE
AGREE THAT THIS LEASE SCHEDULE, ALL RIDERS AND SCHEDULES
HERETO, AND THE MASTER LEASE SHALL CONSTITUTE THE ENTIRE
LEASE AND AGREEMENT AND SUPERSEDE ALL PROPOSALS, ORAL OR
WRITTEN, ALL PRIOR NEGOTIATIONS AND ALL OTHER COMMUNICATIONS
BETWEEN LESSOR AND LESSEE WITH RESPECT TO ANY ITEM OF
EQUIPMENT.
THIS LEASE SCHEDULE IS NOT CANCELLABLE BY LESSEE FOR THE TERM
HEREOF.
4
<PAGE>
TO THE EXTENT THAT THIS LEASE SCHEDULE CONSTITUTES CHATTEL PAPER (AS
DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN MAY BE CREATED EXCEPT THROUGH THE
TRANSFER OR POSSESSION OF THE ORIGINAL EXECUTED "COUNTERPART NO. 1" OF THIS
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED AS THE ORIGINAL EXECUTED COUNTERPART
NO. 1 BELOW.
IN WITNESS WHEREOF, the parties hereto have caused this Lease Schedule
to be duly executed on the date set forth below by their authorized
representative.
LESSOR: LESSEE:
VENTURE LENDING & LEASING, INC. NEOMAGIC CORPORATION
By: /s/ R. W. SWENSON By: /s/ Karin Walker
--------------------------- -------------------------
Name: R. W. SWENSON Name: Karin Walker
------------------------- -----------------------
Title: President Title: Finance Manager
------------------------ ----------------------
Date: 11/13/95 Date: 11/9/95
------------------------- -----------------------
This is Counterpart No. 2 of 2 counterparts
--- ---
R W S
--------------------
(Lessor's initials)
5
<PAGE>
SCHEDULE B
This schedule is attached to and becomes a part of Lease Schedule No.
22-002 to Master Equipment Lease Agreement dated July 19, 1995 between the
undersigned, as Lessee, and VENTURE LENDING & LEASING, INC., as Lessor.
STIPULATED LOSS VALUE SCHEDULE FOR BASIC TERM
<TABLE>
<CAPTION>
Lease Period Prior to Stipulated Lease Period Prior to Stipulated
Rental Payment No. Loss Value(1) Rental Payment No. Loss Value(1)
- ------------------ ---------- ------------------ ----------
<S> <C> <C> <C>
1 115.00
2 110.62
3 106.24
4 101.86
5 97.48
6 93.10
7 88.72
8 84.34
9 79.96
10 75.58
11 71.20
12 66.82
13 62.44
14 58.06
15 53.68
16 49.30
17 44.92
18 40.54
19 36.16
20 31.78
21 27.40
22 23.03
23 18.64
24 14.26
Thereafter 10.00
</TABLE>
(1) Percentage of Equipment Cost
This Schedule B is hereby verified by the undersigned who acknowledges receipt
of a Copy.
LESSEE: NEOMAGIC CORPORATION
BY: /s/ Karin Walker
----------------------------
TITLE: Finance Manager
-------------------------
<PAGE>
[LOGO OF WESTERN TECHNOLOGY INVESTMENT APPEARS HERE]
November 15, 1995
Ms. Karin Walker
Finance Manager
NeoMagic Corporation
2710 Walsh Avenue
Santa Clara, CA 95051
Re: Lease Schedule No. 22-002
Dear Karin:
The only documents that need changing are the Payment Instruction Letter and
Certificate of Acceptance. I have enclosed two of each for execution. Please
return with your advance payment check in the amount of $19,408.10.
I have also enclosed your check no. 3742.
If you have any questions, please do not hesitate to contact me.
Sincerely
/s/ Linda Carrigan
Linda White
Enclosures-
As stated
<PAGE>
[LOGO OF WESTERN TECHNOLOGY INVESTMENT APPEARS HERE]
PAYMENT INSTRUCTION LETTER
EQUIPMENT LEASE SCHEDULE NUMBER 22-002
Date: November 15, 1996
NEOMAGIC CORPORATION
2710 Walsh Avenue
Santa Clara, CA 95051
RE: Equipment Lease Schedule No. 22-002 ("Lease Schedule") to Master Equipment
Lease Agreement dated July 19, 1995 ("Lease") between NEOMAGIC CORPORATION,
as Lessee and VENTURE LENDING & LEASING, INC., as Lessor
Dear Karin:
Pursuant to Article 3 of the above referenced Lease and Sections V and VI of the
above referenced Lease Schedule, Rent Payment Dates and Lease Rental Payments
are due and payable as follows:
Advance Payment Breakdown:
Description Rent Payment Payment Date
----------- ---- ------- ------- ----
First Rent Payment 9,704.05 In Advance
Last Rent Payment 9,704.05 In Advance
----------
Total Advance Payments $19,408.10
Commencing on January 1, 1996 consecutive Rent Payments are due and payable
on the first day of each month as indicated below:
22 Lease Rental Payments in the amount of $9,704.05 each
1 final payment due on December 1, 1997 as indicated in Item VI of
Equipment Lease Schedule No. 22-002
Commencing on January 1, 1996, please send your remittance to the following
address using the loan transaction Number indicated below on each remittance.
Your checks should be made payable to Venture Lending & Leasing, Inc.
Loan payment remittance address:
Bank of Boston
Payment Unit
P.O. Box 1323
Providence, RI 02901-1323
Loan Transaction No. ___________
<PAGE>
NEOMAGIC CORPORATION
Payment Instruction Letter for Lease Schedule No. 22-002
November 15, 1995
Page 2
PLEASE BE ADVISED THAT THIS IS THE ONLY PAYMENT NOTICE YOU WILL RECEIVE. WE DO
- ------ -- ------- ---- ---- -- --- ---- ------- ------ --- ---- ------- -- --
NOT PROCESS MONTHLY INVOICES.
- --- ------- ------- --------
Please acknowledge your receipt of this letter by signing the enclosed
counterpart of this letter where indicated below.
Sincerely,
/s/ Linda White
Linda White
Lease Administrator
Acknowledged and agreed to:
NEOMAGIC CORPORATION
By: /s/ Karin Walker
--------------------------
Title: Finance Manager
------------------------
Date: 11/22/95
------------------------
<PAGE>
LEASE SCHEDULE NO. 22-003
TO
MASTER EQUIPMENT LEASE AGREEMENT
--------------------------------
TO THE EXTENT THAT THIS LEASE SCHEDULE CONSTITUTES CHATTEL PAPER (AS
DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN MAY BE CREATED EXCEPT THROUGH THE
TRANSFER OR POSSESSION OF THE ORIGINAL EXECUTED "COUNTERPART NO. 1" OF THIS
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED ON THE SIGNATURE PAGE HEREOF.
This Lease Schedule is executed in accordance with the terms of the
Master Equipment Lease Agreement ("Master Lease") dated as of July 19, 1995 by
and between Venture Lending & Leasing, Inc., ("Lessor"), and NeoMagic
Corporation, a California corporation ("Lessee"). Unless otherwise expressly
defined herein, capitalized terms used herein shall have the same meaning as in
the Master Lease. All terms and conditions of the Master Lease are incorporated
herein by this reference.
I. Delivery and Acceptance Period:
------------------------------
Not later than February 29, 1996
II. Location(s) of Equipment:
------------------------
2710 Walsh Avenue
Santa Clara, CA 95051
Mitsubishi Electric Corporation, Saijo Factory 8-6 Hiuchi
Saijo-City Erime-Prefecture 793 Japan
III. Term:
----
With respect to each item of Equipment, a Term of 24 months,
commencing on the first day of the month next following the date
of acceptance of such item hereunder by Lessee; with an interim
Term commencing on the date of acceptance of such item and
continuing to but not including the first day of the Term.
IV. Equipment Cost:
--------------
"Equipment Cost" shall mean the total purchase price, paid or
financed by Lessor in respect of each item of Equipment.
<PAGE>
V. Rent Payment Dates:
------------------
March 1, 1996 two (2) Rental Payments, first and last in advance,
and the payment of Rent for any interim Term; twenty two (22)
consecutive monthly Rent payments on the first day of each month
commencing on April 1, 1996 to and including February 1, 1998 and
March 1, 1998.
VI. Lease Rental Payments:
---------------------
With respect to each item of Equipment, a monthly amount equal to
4.59% multiplied by the Equipment Cost of such item, in advance;
plus a final payment in an amount equal to 10% multiplied by the
Equipment Cost of such item, payable on the first day of the
month next following the last day of the Term. Rent for any
period less than a month shall be prorated daily on the basis of
a 30-day month.
VII. Lessee's Address:
----------------
2710 Walsh Avenue
Santa Clara, CA 95051
VIII. Name and address of Lessor:
--------------------------
Venture Lending & Leasing, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131-2038
Address to which Rental and other payments are to be sent:
Bank of Boston
Payment Unit
P.O. Box 1323
Providence, RI 02901-1323
2
<PAGE>
IX. Description of Equipment:
------------------------
Mfg. or I.D. or Unit Equipment
Quantity Vendor Description Serial Cost Cost
------------------------------------------------------------------
(EQUIPMENT FULLY DESCRIBED ON ATTACHED EQUIPMENT LIST)
3
<PAGE>
NEOMAGIC CORPORATION
EQUIPMENT LIST FOR LEASE SCHEDULE NO. 22-003
<TABLE>
<CAPTION>
MANUFACTURER QTY DESCRIPTION SERIAL INVOICE INVOICE EQUIPMENT
OR NUMBER NUMBER DATE COST
VENDOR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DNP AMERICA, INC. 2 PHOTOMASK 6" QZ EB PELLICLIZED 1X MASTER 57AP 51713 11/28/95 8,000.00
0.5U SPOT SIZE 65AP
DNP AMERICA, INC. 1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 79AQG 51714 11/28/95 41,600.00
0.25U SPOT SIZE
2 PHOTOMASK 6" QZ EM PELLICLIZED 5X RETICLE 91AUG
0.125U SPOT SIZE 76AUG
DNP AMERICA, INC. 1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 62FT 51813 12/20/95 35,500.00
0.25UM SPOT SIZE /+/-0.15 UM CD
2 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 56FU
0.125UM SPOT SIZE /+/-0.1 UM CD 61FU
DNP AMERICA, INC. 4 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 85AQG 60126 1/30/96 76,500.00
0.5U SPOT SIZE 72AQG
73ATG
64ATG
3 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 69AQG
.025U SPOT SIZE 79AQG
67ATG
2 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 51AQG
0.125U SPOT SIZE 54AUG
------------
161,600.00
</TABLE>
Page 1
<PAGE>
X. Additional Terms and Conditions:
-------------------------------
By execution of this Lease Schedule, Lessee and Lessor agree that
the additional terms, conditions and/or provisions set forth in
any Rider(s) attached hereto shall be incorporated by this
reference in this Lease Schedule and the Master Lease with
respect to the items of Equipment described in this Lease
Schedule. In the event of any conflict between the provisions of
any Rider and the Master Lease, the terms of the Rider shall be
controlling.
If a Schedule B is attached hereto, such Schedule B sets forth
----------
the Stipulated Loss Value of the accepted Equipment.
XI. Entire Agreement:
----------------
LESSEE REPRESENTS THAT IT HAS READ, RECEIVED, RETAINED A COPY OF
AND UNDERSTANDS THIS LEASE SCHEDULE, AND AGREES TO BE BOUND BY
ITS TERMS AND CONDITIONS. LESSOR AND LESSEE AGREE THAT THIS LEASE
SCHEDULE, ALL RIDERS AND SCHEDULES HERETO, AND THE MASTER LEASE
SHALL CONSTITUTE THE ENTIRE LEASE AND AGREEMENT AND SUPERSEDE ALL
PROPOSALS, ORAL OR WRITTEN, ALL PRIOR NEGOTIATIONS AND ALL OTHER
COMMUNICATIONS BETWEEN LESSOR AND LESSEE WITH RESPECT TO ANY ITEM
OF EQUIPMENT.
THIS LEASE SCHEDULE IS NOT CANCELLABLE BY LESSEE FOR THE TERM HEREOF.
4
<PAGE>
TO THE EXTENT THAT THIS LEASE SCHEDULE CONSTITUTES CHATTEL PAPER (AS
DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN MAY BE CREATED EXCEPT THROUGH THE
TRANSFER OR POSSESSION OF THE ORIGINAL EXECUTED "COUNTERPART NO. 1" OF THIS
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED AS THE ORIGINAL EXECUTED COUNTERPART
NO. 1 BELOW.
IN WITNESS WHEREOF, the parties hereto have caused this Lease Schedule to
be duly executed on the date set forth below by their authorized representative.
LESSOR: LESSEE:
VENTURE LENDING & LEASING, INC. NEOMAGIC CORPORATION
By: /s/ R W Swenson By: /s/ Karin Walker
----------------------- ---------------------------
Name: /s/ R W SWENSON Name: /s/ Karin Walker
--------------------- -------------------------
Title: President Title: Finance Manager
-------------------- ------------------------
Date: 2/27/96 Date: 2/27/96
--------------------- -------------------------
This is Counterpart No. 2 of 2 counterparts
--- ---
RWS
-------------------------
(Lessor's initials)
5
<PAGE>
SCHEDULE B
This schedule is attached to and becomes a part of Lease Schedule No.
22-003 to Master Equipment Lease Agreement dated July 19, 1995 between the
undersigned, as Lessee, and VENTURE LENDING & LEASING, INC., as Lessor.
STIPULATED LOSS VALUE SCHEDULE FOR BASIC TERM
Lease Period Prior to Stipulated Lease Period Prior to Stipulated
Rental Payment No. Loss Value(1) Rental Payment No. Loss Value(1)
- ------------------ ---------- ------------------ ----------
1 115.00
2 110.62
3 106.24
4 101.86
5 97.48
6 93.10
7 88.72
8 84.34
9 79.96
10 75.58
11 71.20
12 66.82
13 62.44
14 58.06
15 53.68
16 49.30
17 44.92
18 40.54
19 36.16
20 31.78
21 27.40
22 23.03
23 18.64
24 14.26
Thereafter 10.00
(1) Percentage of Equipment Cost
This Schedule B is hereby verified by the undersigned who acknowledges receipt
of a Copy.
LESSEE: NEOMAGIC CORPORATION
By: /s/ Karin Walker
------------------------
TITLE: Finance Manager
---------------------
<PAGE>
[LOGO OF WESTERN TECHNOLOGY INVESTMENT APPEARS HERE]
PAYMENT INSTRUCTION LETTER
EQUIPMENT LEASE SCHEDULE NUMBER 22-003
Date: February 27, 1996
NEOMAGIC CORPORATION
2710 Walsh Avenue
Santa Clara, CA 95051
RE: Equipment Lease Schedule No. 22-003 ("Lease Schedule") to Master Equipment
Lease Agreement dated July 19, 1995 ("Lease") between NEOMAGIC CORPORATION,
as Lessee and VENTURE LENDING & LEASING, INC., as Lessor
Dear Karin:
Pursuant to Article 3 of the above referenced Lease and Sections V and VI of the
above referenced Lease Schedule, Rent Payment Dates and Lease Rental Payments
are due and payable as follows:
Advance Payment Breakdown:
Description Rent Payment Payment Date
----------- ---- ------- ------- ----
First Rent Payment 7,417.44 In Advance
Last Rent Payment 7,417.44 In Advance
----------
Total Advance Payments $14,834.88
Commencing on April 1, 1996 consecutive Rent Payments are due and payable
on the first day of each month as indicated below:
22 Lease Rental Payments in the amount of $7,417.44 each final payment
1 due on March 1, 1998 as indicated in Item VI of Equipment Lease
Schedule NO. 22-003
Commencing on April 1, 1996, please send your remittance to the following
address using the loan transaction Number indicated below on each remittance.
Your checks should be made payable to Venture & Lending & Leasing, Inc.
--------------------------------
Loan payment remittance address:
Bank of Boston
Payment Unit
P.O. Box 1323
Providence, RI 02901-1323
Loan Transaction No. 999991318
---------
2010 North First Street, Suite 310. San Jose, CA 95131 . (408)436-8577 . Fax
(408) 436-8625
<PAGE>
NEOMAGIC CORPORATION
Payment Instruction Letter for Lease Schedule No. 22-003
February 27, 1996
Page 2
PLEASE BE ADVISED THAT THIS IS THE ONLY PAYMENT NOTICE YOU WILL RECEIVE. WE DO
- ------ -- ------- ---- ---- -- --- ---- ------- ------ --- --- -------- -- --
NOT PROCESS MONTHLY INVOICES.
- --- ------- ------- --------
Please acknowledge your receipt of this letter by signing the enclosed
counterpart of this letter where indicated below.
Sincerely,
/s/ Linda White
Linda White
Lease Administrator
Acknowledged and agreed to:
NEOMAGIC CORPORATION
By: /s/ Lori Holland
-----------------------
Title: VP & CFO
--------------------
Date: 2/27/96
---------------------
<PAGE>
EXHIBIT 10.13
NEOMAGIC CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Stock Purchase
Plan of NeoMagic Corporation.
1. Purpose. The purpose of the Plan is to provide employees of
-------
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(c) "Common Stock" shall mean the common stock of the
------------
Company.
(d) "Company" shall mean NeoMagic Corporation and any
-------
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
------------
earnings and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which
---------------------
has been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an employee
--------
of the Company for tax purposes whose customary employment with the Company is
at least twenty (20) hours per week and more than five (5) months in any
calendar year. For purposes of the Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed to have
terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
---------------
Offering Period.
<PAGE>
(i) "Exercise Date" shall mean the last day of each Purchase
-------------
Period.
(j) "Fair Market Value" shall mean, as of any date, the
-----------------
value of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board; or
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of
----------------
approximately twenty-four (24) months during which an option granted pursuant to
the Plan may be exercised, commencing on the first Trading Day on or after March
1 and September 1 of each year and terminating on the last Trading Day in the
periods ending twenty-four months later; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day on
or after February 28, 1999. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of
--------------
the Fair Market Value of a share of Common Stock on the Enrollment Date or on
the Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six
---------------
month period commencing after one Exercise Date and ending with the next
Exercise Date, except that the first Purchase Period of any Offering Period
shall commence on the Enrollment Date and end with the next Exercise Date.
-2-
<PAGE>
(o) "Reserves" shall mean the number of shares of Common
--------
Stock covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or
----------
or foreign, of which not less than 50% of the voting shares are held by the
Company or a Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
-----------
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after March 1 and September 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or after
February 28, 1999. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
-3-
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the
Plan by completing a subscription agreement authorizing payroll deductions in
the form of Exhibit A to this Plan and filing it with the Company's payroll
office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on
the first payroll following the Enrollment Date and shall end on the last
payroll in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation
in the Plan as provided in Section 10 hereof, or may increase or decrease the
rate of his or her payroll deductions during the Offering Period by completing
or filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary
to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in
part, or at the time some or all of the Company's Common Stock issued under the
Plan is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock. At
any time, the
-4-
<PAGE>
Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering
---------------
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on each Exercise Date during such Offering Period
(at the applicable Purchase Price) up to a number of shares of the Company's
Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the applicable Purchase Price; provided that
in no event shall an Employee be permitted to purchase during each Purchase
Period more than 30,000 shares of the Company's Common Stock (subject to any
adjustment pursuant to Section 19) on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The
option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the
------------------
Plan as provided in Section 10 hereof, his or her option for the purchase of
shares shall be exercised automatically on the Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier with drawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date
--------
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all
the payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written notice
to the Company in the form of Exhibit B to this Plan. All of the participant's
payroll deductions credited to his or her account shall be paid to such
participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period shall be automatically terminated,
and no further payroll deductions for the purchase of shares shall be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions shall
-5-
<PAGE>
not resume at the beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period
shall not have any effect upon his or her eligibility to participate in any
similar plan which may hereafter be adopted by the Company or in succeeding
Offering Periods which commence after the termination of the Offering Period
from which the participant withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason,
he or she shall be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during the Offering
Period but not yet used to exercise the option shall be returned to such
participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions
--------
of a participant in the Plan.
13. Stock.
-----
(a) The maximum number of shares of the Company's Common
Stock which shall be made available for sale under the Plan shall be 500,000
shares, subject to adjustment upon changes in capitalization of the Company as
provided in Section 19 hereof. If, on a given Exercise Date, the number of
shares with respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall deter mine to be equitable.
(b) The participant shall have no interest or voting right
in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. Administration. The Plan shall be administered by the Board
--------------
or a committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
-6-
<PAGE>
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such partici pant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
------------
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
-------
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
-------------------------------------------------------
Liquidation, Merger or Asset Sale.
------------ --------------------
(a) Changes in Capitalization. Subject to any required
-------------------------
action by the stockholders of the Company, the Reserves, the maximum number of
shares each participant may purchase each
-7-
<PAGE>
Purchase Period (pursuant to Section 7), as well as the price per share and the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Periods shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale
--------------------
of all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, any Purchase Periods then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date") and
any Offering Periods then in progress shall end on the New Exercise Date. The
New Exercise Date shall be before the date of the Company's proposed sale or
merger. The Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time
and for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to
whether any participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change the Offering
Periods, limit the frequency and/or number of changes in the amount
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a
-8-
<PAGE>
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant
-------
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be
----------------------------------
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier
------------
to occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-9-
<PAGE>
EXHIBIT A
---------
NEOMAGIC CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________________________ hereby elects to
participate in the NeoMagic Corporation 1997 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") and subscribes to purchase shares of
the Company's Common Stock in accordance with this Subscription Agreement
and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to 10%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
___________________________________________________________________________
____________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing
---------------------------------------------
<PAGE>
within 30 days after the date of any disposition of my shares and I will
------------------------------------------------------------------------
make adequate provision for Federal, state or other tax withholding
-------------------------------------------------------------------
obligations, if any, which arise upon the disposition of the Common Stock.
-------------------------------------------------------------------------
The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
________________________ _____________________________________________
Relationship
_____________________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
_______________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT B
---------
NEOMAGIC CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the NeoMagic
Corporation 1997 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically termi nated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:__________________________
<PAGE>
EXHIBIT 10.14
Name, Address and Telephone Nos. of Attorney(s) Space Below for Use
*J. David Black (#44860) (408) 998-1952 of Court Clerk Only
Ellen McGinty King (#71490)
*Marily P. Lerner (#114559)
*Jackson Tufts Cole & Black, LLP
*69 S. Market Street, 10th Floor
*San Jose, CA 95113
Attorney(s) for Defendants
......................................
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
****
****
SUPERIOR COURT OF CALIFORNIA, COUNTY OF SANTA CLARA
.................. ...............
(SUPERIOR, MUNICIPAL or JUSTICE)
.........................................................................
(NAME OF MUNICIPAL OR JUSTICE COURT DISTRICT OR OF BRANCH COURT, IF ANY)
PLAINTIFF(s): CIRRUS LOGIC, INC., a CASE NUMBER CV 745373
California Corporation,
REQUEST FOR DISMISSAL
TYPE OF ACTION
DEFENDANT(s): PRAKASH AGARWAL, CHESTER [_] PERSONAL INJURY, PROPERTY DAMAGE AND WRONGFUL DEATH:
*BASSETTI, KAMRAN ELAHIAN, CLEMENT LEUNG, [_] MOTOR VEHICLE [_] OTHER
*RANGANATHAN PARAMESWARAIYER, DEEPRAJ PUAR, [_] DOMESTIC RELATIONS [_] EMINENT DOMAIN
*NEOMAGIC, INC., a California Corp. XX OTHER: (SPECIFY) Breach of Fiduciary Duty, **
(Abbreviated Title) --
- -------------------------------------------
TO THE CLERK: Please dismiss this action as follows: (Check applicable boxes)
1. [XX] With prejudice [_] Without prejudice
2. [XX] Entire action [_] Complaint only [_] Petition only [_] Cross-complaint only
[_] Other: (Specify)*
Dated: June 17, 1996 /s/ Annette P. Carnegie
........................................................... ---------------------------------------------------------
*If dismissed requested is of specified parties only, of specified Attorney(s) for Plaintiff, Cirrus Logic, Inc.
causes of action only or of specified cross-complaints only, so ........................................
state and identify the parties, causes of action or cross-complaints
to be dismissed. Annette P. Carnegie
---------------------------------------------------------
(Type of print attorney(s) name(s))
- ----------------------------------------------------------------------------------------------------------------------------------
TO THE CLERK: Consent to the above dismissal is hereby given.**
Dated: June 18, 1996 /s/ Ellen McGinty King
........................................................... ---------------------------------------------------------
**When a cross-complaint (or Response (Marriage) seeking affirma- Attorney(s) for, Cross-complaints, Agarwal,
tive relief is on file, the attorneys for the cross-complainant et 2
(respondent) must sign this consent when required by CCP
581(1), (2) or (5). Ellen McGinty King
---------------------------------------------------------
(Type or print attorney(s) name(s))
- ----------------------------------------------------------------------------------------------------------------------------------
(To be completed by clerk)
Dismissal entered as requested on JUN 18 1996
...........................................................................................
[_] Dismissal entered on ............................................as to only..................................................
[_] Dismissal not entered as requested for the following reasons(s), and attorney(s) notified on ................................
Stephen Love
County Clerk
--------------------------------------------------- Clerk
?????????????
June ? - 1996
Dated............................................................ By________________________________________________ Deputy
- ----------------------------------------------------------------------------------------------------------------------------------
Form adopted by Rule 982 at CCP 581. etc:
The Judicial Council of California REQUEST FOR DISMISSAL Cal. Rules of Court.
Revised Effective July 1 1972 Rule 1233
</TABLE>
Confidential Treatment Requested
<PAGE>
SETTLEMENT AGREEMENT
--------------------
This AGREEMENT ("Settlement Agreement") is made as of March 8, 1996 by and
between Cirrus Logic, Inc. (hereinafter "Cirrus") on the one hand and NeoMagic
Corporation (hereinafter "NeoMagic"), Prakash Agarwal, Chester Bassetti, Kamran
Elahian, Clement Leung, Ranganathan Parameswaraiyer, and Deepraj Puar (the six
individuals hereinafter collectively referred to as "Founders") on the other
hand.
WHEREAS Cirrus has instituted an action against NeoMagic and Founders in
the Superior Court of the State of California in and for the County of Santa
Clara (Case No. CV745373), and NeoMagic and certain of the Founders have filed
cross-claims against Cirrus therein (hereinafter "the Pending Action") and the
parties to the Pending Action desire to settle said action and resolve disputes
between them on the terms and conditions set forth hereinafter, and
WHEREAS Cirrus and NeoMagic own, and/or have or may have rights in, various
patents issued, and applications for patents pending, in various countries of
the world, as to which they desire to exchange non-exclusive licenses with each
other as hereinafter provided;
NOW, THEREFOR, in consideration of the mutual covenants, conditions and
releases contained herein, it is hereby stipulated and agreed between the
parties hereto as follows:
ARTICLE I
DEFINITIONS
1. The terms listed below shall be defined as follows:
a) "Cirrus Subsidiary" shall mean a corporation, company, or
other entity, more than fifty percent (50%) of whose outstanding shares or
securities (representing the right to vote for the election of directors or
other managing authority), are now or hereafter owned or controlled, directly or
indirectly, by Cirrus; or if such entity 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 whose
ownership interest representing the right to make decisions for such entity is
now or hereafter owned or controlled, directly or indirectly, by Cirrus, but
such corporation, company or other entity shall be deemed to be a Cirrus
Subsidiary only so long as such ownership or control exists.
b) "Employee" shall mean one or more of the individuals identified
on Exhibit A attached hereto.
c) "Reference Date" shall mean January 28, 1994, which date NeoMagic
hereby represents to be seven calendar months subsequent to the date on which
the Employees, and each of them, were first employed by NeoMagic.
<PAGE>
d) "Subject Patents" shall mean any and all patents, reissues,
continuations, continuations in part, and all other patent rights issued in any
country which claim and/or disclose one or more logic circuits with embedded
DRAM, regardless of whether the claim and/or disclosure involves the
architecture, design, manufacturing, assembly, testing or any other aspect of
one or more logic circuits with embedded DRAM.
e) "Subject Interference" shall mean a Patent Office interference
between a Cirrus patent application or issued patent, on the one hand, and a
NeoMagic patent application or issued patent, on the other hand, if, but only
if, (a) the interference involves one or more claims invented by an Employee and
(b) the date of conception for such claim or claims is prior to the Reference
Date.
ARTICLE II
CIRRUS AND NEOMAGIC
1. Neomagic hereby grants to Cirrus and any Cirrus Subsidiary a non-
exclusive, worldwide, irrevocable, fully-paid and royalty-free license to all
Subject Patents assigned or assignable to NeoMagic which name as an inventor an
Employee, provided that the application for any such Subject Patent was filed,
or was entitled to an effective filing date, prior to the Reference Date. The
term of said license shall be for the life of the patents, and shall include the
right to make, have made, use and sell the patented invention(s), including the
right to act as a foundry. The license granted in this paragraph 1 is not
assignable without the prior written consent of NeoMagic. NeoMagic hereby
releases, acquits and forever discharges Cirrus from any and all past, present
and future liability for all direct, contributory or other infringement, or
alleged infringement of any and all Subject Patents licensed, or to be licensed,
to Cirrus pursuant to this paragraph 1.
2. NeoMagic also hereby grants to Cirrus the royalty-free right to
sublicense to third parties the Subject Patents licensed in paragraph 1 above,
provided that such sublicense rights are not assignable by the sublicensee(s),
and do not extend beyond a period of five (5) years from the date of this
Settlement Agreement, i.e., beyond March 7, 2001.
3. [*]
[*]
-2-
[*] Confidential Treatment Requested
<PAGE>
[*]
[*]
4. With respect to any issued Subject Patent assigned to or assignable to
NeoMagic, the application for which was filed or was entitled to an effective
filing date prior to the Reference Date, NeoMagic shall, within thirty (30) days
of the issuance of the Subject Patent, give written notice to Cirrus of the
issuance of the Subject Patent and shall provide Cirrus with a copy of the
issued Subject Patent.
5. For a period of three (3) years from the date hereof, Cirrus and
NeoMagic each agree that neither shall solicit for employment, or cause to be
solicited for employment by any third party, any individual who is at the time
of such solicitation an employee of the non-soliciting party. The provisions of
this paragraph shall not apply to solicitation of individuals who were
terminated by, or who received notice of termination from, the non-soliciting
party prior to the solicitation. The provisions of this paragraph shall not
restrict Cirrus or NeoMagic from discussing employment opportunities with, or
from hiring, current or former employees of the other party so long as neither
Cirrus nor NeoMagic initiates the contact with the employee concerning possible
employment opportunities.
6. For a period of five (5) years from the date hereof, in the event of
any dispute between Cirrus and NeoMagic, Cirrus and NeoMagic agree to attempt to
resolve the dispute by negotiation and, failing success at such negotiation,
agree to submit to mediation of that dispute upon mutually acceptable terms and
conditions before either side commences any other proceeding. If the parties are
unable to agree to terms and conditions for a mediation, the
-3-
[*] Confidential Treatment Requested
<PAGE>
mediation will proceed pursuant to the then-existing rules for mediation of the
American Arbitration Association.
7. Cirrus and NeoMagic hereby release and discharge each other and
each other's respective officers, directors, agents, employees, representatives,
attorneys and insurers from every claim, demand, cause of action or suit
existing prior to the date hereof including, but not limited to, all claims
arising from, related to, or which could have been asserted in the Pending
Action, with the sole exception of claims, if any, for patent, trademark or
copyright infringement not covered by the licenses granted herein. Except
as to claims expressly reserved herein, all rights under Section 1542 of the
California Civil Code are expressly waived, both Cirrus and NeoMagic realizing
and understanding that Section 1542 provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
ARTICLE III
CIRRUS AND FOUNDERS
1. Cirrus hereby releases and discharges Founders, and each of them,
and their respective heirs, beneficiaries, agents, representatives, attorneys
and insurers from every claim, demand, cause of action or suit existing prior to
the date hereof including, but not limited to, all claims arising from, related
to, or which could have been asserted in the Pending Action. Cirrus expressly
waives all rights under Section 1542 of the California Civil Code, realizing and
understanding that Section 1542 provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
2. Founders, and each of them, hereby release and discharge Cirrus
and its officers, directors, agents, employees, representatives, attorneys and
insurers from every claim, demand, cause of action or suit existing prior to the
date hereof including, but not limited to, all claims arising from, related to,
or which could have been asserted in the Pending Action. Founders, and each of
them, expressly waive all rights under Section 1542 of the California Civil
Code, realizing and understanding that Section 1542 provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM
-4-
<PAGE>
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
3. Nothing contained in this Settlement Agreement shall be deemed to
diminish in any way the continuing obligations of any former Cirrus employee to
Cirrus arising from such employee's employment by Cirrus or any employee
agreements with Cirrus with respect to Cirrus' proprietary products, trade
secrets, confidential information or other proprietary property, and Cirrus'
entitlement to enforce its rights therein. The above notwithstanding, nothing
contained herein shall prevent or impair the right of NeoMagic and/or Founders
to use or disclose in any manner information that: (a) has without the
participation or involvement of NeoMagic or Founders become generally known in
the industry or to other persons in such a fashion as to defeat its continuing
proprietary or confidential status; (b) was independently known to or developed
by a third party without any participation or involvement by NeoMagic and/or
Founders, or any person acting in cooperation or concern with them, and has been
lawfully licensed, transferred or made known to NeoMagic and/or Founders by such
third party; or (c) has independently become known to or developed by NeoMagic
and/or Founders subsequent to the effective date of this Settlement Agreement
without any use, direct or indirect, of Cirrus proprietary products, trade
secrets, confidential information or other proprietary property.
ARTICLE IV
MISCELLANEOUS
1. Within ten (10) days of the execution of this Settlement Agreement,
the parties shall file a fully-executed Request for Dismissal with Prejudice of
the Pending Action in the form attached hereto as Exhibit B.
2. This Settlement Agreement effects the compromise and settlement of
disputed and contested claims and both Cirrus on the one hand and NeoMagic and
Founders on the other hand expressly deny liability of any kind to each other.
Nothing contained herein shall be construed as an admission by Cirrus, or
NeoMagic, or Founders of any liability of any kind to the other party.
3. This Settlement Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors and assigns.
4. Nothing contained in this Settlement Agreement shall be construed as:
a) a warranty or representation that any manufacture, sale, lease,
use or other disposition hereunder will be free from infringement of patents
other than those under which and to the extent to which licenses are in force
hereunder: or
b) an agreement to bring or prosecute action or suits against third
parties for infringement or conferring any right to bring or prosecute actions
or suits against third parties for infringement; or
-5-
<PAGE>
c) conferring any right to use in advertising, publicity, or
otherwise, any trademark, tradename or other name, or any contraction,
abbreviation or simulation thereof, of either party; or
d) conferring by implication, estoppel or otherwise, upon any party
licensed hereunder, any license or other right under any intellectual property
rights except the licenses and rights expressly granted hereunder.
5. If any term, provision, covenant or condition of this Settlement
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the provisions shall nevertheless remain in
effect and enforceable.
6. The parties shall maintain the provisions of this Settlement as
confidential. The provisions of this Settlement Agreement shall be disclosed by
the parties only to their respective counsel and to those within Cirrus and
NeoMagic who have a need to know. The parties further agree that disclosure of
the provisions of this Settlement Agreement may be made for accounting,
financing, insurance, or tax reporting purposes or as may be required in order
to comply with the terms of the Settlement Agreement or as otherwise may be
required by law or under confidential agreement to a third party in connection
with (a) the sale, license, assignment or other disposition of one or more
Subject Patents which are then subject to a license right hereunder to the
non-disclosing party; or (b) any sublicensing pursuant to the terms of this
Settlement Agreement. Any communication concerning the resolution of the Pending
Action or the terms of the Settlement Agreement to the press shall be only in
the form of an agreed-upon press release. Nothing herein contained shall prevent
the parties from disclosing the fact that the Pending Action has been settled
and resolved to the satisfaction of all parties, and that the settlement
includes the dismissal of the Pending Action and a mutual general release of
claims by and between the parties, without further comment.
7. This Settlement Agreement constitutes the complete agreement between
Cirrus, NeoMagic, and Founders relating to the subject matter hereof. Any
purported alteration, amendment or waiver of this Settlement Agreement, or any
part thereof, shall not be effective unless and until approved by the parties
hereto in writing, except that alterations, amendments or waivers of all or
------ ----
portions of Article II of this Settlement Agreement shall be effective if
approved in writing by Cirrus and by NeoMagic, with or without the written
approval of Founders. This Settlement Agreement supersedes all prior agreements,
oral or written, between the parties hereto regarding the subject matter
described herein.
8. No waiver by either party, express or implied, of any breach of any
term, condition or obligation of this Settlement Agreement by the other party
shall be construed as a waiver on any subsequent breach of that term, condition,
or obligation or of any other term, condition, or obligation of this Settlement
Agreement of the same or different nature.
9. This Agreement may be executed in counterparts, each of which shall
have the same force and effect as an original.
-6-
<PAGE>
10. The parties hereto shall execute all instruments and take all such
actions as are reasonably requested and appropriate to effectuate this
Settlement Agreement and the express purpose or intention hereof.
11. Any notice, request or statement hereunder shall be deemed to be
sufficiently given or rendered when sent by certified mail, and if given or
rendered to Cirrus, addressed to:
CIRRUS LOGIC, INC.
3100 West Warren Avenue
Fremont, California
Attn: President and CEO
or, if given or rendered to NeoMagic, addressed to:
NEOMAGIC CORPORATION
3260 Jay Street
Santa Clara, California 95054
Attn: President and CEO
or in any case, to such changed address or person as NeoMagic or Cirrus shall
have specified to the other by written notice.
12. This Settlement Agreement and matters connected with the performance
thereof shall be construed, interpreted, applied and governed in all respects in
accordance with the laws of the State of California.
13. All parties hereto have participated, by and through their respective
counsel, in the preparation and drafting of this Settlement Agreement.
Accordingly, the rule of construction to the effect that any ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Settlement Agreement.
Dated as of March 8, 1996 Cirrus Logic, Inc.
By: /s/ Michael Hackworth
-----------------------------
Michael Hackworth, President
NeoMagic Corporation
By: /s/ Prakash Agarwal
-----------------------------
Prakash Agarwal, President
-7-
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/s/ Prakash Agarwal
-------------------------------
Prakash Agarwal
/s/ Chester Bassetti
-------------------------------
Chester Bassetti
/s/ Kamran Elahian
-------------------------------
Kamran Elahian
/s/ Clement Leung
-------------------------------
Clement Leung
/s/ Ranganathan Parameswaraiyer
-------------------------------
Ranganathan Parameswaraiyer
/s/ Deepraj Puar
-------------------------------
Deepraj Puar
-8-
<PAGE>
EXHIBIT A
Former employees of Cirrus Logic, Inc. ("Employee"):
Deepraj Puar
Clement Leung
Chester Bassetti
Ranganathan Parameswaraiyer
Prakash Agarwal
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<PAGE>
EXHIBIT 10.15
WAFER SUPPLY AGREEMENT
This Agreement is made as of January 21, 1997 ("Effective Date") by and between
Toshiba Corporation, a Japanese corporation, with executive offices at 1-1,
Shibaura 1-chome, Minato-ku, Tokyo 105-01, Japan ("Toshiba") and NeoMagic
International Corporation ("NMI"), a Cayman corporation, with offices in c/o
Caledonian Bank & Trust Ltd., Ground Floor, Caledonian House, Mary Street, P.O.
Box 1043, Georgetown, Grand Cayman, B.W.I., a wholly owned subsidiary of
NeoMagic Corporation (U.S.A.).
RECITALS
Whereas, NMI is a wholly (100%) owned subsidiary of NeoMagic Corporation
(U.S.A.);
Whereas, NeoMagic Corporation (U.S.A.) or its wholly (100%) owned companies
(including but not limited to NMI, hereinafter referred to as "Associated
Companies") are the developers and owners of certain proprietary semiconductor
technologies enabling the integration of microcontroller logic cells and memory
cells on a single semiconductor device;
Whereas, Toshiba is a premium manufacturer of high quality, state of the
art silicon wafers; and
Whereas, NMI desires to source from Toshiba and Toshiba desires to supply
to NMI silicon wafers on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:
PART I
DEFINITIONS
1.1 "Cell Set Library" means a number of primitive logic elements, such as
----------------
inverters, buffers, NAND, AND, NOR, XOR, XNOR, AND/OR and OR/AND gates, adders
muxs, comparators, latches, and flip-flops, all designed using fixed cell
heights so as to be usable with commercially available standard cell automatic
place and route software tools.
1.2 "Fabrication Cycle Time" means the period of time required to manufacture
----------------------
the Products; commencing upon wafer start and ending on the day when the first
delivery of the ordered quantity of the Products. The Fabrication Cycle Times
for Prototype Production and Volume Production shall be as set forth in Exhibit
B. Fabrication Cycle Times do not include local national holidays and other
factory holidays.
Confidential Treatment Requested
<PAGE>
1.3 "Memory Module" means a 20 Mbits or larger DRAM module designed on
-------------
Toshiba's proprietary 64 MDRAM process.
1.4 "Process" means the wafer manufacturing process(es) identified in Exhibit A
-------
and any other manufacturing processes included within the scope of this
Agreement in accordance with Section 3.2.
1.5 "Products" means semiconductor chips, containing logic, analog and DRAM,
--------
developed pursuant to Part II of this Agreement.
1.6 "Prototype Production" has the meaning given in Section 3.8(a).
--------------------
1.7 "Volume Production" has that meaning given in Section 3.8(b).
-----------------
1.8 "Wafers" means silicon wafers containing finished die for the Products.
------
PART II
INTELLECTUAL PROPERTY RIGHTS
2.1 Technical Information. All intellectual property and related rights in and
---------------------
to technical information of either party which is provided to the other party in
the course of the development of the Product(s) shall continue to belong to such
providing party.
2.2 Patents. All intellectual property and related rights in and to all
-------
inventions made by NMI or its Associated Companies in the course of the
development efforts and patents resulting therefrom shall belong to NMI or its
Associated Companies. All intellectual property and related rights in and to
all inventions made by Toshiba in the course of the development efforts and
patents therefrom shall belong to Toshiba. All intellectual property and
related rights in and to all inventions jointly made by NMI and Toshiba in the
course of the development efforts and patents resulting therefrom shall be
jointly owned by NMI or its Associated Companies and Toshiba.
2.3 Product Rights; Maskworks. Title to and interest in mask work rights shall
-------------------------
be owned by NMI for the logic portion of the Products. Title to and interest in
mask work rights shall be owned by Toshiba for the Memory Module in the
Products. Subject to Toshiba's mask work rights set forth above, NMI shall
retain ownership of the masks and Products. This Agreement shall not be
construed as granting or conferring any intellectual property rights of Toshiba
or NMI specified in Part II of this Agreement or with respect to the Products
except as specified herein.
2.4 Process. Subject to Sections 2.1, 2.2 and 2.3 above, Toshiba shall own all
-------
intellectual property and related rights in and to the Process.
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PART III
WAFER SUPPLY
3.1 Wafer Manufacturing. On the terms and conditions of this Agreement,
-------------------
Toshiba will: (i) manufacture processed Wafers; and/or upon mutual agreement,
have processed Wafers manufactured by its subsidiaries; and (ii) sell processed
Wafers to NMI for its own account or as the agent for its Associated Companies.
Toshiba will manufacture the Wafers at the following locations: Oita
Works/Oita, Oita Prefecture; or Iwate Toshiba Electronics Co., Ltd.; Kitakami
Iwate Prefecture; or Yokkaichi Works/Yokkaichi Mie Prefecture; or Tohoku
Semiconductor Corporation/Sendai Miyagi Prefecture.
3.2 Processes. Toshiba shall manufacture the Wafers using the Process set
---------
forth in Exhibit A. Toshiba will provide NMI information and access to all new
enhanced 64 MB DRAM processes as they are developed by Toshiba, but with prior
discussion by the parties to determine that the new processes are related to the
DRAM-embedded ASIC process (generally such new processes will be deemed to be
"Processes" under this Agreement). At NMI's request, Toshiba will manufacture
Wafers for NMI using Toshiba's then current 64 MEG DRAM processes used in
production. The parties shall cooperate fully to qualify each new process
jointly (thereafter, also a "Process") to be used in manufacturing Wafers
hereunder. Toshiba will make future generations of 64 MEG DRAM processes
available to NMI and to be used under this Agreement on reasonable terms which
Toshiba agrees to negotiate in good faith (and which, upon such agreement, will
be deemed to be additional "Processes" hereunder).
3.3 Qualification and Quality Control.
---------------------------------
(a) Qualification. NMI and Toshiba will cooperate fully to qualify
-------------
jointly each Product for which Wafers will be manufactured hereunder
("Qualification"). Accordingly, the parties will cooperate to implement a
Qualification procedure. After qualification, NMI will notify Toshiba when
Volume Production will commence.
(b) Changes. After Qualification of any Product, Toshiba shall not make
-------
any major and/or critical Process change which will impact the performance,
reliability or construction of the Products without NMI's prior written consent,
which consent shall not be unreasonably withheld. Any such changes shall be
subject to reasonable criteria requested by NMI. Toshiba shall notify NMI in
writing in advance of major Process changes, including but not limited to any
changes which may:
(i) degrade Product quality or reliability;
(ii) result in failure of the Product to meet NMI's
specifications;
(iii) substantially slow Process flows;
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(iv) change Process control variables, ranges or method; or
(v) result in Product mask revisions or changes Wafer sort
programs.
(c) Problem Notification. Toshiba will notify NMI promptly upon
--------------------
discovering Process problems in its manufacturing lines that may affect the
Wafers or Wafer yields.
3.4 Forecasts.
---------
(a) Twelve-Month Rolling Forecasts. By the 15th day of each month NMI
------------------------------
will provide Toshiba a rolling forecast ("Forecast") of the number of Wafers
which NMI intends to purchase during the next twelve (12) months. The Forecast
will be based on "Wafers out," i.e., on deliveries expected to be made by
Toshiba each month. Toshiba guarantees to supply the number of Wafers indicated
by each Forecast for the six months following each Forecast.
(b) Required Orders. Purchases for the first three (3) calendar months
---------------
after the month in which the Forecast is made will be confirmed by firm purchase
orders placed at least twelve (12) weeks prior to the beginning of the month in
which shipment is expected. For example, if NMI submits a Forecast on December
15, 1995, a purchase order must be placed for March of 1996 and for shipments to
be made in January and February of 1996, purchase orders must already have been
placed in October and November, respectively, of 1995.
(c) Limited Quantity Adjustments.
----------------------------
(i) NMI may increase or decrease Forecast quantities for the
fifth and sixth calendar month following the date of the Forecast by no more
than twenty percent (20%) and for the fourth calendar month by no more than
fifteen percent (15%). NMI must place purchase orders for month four by the
deadline for the following monthly Forecast.
For example, if NMI submits a Forecast in December 1995
estimating Product purchases of 3,000 Wafers in each of April, May and June of
1996, then the Forecast submitted in January 1996 may increase estimated Product
purchases for May and June up to a quantity of 3,600 Wafers (i.e., 120% of
3,000) or down to a quantity of 2,400 Wafers (i.e., 80% of 3,000).
(ii) NMI may increase or decrease the Forecasted quantities for
the seventh, eighth and ninth calendar months following the date of the Forecast
by up to 30% in the next month's Forecast.
For example, if NMI submits a Forecast in December 1995 that
estimates Product purchases of 3,000 Wafers in each of August, September and
October of 1996, then the Forecast submitted in January 1996 may decrease
scheduled purchases for each of August, September and October as low as 2,100
(i.e., 70% of 3,000) or may increase the scheduled purchases for those months by
the same amount.
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<PAGE>
(iii) Forecast quantities for the tenth, eleventh and twelfth
months following the date of the Forecast will be based on NMI's best estimate
made in good faith and may be revised up or down in the following monthly
Forecast according to changes in NMI's best estimates.
(d) Start-Up Forecast. NMI is to provide a start-up forecast ("Start-Up
-----------------
Forecast") by December, 1996, based upon the assumption that the Product shall
be developed by April, 1997. The Start-Up Forecast shall be based upon "Wafers
out" between September and December of 1997. Periods beyond December, 1997 will
be covered by sections 3.4(c) and 3.5
3.5 Capacity, Supply and Demand. Each year during the term of this Agreement,
---------------------------
the parties shall agree ("Annual Volume Purchase Agreement") to define Toshiba's
minimum capacity guarantee for the year and NMI's commitment for its annual
purchase volume hereunder. Each quarter the parties will jointly review, and,
if necessary, agree on adjustments to, the Annual Volume Purchase Agreement and
Toshiba's minimum capacity guarantee for the following twelve (12) months.
3.6 Purchase Order Process.
----------------------
(a) Purchase Orders. All purchases under this Agreement will be
---------------
initiated by authorized NMI orders. NMI will be placing purchase orders as the
designated agent of the Associated Companies. Purchase orders shall state unit
quantities, unit descriptions, requested delivery dates and shipping
instructions. The requested delivery dates may not be less than the Fabrication
Cycle Time from the date of the purchase order. In the event of any conflict
with this Agreement, the face side of purchase orders shall govern purchases
under this Agreement unless rejected by Toshiba at the time Toshiba receives the
purchase order.
3.7 Order Acknowledgment. Toshiba agrees to accept all Product purchase orders
--------------------
within the Forecasts issued under this Agreement and agrees not to reject or
defer orders for which production capacity may be available as contemplated in
Section 3.5 above. Toshiba will use diligent efforts to manufacture Products in
excess of the Forecast, subject to its then existing third-party capacity
commitments. Toshiba agrees to deliver a written acknowledgment of such
purchase order within three (3) working days after receipt of the purchase
order. In all events, Toshiba's failure to deliver such an acknowledgment shall
be deemed an acceptance of the purchase order.
3.8 Prototype and Volume Production Lots. NMI shall order Products in either
------------------------------------
Prototype Production lots or Volume Production lots as follows:
(a) Prototype Lots. NMI may order Wafers in prototype lots ("Prototype
--------------
Production") whenever NMI (i) seeks a Qualification in accordance with Section
3.3(a), (ii) seeks to make any engineering changes, including without limitation
changes to improve Product functionality and Wafer yield, or (iii) elects, at
NMI's risk, to purchase Wafers in volume prior to Qualification. A Prototype
Production lot shall contain the number of Wafers specified in Exhibit B. NMI
may order multiple Prototype Production lots of the same Wafer, NMI may require
Toshiba to hold Prototype Production at "gate" or "contact" intermediate stages
of production. During Prototype Production,
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<PAGE>
Toshiba will provide "Vth" and "gate" length process splits (i.e., examine
Wafers at a particular step in fabrication) in order for NMI to evaluate
variations within the specifications for each process.
(b) Volume Production Lots. Upon Qualification of any particular
----------------------
Product, NMI may order that Product only in volume production lots ("Volume
Production"). A Volume Production lot shall contain the number of Wafers
specified in Exhibit B.
(c) [*]
3.9 Delivery and Shipping.
---------------------
(a) Delivery Commitments. Toshiba will deliver Wafers to the carrier for
--------------------
shipment, (i) within two days plus the Fabrication Cycle Time from the date of
purchase order for Prototype Production, and (ii) within three days plus the
Fabrication Cycle Time from the date of purchase order for Volume Production,
unless NMI requests a longer period. Toshiba will use reasonable efforts to
distribute the manufacture of Wafers evenly throughout each month (i.e., start
and complete Wafers linearly). Upon NMI's reasonable request, Toshiba will hold
Products during their manufacture in
[*] Confidential Treatment Requested
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<PAGE>
accordance with terms to be agreed upon by the parties. If Wafers are held by
NMI during manufacture, Toshiba will not be bound by the foregoing delivery
commitments.
(b) Work-in-Process Reporting. Toshiba will provide NMI with work-in-
-------------------------
process reports ("Reports") on a periodic basis, which the parties agree to
negotiate in good faith. Reports shall be sent to NMI via facsimile. The
Reports shall include information, the nature of which the parties shall
negotiate in good faith, for example: (i) the type, quantity and lot number
(Toshiba and NMI) of Wafers at each stage of production (by mask location), (ii)
the remaining number of Wafers ready for shipment (by purchase order number and
invoice) and (iii) delivery dates. The format and frequency of the Reports will
be determined by the development work as it is completed.
(c) Shipping. All Wafers shall be delivered to NMI or its designated
--------
assembly location and shall be suitably packed for shipment in Toshiba's
standard containers, marked for shipment as specified in NMI's purchase order,
and delivered to a carrier or forwarding agent chosen by NMI. However, should
NMI fail to designate a carrier, forwarding agent or type of conveyance, Toshiba
shall make such designation in conformance with its standard shipping practices.
Shipment will be F.O.B. Toshiba's facility. Title and risk of loss shall pass
to NMI upon shipment.
3.10 Test and Inspection.
-------------------
(a) By Toshiba. Toshiba will supply to NMI, with each Wafer shipment,
----------
process control monitor ("PCM") test results, actual Wafer sort data results,
and visual quality inspection results as agreed by the parties. Toshiba will
sort Wafers and "user repair" the DRAM module prior to shipment on the DRAM
portions of the die.
(b) Reports. Toshiba will supply NMI with reliability and statistical
-------
quality data on the Toshiba standard which is made for the same product line,
which includes 64MAP, at regular intervals to be agreed upon but no less than
once a quarter. The format and the contents of these report(s) are to be
mutually agreed upon. Upon reasonable notice, Toshiba will allow NMI on-site
inspection, but will be subject to NMI's reasonable requests of Toshiba's
Product manufacturing facilities.
(c) By NMI. Wafers manufactured using the Process shall be subject to
------
incoming inspection, electrical testing and reliability testing by NMI in
accordance with the acceptance criteria set forth in Exhibit C hereto. Wafers
manufactured under other Processes (jointly defined by the parties in accordance
with Section 3.2) shall be subject to incoming inspection, electrical testing
and reliability testing by NMI in accordance with updated acceptance criteria
which the parties agree to negotiate in good faith promptly at or prior to the
implementation of any such other Process. Wafers meeting applicable initial
acceptance criteria or updated acceptance criteria will be deemed accepted by
NMI, and NMI shall so notify Toshiba.
(d) Test Failure. If any Wafer or lot of Wafers fails incoming
------------
inspection or test, and if test failure is caused by an initial memory defect or
any defect in the Process used by Toshiba, NMI may reject such lot or Wafer in
writing within thirty (30) days after delivery and return such lot or Wafer
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<PAGE>
to Toshiba, at Toshiba's expense, for a full refund. Wafers that fail only logic
tests should not be returned to Toshiba. Wafers that fail reliability tests only
because of a defect introduced in the Wafers after Toshiba has delivered the
Wafers to the buyer shall not be returned to Toshiba. NMI will explain the
reasons for wishing to reject a lot, and Toshiba will be entitled to examine any
lot that NMI wishes to reject. The parties will seek in good faith to resolve
any disagreement as to whether a lot is conforming.
(e) Low Line Yield on Volume Production. If the output per lot (i.e.,
-----------------------------------
memory sort line yield which meets the inspection and test criteria is less than
seventy percent (70%), and if NMI so requests, Toshiba will explain the reasons
for the low line yield. Wafers with DRAM sort yields below the Minimum
Acceptable Yield (as defined below) may not be shipped unless NMI's prior
approval is obtained. The Minimum Acceptable Yield during the production phase
is twenty percent (20%). This twenty percent (20%) will be waived by NMI until
normal production begins. This initial production period will be determined in
good faith by the parties.
(f) [*]
[*] Confidential Treatment Requested
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<PAGE>
[*]
PART IV
COMPENSATION
4.1 Purchase Price. The price of the Wafers shall be determined from time to
--------------
time by agreement. The price shall be adjusted proportionately if the yield of
good die is below a target percentage to the agreed upon on a product-by-product
basis. The fixed price for any quarter will be reviewed during the first month
of the previous quarter and mutually agreed to by the parties in good faith.
For example, the Q2 (April-June) price will be finalized within January.
4.2 Payment. Toshiba may submit invoices for Wafers not earlier than the date
-------
of Wafer shipment to NMI. Invoices shall be paid within sixty days (60) after
receipt. Payment will be secured by instrument(s) (i.e. mutually acceptable 3rd
party payment etc.) proposed by NMI and reasonably acceptable to Toshiba.
Payment will be made by NMI or its agent. Payment shall be in Japanese Yen
unless otherwise agreed. For masks tooled by Toshiba hereunder, Toshiba may
submit mask tooling invoices with the prototype lot. NMI will make payments on
financial terms reasonably acceptable to Toshiba.
4.3 Taxes. Purchase prices are inclusive of all taxes and customs duties, and
-----
Toshiba shall pay all taxes and customs duties imposed by any taxing
jurisdiction and however designated, levied, or based on amounts payable to
Toshiba hereunder, including without limitation all foreign, export, local
excise, sales, use, value-added or similar taxes.
PART V
WARRANTY AND DISCLAIMER
5.1 Warranty. Toshiba warrants, subject to confirmation by Toshiba of any
--------
defect or failure in material and workmanship, that the Wafers manufactured
under the Process set forth in Exhibit A shall be free from defects or failures
in material and workmanship and shall conform to the initial specifications set
forth in Exhibit E ("Specifications") for the period of one (1) year from the
date of shipment. Toshiba warrants that Wafers manufactured under other
Processes shall be free from defects or failures in material and workmanship and
shall conform to updated specifications as agreed to by the parties from time to
time for the period of one (1) year from the date of shipment subject to
confirmation by Toshiba that the Wafers are defective. Toshiba's liability
under this Section 5.1 will be limited to prompt replacement of the defective
Wafers or credit as mutually agreed to.
5.2 Notice. Upon discovery of nonconforming Wafers by NMI, NMI shall promptly
------
notify Toshiba in writing of the nature of the defects or failures in detail,
and on Toshiba's request, shall return such non-conforming Wafers to Toshiba.
[*] Confidential Treatment Requested
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<PAGE>
5.3 Remedies. NMI's remedy hereunder for failure of Wafers to meet the
--------
aforesaid warranty shall be, at Toshiba's discretion, either to replace the
nonconforming Wafers or to refund the Purchase Price of the nonconforming
Wafers.
5.4 Disclaimers. THE PRODUCT QUALITY WARRANTY SET FORTH ABOVE IS EXCLUSIVE AND
-----------
NO OTHER PRODUCT QUALITY WARRANTY, WHETHER WRITTEN OR ORAL, IS EXPRESSED OR
IMPLIED. TOSHIBA SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE REMEDIES PROVIDED
HEREUNDER SHALL BE THE PARTIES' SOLE AND EXCLUSIVE REMEDIES WITH RESPECT TO
PRODUCT QUALITY.
PART VI
INTELLECTUAL PROPERTY INDEMNITY
6.1 Indemnification by NMI. NMI agrees to defend Toshiba against any third-
----------------------
party actions or claims arising out of the manufacture and sale of Products and
brought against Toshiba to the extent based upon a claim that any technology or
information provided by NMI under this Agreement infringes any U.S. patent or
trademark or any worldwide copyright, trade secret or similar intellectual
property right of any third party, and NMI agrees to purchase any work-in-
process for Products and to pay any settlement amounts or damages awarded
against Toshiba (including reasonable attorneys fees and court costs) to the
extent based upon such a claim; provided that Toshiba provides NMI (i) prompt
notice thereof, (ii) reasonable assistance in connection with the defense
thereof (at NMI's expense excluding Toshiba employee expense), and (iii) full
control of the defense and settlement thereof. NMI agrees to keep Toshiba
apprised of the progress of any action or claims covered by this Section 7.1.
Notwithstanding the foregoing, NMI's obligation to indemnify Toshiba under this
Section 7.1 shall not apply to any actions or claims described in Section 6.2
below.
6.2 Indemnification by Toshiba. Toshiba agrees to defend NMI and/or its
--------------------------
Associated Companies against any third-party actions or claims arising out of
the manufacture and sale of Products and brought against NMI and/or its
Associated Companies to the extent based upon a claim that the manufacturing
process used by Toshiba or any technology or information provided by Toshiba
under this Agreement (including any information or technology incorporated or
used in any Product other than technology or information provided by NMI and/or
its Associated Companies) infringes any U.S. patent or trademark or any
worldwide copyright, trade secret or similar intellectual property right of any
third party, and agrees to pay any settlement amounts or damages awarded against
NMI and/or its Associated Companies (including reasonable attorneys fees and
court costs) to the extent based upon such a claim; provided that NMI and/or its
Associated Companies provides Toshiba (i) reasonably prompt notice thereof, (ii)
reasonable assistance in connection with the defense thereof (at Toshiba's
expense excluding NMI and/or Associated Company employee expense), and (iii)
allows Toshiba full control of the defense and settlement thereof. Toshiba
agrees to keep NMI and/or its Associated Companies apprised of the progress of
any action covered by this Section 6.2. In addition, if such an action is
brought, NMI at its option may return to Toshiba all inventory and work-in-
process for Products judged to be infringing (whether by final judgment,
preliminary
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<PAGE>
injunction or other preliminary relief), and Toshiba shall refund any payments
made to it by NMI for such Products, unless Toshiba obtains an appropriate
license within a commercially reasonable number of days of such judgment.
Notwithstanding the foregoing, Toshiba's obligations under this Section 6.2
shall not apply to any claims or actions described in Section 6.1 above.
(a) Exclusions. Toshiba shall not be obligated to indemnify and hold
----------
harmless NMI where the infringement is caused by: (i) the use of Products by NMI
and/or its Associated Companies in combination with other circuits components,
components, devices or products if the infringement would not have occurred but
for such combination and such combination is not necessary to use the Product
for its intended purpose; (ii) use of the Products by NMI and/or its Associated
Companies in applications or environments for which Products were not designed;
or (iii) modifications to the
Products by NMI and/or its Associated Companies if such infringement would have
been avoided absent such modifications, unless such modifications were
authorized by Toshiba.
6.3 Entire Liability. THE FOREGOING STATES EACH PARTY'S ENTIRE LIABILITY AND
----------------
OBLIGATION (EXPRESS, STATUTORY, IMPLIED OR OTHERWISE) WITH RESPECT TO
INTELLECTUAL PROPERTY INFRINGEMENT OR CLAIMS THEREFOR ARISING OUT OF THE
MANUFACTURE AND SALE OF PRODUCTS DEVELOPED PURSUANT TO PART II OF THIS
AGREEMENT. ANY INDEMNIFICATION OBLIGATION TO BE INCURRED BY THE INDEMNIFYING
PARTY HEREUNDER WITH RESPECT TO A PARTICULAR TYPE OF PRODUCT SHALL NOT IN ANY
EVENT EXCEED THE PURCHASE PRICE OF THE PRODUCT CONCERNED WHICH HAS ACTUALLY BEEN
PAID TO TOSHIBA BY NMI HEREUNDER.
PART VII
GENERAL PROVISIONS
7.1 Confidentiality.
---------------
(a) Confidential Information. "Confidential Information" means any
------------------------
technical data, trade secret, know-how, or other information disclosed by any
party (including the Associated Companies) hereunder, either directly or
indirectly, in writing, orally, by drawing or by inspections, and which shall be
marked by the disclosing party as "Confidential" or "Proprietary." If such
information is disclosed orally, through demonstration or by inspection, in
order to be deemed Confidential Information, it must be specifically designated
as being of a confidential nature at the time of disclosure and confirmed in
writing to be received by the receiving party within ten (10) days of such
disclosure.
(b) Exclusions. Notwithstanding the foregoing, Confidential Information
----------
shall not include information which:
(i) is known to the receiving party at the time of disclosure or
becomes known to the receiving party without breach of this Agreement;
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<PAGE>
(ii) is or becomes publicly known through no wrongful act of the
receiving party or any affiliate of the receiving party;
(iii) is rightfully received from a third party (excluding the
Associated Companies) without restriction on disclosure;
(iv) is independently developed by the receiving party or any of
its affiliates;
(v) is furnished to any third party by the disclosing party
without restriction on its disclosure;
(vi) is approved for release upon a prior written consent of the
disclosing party;
(vii) is disclosed pursuant to judicial order, requirement of a
governmental agency or by operation of law.
(c) Nondisclosure. The receiving party agrees that it will not disclose
-------------
any Confidential Information to any third party, except for Toshiba's
subsidiaries provided that such disclosure is reasonably necessary to carry out
Toshiba's obligations under this Agreement and such subsidiaries agree to be
bound by the confidentiality provisions in this Section 7.1, and will not use
Confidential Information of the disclosing party for any purpose other than for
the performance of obligations hereunder during the term of this Agreement and
for the period of five (5) years thereafter, without the prior written consent
of the disclosing party. The receiving party further agrees that Confidential
Information shall remain the sole property of the disclosing party and that it
will take all reasonable precautions to prevent any unauthorized disclosure of
Confidential Information by its employees and independent contractors. No
license shall be granted by the disclosing party to the receiving party with
respect to Confidential Information disclosed hereunder unless otherwise
expressly provided herein.
(d) Nondisclosure Agreements. Each party agrees that it (i) has or that
------------------------
it shall obtain the execution of proprietary nondisclosure agreements with its
employees, agents, and consultants having access to Confidential Information of
the other party, (ii) shall diligently enforce such agreements, and (iii) shall
be responsible for the actions of such employees, agents, and consultants in
this respect.
(e) Return of Confidential Information. After expiration or termination
----------------------------------
of this Agreement upon the request of the disclosing party, the receiving party
will promptly return all Confidential Information furnished hereunder and all
copies thereof.
(f) Publicity. The parties agree that all publicity and public
---------
announcements concerning the formation and existence of this Agreement shall be
jointly planned and coordinated by and among the parties. Neither party shall
disclose any of the provisions of this Agreement, the existence of this
Agreement, nor that the parties are doing business with one another to any third
party without the prior written consent of the other party. NMI will be
responsible for all communications with NMI's customers concerning the subject
matter hereof, and Toshiba agrees to forward to NMI any
-12-
<PAGE>
communications it receives from NMI's customers. Notwithstanding the foregoing,
any party may disclose information concerning this Agreement as required by the
rules, orders, regulations, subpoenas or directives of a court, government or
governmental agency, after giving prior notice to the other parties.
(g) Remedy for Breach of Confidentiality. If a party breaches any of its
------------------------------------
obligations with respect to confidentiality and unauthorized use of Confidential
Information hereunder, the nonbreaching party shall be entitled to equitable
relief to protect its interest therein, including but not limited to injunctive
relief, as well as money damages.
7.2 Term and Termination. This Agreement shall remain in force for five (5)
--------------------
years from the time the first product is released to production by NMI unless it
is terminated earlier as provided in this Agreement. At the end of five (5)
years, this Agreement will be extended for another three (3) years under the
same terms and conditions provided herein unless notice of termination is given
by either party six (6) months prior to the expiration date. Notwithstanding
the foregoing, all existing orders and the provisions of Part V, VI, and Article
7.6 of Part VII (Export Controls) shall survive any termination or expiration of
this Agreement. The obligations of confidentiality under Article 7.1 of Part
VII shall last during the specific period set forth in Article 7.1 of Part VII.
(a) Subject to Section 7.2(b), either party may terminate this Agreement
with immediate effect, at its sole discretion, upon giving written notice to the
other party, in case:
(i) the other party defaults in the performance of any material
obligation hereunder, and if any such default is not
corrected within ninety (90) days after the defaulting party
receives written notice of such default from the non-
defaulting party,
(ii) the normal conduct of business of the other party as a
commercial enterprise ceases or is substantially altered for
any reason, or
(iii) the other party files a petition in bankruptcy, or is
adjudicated bankrupt, or makes a general assignment for the
benefit of creditors, or becomes insolvent, or is otherwise
unable to meet its business obligations for a period of three
(3) consecutive months.
(b) In the event that Toshiba terminates this Agreement pursuant to
Section 7.2(a)(ii) or (iii) above, Toshiba agrees to supply Wafers, on
commercially reasonable terms and conditions to NMI's customers upon request by
such customers. NMI agrees to provide Toshiba with a list of such customers
reasonably prior to the occurrence of the events specified in Sections
7.2(a)(ii) or (iii) above.
7.3 Force Majeure. The parties shall not be liable to one another for failure
-------------
to perform any part of this Agreement except for any payment obligation when
such failure is due to fire, flood, strikes, labor troubles or other industrial
disturbances, inevitable accidents, war (declared or undeclared), embargoes,
blockades, legal restrictions, governmental regulations or orders, riots,
insurrections, or any cause beyond the control of such party. However, the
party so prevented from performance shall use diligent efforts to resume
performance. This Agreement shall not be regarded as terminated or
-13-
<PAGE>
frustrated as a result of such failure of performance that does not exceed six
(6) months, and the parties shall proceed under this Agreement when the causes
of such nonperformance have ceased or have been eliminated.
7.4 Assignment. The parties shall not assign or transfer this Agreement, in
----------
whole or in part, or any right or obligation hereunder to any third party
without the prior written consent of the other party. Nothing in this Section
7.4 shall affect Toshiba's obligations under Section 7.2(b).
7.5 Governing Law; Disputes. This Agreement will be interpreted and enforced
-----------------------
in accordance with the laws of Japan without reference to conflicts of law
principles. This Agreement shall not be governed by the 1980 U.N. Convention on
Contracts for the International Sale of Goods. Each party will use reasonable
good faith efforts to settle any dispute arising out of this Agreement. Should
such efforts prove unsuccessful, any dispute or claim arising out of or in
relation to this Agreement, or the interpretation, making, performance, breach
or termination thereof, shall be finally settled by binding arbitration under
the Rules of Conciliation and Arbitration of the International Chamber of
Commerce as presently in force ("Rules") and by three (3) arbitrators appointed
in accordance with said Rules. Judgment on the award rendered may be entered in
any court having jurisdiction thereof. The place of arbitration shall be in
Japan. Any monetary award shall be in U.S. dollars and the arbitration shall be
conducted in the English language.
7.6 Export Controls. Toshiba and NMI acknowledge that they are each subject
---------------
to regulation by agencies of the U.S. and Japanese Governments, including the
U.S. Department of Commerce, which prohibit export or diversion of certain
products and technology to certain countries. Any and all obligations of the
parties to provide technical information, technical assistance, any media in
which any of the foregoing is contained, training and related technical data
(collectively, "Data") shall be subject in all respect to such United States and
Japanese laws and regulation as shall from time to time govern the license and
delivery of technology and products abroad by persons subject to the
jurisdiction of the United States, including the Export Administration Act of
1979, as amended, any successor legislation, and the Export Administration
Regulations issued by the Department of Commerce, International Trade
Administration, Bureau of Export Administration.
Without in any way limiting the provisions of this Agreement, the parties
agree that unless prior written authorization is obtained from the Bureau of
Export Administration or unless the Export Administration Regulations explicitly
permit the reexport without such written authorization, neither party will
export, reexport, or transship, directly or indirectly, the Products or any
technical data disclosed or provided to Toshiba, or the direct product of such
technical data, to country groups Q, S, W, Y, or Z (as defined in the Export
Administration Regulations and which currently consist of Albania, Bulgaria,
Cambodia, Cuba, the Czech Republic, Estonia, Laos, Latvia, Libya, Lithuania,
Mongolian People's Republic, North Korea, Poland, Romania, the geographic area
of the former Union of Soviet Socialist Republics, the Slovak Republic and
Vietnam, or to the People's Republic of China (excluding Taiwan), Haiti, Iran,
Iraq, Syria, Yugoslavia (Serbia and Montenegro), or to military or police
entities in South Africa, or to any other country as to which the U.S. and
Japanese Governments have placed an embargo against the shipment of products,
which is in effect during the term of this Agreement.
-14-
<PAGE>
7.7 Notice. Any notice required or permitted to be given under this Agreement
------
shall be delivered (i) by hand, (ii) by registered or certified mail, postage
prepaid, return receipt requested, to the address of the other party first set
forth above, or to such other address as a party may designated by written
notice in accordance with this Section 7.8 by overnight courier, or (iii) by
electronic transmission with conforming letter mailed under the conditions
described in (ii). Notice so given shall be deemed effective when received, or
if not received by reason of fault of addressee, when delivered.
If to Toshiba, to:
Toshiaki Ogi
General Manager
International Operations
Electronic Components
Toshiba Corporation
11, Shibaura 1 Chome
Minato-ku, Tokyo 105-01
Japan
If to NMI, to:
Prakash Agarwal
NeoMagic International Corporation
c/o Caledonian Bank & Trust Ltd.
Ground Floor
Caledonian House
Mary Street
P.O. Box 1043
Georgetown, Grand Cayman B.W.I.
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Michael J. Danaher
7.8 Relationship of Parties. The relationship between NMI and Toshiba under
-----------------------
this Agreement is that of independent contractors and neither shall be, nor
represent itself to be, the joint venturer, franchiser, franchisee, partner,
broker, employee, servant, agent, or representative of the other for any purpose
whatsoever (except as specifically provided in Part IV. No party is granted any
right or authority to assume or create any obligation or responsibility, express
or implied, on behalf of, or in the name of, another party or to bind another in
any matter or thing whatsoever.
-15-
<PAGE>
7.9 Waiver. Should any of the parties fail to exercise or enforce any
------
provision of this Agreement or to waive any rights in respect thereto, such
waiver or failure shall not be construed as constituting a continuing waiver or
a waiver of any other right.
7.10 Severability. In the event that any provision or provisions of this
------------
Agreement shall be held to be unenforceable, the parties shall renegotiate those
provisions in good faith to be valid, enforceable substitute provisions which
provisions shall reflect as closely as possible the intent of the original
provisions of this Agreement. If the parties fail to negotiate a substitute
provision, this Agreement
will continue in full force and effect without said provision and will be
interpreted to reflect the original intent of the parties.
7.11 Limitation of Liability. EXCEPT FOR DAMAGES RESULTING FROM A BREACH OF
-----------------------
THE CONFIDENTIALITY PROVISIONS HEREIN, IN NO EVENT SHALL EITHER PARTY BE LIABLE
FOR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING HEREUNDER,
EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NEITHER
PARTY'S LIABILITY UNDER THIS AGREEMENT SHALL EXCEED THE PURCHASE PRICE OF THE
PRODUCT CONCERNED WHICH HAS ACTUALLY BEEN PAID TO TOSHIBA BY NMI HEREUNDER.
7.12 Entire Agreement. This Agreement, including the Exhibits referred to
----------------
herein, contains the entire understanding of the parties, and supersedes any
prior agreement between or among the parties with respect to its subject matter.
In case of any conflicts between this Agreement and any purchase orders,
acceptances, correspondence, memorandum, listing sheets and other documents
forming part of any order for Products, this Agreement shall govern. This
Agreement shall not be amended or modified except by written instrument signed
by the duly authorized representatives of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized representatives or officers, effective as of the
Effective Date.
TOSHIBA CORPORATION NEOMAGIC INTERNATIONAL
CORPORATION
By: /s/ TOSHIAKI OGI By: /s/ PRAKASH AGARWAL
----------------------------------- -------------------
Name: Toshiaki Ogi Name: Prakash Agarwal
-------------------------------- ---------------
General Manager International CEO President
Operations, Electrical Components
Toshiba
Title:________________________________ Title:_____________________________
-16-
<PAGE>
Exhibits
- --------
A -- Initial Process(es)
B -- Production Information
C -- Acceptance Criteria
D -- Average Yields
-17-
<PAGE>
EXHIBIT A
---------
INITIAL PROCESS(ES)
<PAGE>
EXHIBIT B
---------
[*]
[*] Confidential Treatment Requested
<PAGE>
EXHIBIT C
---------
ACCEPTANCE CRITERIA
-20-
<PAGE>
EXHIBIT D
---------
<TABLE>
<CAPTION>
Yield
Toshiba Number of Average Allowance Wafer
Device Part Number Full Die Wafer Size Yield Rate Range Price
- -------- ------------- ----------- ------------ ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
NMG5 T.B.D. T.B.D. 8 inch T.B. 20% T.B.D.
D.
</TABLE>
<PAGE>
EXHIBIT 10.16
PRODUCT JOINT DEVELOPMENT AGREEMENT
This Agreement is made as of January 21 , 1997 (Effective Date) by and between
Toshiba Corporation, a Japanese corporation, with executive offices at 1-1,
Shibaura 1-chome, Minato-ku, Tokyo 105-01, Japan ("Toshiba") and NeoMagic
Corporation ("NeoMagic"), a Delaware corporation, with offices at 3260 Jay
Street, Santa Clara, California 95054.
RECITALS
Whereas, NeoMagic or its wholly (100%) owned companies (including but
not limited to NeoMagic International Corporation, hereinafter referred to as
"Associated Companies") have developed and own certain proprietary semiconductor
technologies enabling the integration of microcontroller logic cells and memory
cells on a single semiconductor device as well as certain proprietary
technologies with respect to microcontroller logic cell itself;
Whereas, Toshiba has developed and owns certain proprietary
technologies with respect to memory modules; and
Whereas, NeoMagic desires to collaborate with Toshiba and Toshiba is
ready to accept to collaborate with NeoMagic to jointly develop integrated
circuit chip by using of both technologies, under the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained herein, the parties agree as follows:
PART I
DEFINITIONS
I.1 "Cell Set Library" means a number of primitive logic elements, such as
invertors, buffers, NAND, AND, NOR, XOR, SNOR, AND/OR and OR/AND
gates, adders muxs, comparators, latches and flip-flops, all designed
using a fixed cell height so as to be usable with commercially
available standard cell automatic place and route software tools.
I.2 "DRAM Module" means a 20Mbit or larger dynamic random access memory
module designed on Toshiba's proprietary 64M DRAM second generation
process and developed hereunder by Toshiba.
I.3 "Logic Portion" means collectively the logic circuity described in
Exhibit III.
I.4 "Product(s)" means the integrated circuit chip (whether in bear wafer
or assembled) to be jointly developed by NeoMagic or its Associated
Companies and Toshiba hereunder, which chip is to include a DRAM
Module and Logic Portion in a single chip.
Confidential Treatment Requested
<PAGE>
PART II
DEVELOPMENT OF PRODUCTS
II.1 Soon after the Effective Date, both parties shall discuss and
establish a schedule including interim milestones for the development
of Products to be performed in accordance with the procedures
described in this Part II, which schedule may be modified or adjusted
upon mutual agreement of both parties. Both parties shall use their
good faith, reasonable best efforts to develop the Products and to
provide the other party with the results of its development efforts
such as appropriate design database and situation environments, in
accordance with such schedule.
II.2 Toshiba shall provide NeoMagic with Toshiba's technical information
for HSO. 4um base dRAMASIC, as listed in Exhibit I attached hereto,
and which Toshiba deems reasonably necessary for the joint development
activities contemplated hereunder.
II.3 Upon receipt of the above design rules and technical information from
Toshiba, NeoMagic or its Associated Companies shall develop Cell Set
Libraries (except those already developed by Toshiba, if any).
II.4 Toshiba shall develop DRAM Module of the Products in accordance with
the target specifications of the DRAM Module as set forth in Exhibit
II attached hereto, and shall deliver to NeoMagic the design
information of the so-developed DRAM Module.
II.5 Upon receipt of the design information of DRAM Module from Toshiba,
NeoMagic or its Associated Companies shall develop the Logic Portion
using the Cell Set Libraries developed under Article 2.3 above, in an
appropriate manner so that DRAM Module developed by Toshiba pursuant
to Article 2.4 above can be merged into the developed Logic Portion to
constitute a whole Product, and shall provide Toshiba with mask
database, and specification and any design information, as set forth
in Exhibit III attached hereto, of the so-developed Logic Portion.
II.6 Upon receipt of the mask database and other necessary information from
NeoMagic or its Associated Companies, Toshiba shall merge its
developed DRAM Module into such database, and eventually create final
mask database of Products. Toshiba will also manufacture, test and
supply to NeoMagic prototype wafers of Products. NeoMagic shall bear
only the cost of production for sorted and memory-repaired wafers
received by NeoMagic from Toshiba and the cost of the final mask
production.
II.7 From time to time as appropriate in the course of the development
activities hereunder, each party shall provide the other party with
additional technical information to the extent it deems reasonably
necessary for such other party to conduct the activities contemplated
hereunder.
II.8 Unless otherwise specified herein, each party shall bear any and all
of its own costs and expenses incurred in connection with the
development activities contemplated hereunder.
<PAGE>
PART III
SUPPLY OF PRODUCTS
III.1 Toshiba will warrant that it has made best efforts to ascertain that
the prototype wafers of products to be supplied under Article 2.6
conforms to mask database and other design information provided by
NeoMagic or its Associated Companies. Toshiba's obligation in case
said warranty is not fulfilled shall only to make reasonable efforts
to deliver conforming prototype wafers to NeoMagic or, at Toshiba's
sole discretion, to refund to NeoMagic the applicable costs paid to
Toshiba by NeoMagic under Article 2.6 with respect to said prototype
wafers. THE WARRANTY SET FORTH HEREIN IS INCLUSIVE, AND TOSHIBA HEREBY
DISCLAIMS ALL OTHER WARRANTIES IN RELATION TO THIS AGREEMENT, WHETHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF
RELIABILITY, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT, OR WARRANTIES ARISING FROM A COURSE OF DEALING,
USAGE, OR TRADE PRACTICE REGARDING PROTOTYPE WAFERS OF PRODUCTS.
III.2 Toshiba will supply to NeoMagic wafers in commercial production to be
used for the manufacture of Products by NeoMagic under a separate
wafer supply agreement to be executed between Toshiba and NeoMagic,
and the terms and conditions to be applied and govern such
transactions shall be set forth therein in detail.
III.3 NeoMagic shall purchase wafers for the Products only from Toshiba
(including its subsidiaries), and Toshiba (including its subsidiaries)
shall supply such wafers as finished Products only to NeoMagic or at
the order of NeoMagic. NeoMagic and its Associated Companies otherwise
have the exclusive right (even with respect to the Toshiba and its
subsidiaries) to sell and control the sale of Products.
PART IV
INTELLECTUAL PROPERTY RIGHTS
IV.1 Technical Information. All intellectual property and related rights in
---------------------
and to technical information of either party (including the Associated
Companies) which is provided to the other party in the course of the
development of the Product(s) or its portion hereunder shall continue
to belong to such providing party. Especially, all intellectual
property and related rights in and to Toshiba's design rules and
process information shall continue to belong to Toshiba.
IV.2 Intellectual Property. All patents and other intellectual property and
---------------------
related rights in and to all inventions made and technical information
developed solely by NeoMagic or its Associated Companies in the course
of the development efforts hereunder ("NeoMagic's Inventions") shall
belong exclusively to NeoMagic or its Associated Companies. All patent
and other intellectual property and related rights in and to all
inventions made and technical information
-3-
<PAGE>
developed solely by Toshiba in the course of the development efforts
hereunder ("Toshiba's Inventions") shall belong exclusively to
Toshiba. All patents and other intellectual property and related
rights in and to all inventions made and technical information
developed jointly by NeoMagic or its Associated Companies and Toshiba
shall be jointly owned by NeoMagic or the pertinent Associated Company
and Toshiba. Subject to the provisions of Section 3.3, each party
(including the Associated Company if the Associated Company is a joint
owner) has the right to grant licenses to any third party without
accounting to the other party (including the Associated Company if the
Associated Company is a joint owner).
IV.3 Product Rights. Title to and interest in mask work rights shall be
--------------
owned by NeoMagic for the Logic Portion of the Products. Title to and
interest in mask work rights shall be owned by Toshiba for the DRAM
Module in the Products. Subject to Toshiba's mask work rights set
forth above, NeoMagic shall retain ownership of the masks and
Products. This Agreement shall not be construed as granting or
conferring any intellectual property rights of Toshiba or NeoMagic
specified in Part IV of this Agreement or with respect to the Products
except as specified herein.
PART V
USE OF TECHNOLOGIES
V.1 NeoMagic and its Associated Companies hereby grants to Toshiba a right
to use any technical information disclosed to Toshiba hereunder,
NeoMagic's or its Associated Companies' Inventions and any and all of
its intellectual property rights with respect thereto, solely (i) to
design, and develop or have developed by its subsidiaries Products as
stipulated under Part II; and (ii) to manufacture or have manufactured
by its subsidiaries, and sell to NeoMagic Products.
V.2 Toshiba hereby grants to NeoMagic and its Associated Companies a right
to use any technical information disclosed to NeoMagic or its
Associated Companies hereunder, Toshiba's Inventions and any and all
of its intellectual property rights with respect thereto, to design
and develop Products as stipulated under Part II.
PART VI
GENERAL PROVISIONS
VI.1 Confidentiality
---------------
(a) Confidential Information. "Confidential Information" means
------------------------
any confidential technical data, trade secret, know-how or other
confidential information disclosed by any party (including the
Associated Companies) hereunder in writing, orally, or by drawing
or other form and which shall be marked by the disclosing party
as "Confidential" or
-4-
<PAGE>
"Proprietary". If such information is disclosed orally, or
through demonstration, in order to be deemed Confidential
Information, it must be specifically designated as being of a
confidential nature at the time of disclosure and reduced in
writing and delivered to the receiving party within ten (10) days
of such disclosure.
(b) Exclusions. Notwithstanding the foregoing, Confidential
----------
Information shall not include information which:
(i) is known to the receiving party at the time
of disclosure or becomes known to the receiving party
without breach of this Agreement;
(ii) is or become publicly known through no
wrongful act of the receiving party or any subsidiary of
the receiving party;
(iii) is rightfully received from a third party
(excluding the Associated Companies) without restriction
on disclosure;
(iv) is independently developed by the receiving
party or any of its subsidiary;
(v) is furnished to any third party (excluding
the Associated Companies) by the disclosing party without
restriction on its disclosure;
(vi) is approved for release upon a prior written
consent of the disclosing party;
(vii) is disclosed pursuant to judicial order,
requirement of a governmental agency or by operation of
law.
(c) Nondisclosure. The receiving party agrees that it will
-------------
not disclose any Confidential Information to any third party
(except that Toshiba may disclose Confidential Information to its
subsidiaries for purposes relating to this Agreement provided
that they shall hold such information in confidence) and will not
use Confidential Information of the disclosing party for any
purpose other than for the performance of the rights and
obligations hereunder during the term of this Agreement and for a
period of five (5) years thereafter, without the prior written
consent of the disclosing party. The receiving party further
agrees that Confidential Information shall remain the sole
property of the disclosing party and that it will take all
reasonable precautions to prevent any unauthorized disclosure of
Confidential Information by its employees. No license shall be
granted by the disclosing party to the receiving party with
respect to Confidential Information disclosed hereunder unless
otherwise expressly provided herein.
(d) Return of Confidential Information. Upon the request of
----------------------------------
the disclosing party, the receiving party will promptly return
all Confidential information furnished hereunder and all copies
thereof.
(e) Publicity. The parties agree that all publicity and
---------
public announcements concerning the formation and existence of
this Agreement shall be jointly planned and coordinated by and
among the parties. Neither party shall disclose any of the
specific terms of this Agreement to any third party without the
prior written consent of the other party, which consent shall not
be withheld unreasonably. NeoMagic will be responsible for all
communications with NeoMagic's customers concerning the subject
-5-
<PAGE>
matter hereof. Notwithstanding the foregoing, any party may
disclose information concerning this Agreement as required by the
rules, orders, regulations, subpoenas or directives of a court,
government or governmental agency, after giving prior notice to
the other party.
(f) Remedy for Breach of Confidentiality. If a party breaches
------------------------------------
any of its obligations with respect to confidentiality and
unauthorized use of Confidential information hereunder, the non-
breaching party shall be entitled to equitable relief to protect
its interest therein, including but not limited to injunctive
relief, as well as money damages notwithstanding anything to the
contrary contained herein.
VI.2 Term and Termination.
--------------------
(a) This Agreement shall become effective on the Effective
Date and shall remain in force for three (3) years thereafter
unless it is earlier terminated by either party in accordance
with the following.
(b) Either party may terminate this Agreement with immediate
effect, at its sole discretion, upon giving written notice to the
other party, in case:
(i) the other party defaults in the performance of any
material obligation hereunder, and if any such default is
not corrected within ninety (90) days after the defaulting
party receives written notice of such default from the
non-defaulting party,
(ii) the normal conduct of business of the other party
as a commercial enterprise ceases or is substantially
altered for any reason, or
(iii) the other party files a petition in bankruptcy, or
is adjudicated bankrupt, or makes a general assignment for
the benefit of creditors, or becomes insolvent, or is
otherwise unable to meet its business obligations for a
period of three (3) consecutive months.
(c) Upon expiration or termination of this Agreement, all
rights and obligations hereunder shall terminate forthwith except
the provisions of Parts III, IV, V and VI.
VI.3 Force Majeure. Either party shall not be liable to the other for
-------------
failure to perform any part of this Agreement, except for any due
payment obligation, when such failure is due to fire, flood, strikes,
labor troubles or other industrial disturbances, inevitable accidents,
war (declared or undeclared),embargoes, blockages, legal restrictions,
governmental regulations or orders, riots, insurrections, or any cause
beyond the control of such party. However, the party so prevented from
performance shall use diligent efforts to resume performance. This
Agreement shall not be regarded as terminated or frustrated as a
result of such failure of performance that does not exceed six (6)
months, and the parties shall proceed under this Agreement when the
causes of such non-performance have ceased or have been eliminated.
-6-
<PAGE>
VI.4 Assignment. The parties shall not assign or transfer this Agreement,
----------
in whole or in part, or any right or obligation hereunder to any third
party without the prior written consent of the other party.
Notwithstanding the foregoing, in no event shall an initial public
offering of NeoMagic, or any Associated Company, pursuant to the
United States Securities Act of 1933 be considered an assignment of
this Agreement or otherwise result in the termination of this
Agreement. Subject to the foregoing, this Agreement and the parties'
rights and obligations hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns.
VI.5 Governing Law. This Agreement will be interpreted and enforced in
-------------
accordance with the laws of Japan without reference to conflicts of
law principles.
VI.6 Arbitration. Each party will make reasonable best efforts to resolve
-----------
amicably any disputes or claims under this Agreement among the
parties. In the event that a resolution is not reached among the
parties within thirty (30) days after written notice by any party of
the dispute or claims, the dispute or claim shall be finally settled,
(i) if brought by Toshiba, by binding arbitration in San Jose,
California, and (ii) if brought by NeoMagic, by binding arbitration in
Tokyo, Japan. Such arbitration shall be conducted under the Rules or
Conciliation and Arbitration and auspices of the International Chamber
of Commerce Court of Arbitration by three (3) arbitrators appointed in
accordance with such rules. The award of arbitration shall be final
and binding upon both parties, and judgment on the award rendered by
the arbitrators may be entered in any court having jurisdiction
thereof. Any monetary award shall be payable in United States dollars.
VI.7 Export Controls. Toshiba and NeoMagic acknowledge that they are each
---------------
subject to regulation by agencies of the U.S. and Japanese
Governments, including the U.S. Department of Commerce which prohibit
export or diversion of certain products and technology to certain
countries. Any and all obligations of the parties to provide technical
information, technical assistance, any media in which any of the
foregoing is contained, training and related technical data
(collectively, "Data") shall be subject in all respects to such United
States and Japanese laws and regulations as from time to time govern
the license and delivery of technology and products abroad by persons
subject to the jurisdiction of the United States, including the Export
Administration Act of 1979, as amended, any successor legislation, and
the Export Administration Regulations issued by the Department of
Commerce, International Trade Administration, Bureau of Export
Administration. Neither party shall export or re-export, directly or
indirectly, any technical information, including software, furnished
hereunder or any direct products thereof, to any destination of the
U.S.A. and/or Japan, including the U.S. Export Administration
Regulations, without prior written authorization from the appropriate
governmental authorities.
VI.8 Notice. Any notice required or permitted to be given under this
------
Agreement shall be delivered (i) by hand, (ii) by registered or
certified mail, postage prepaid, return receipt requested, to the
following addresses of the other party, or to such other addresses as
a party may designate by written notice in accordance with this
Section 6.9 by overnight courier, or (iii) by electronic
-7-
<PAGE>
transmission with confirming letter mailed under the conditions
described in (ii). Notice so given shall be deemed effective when
received or if not received by reason or fault of addressee, when
delivered.
If to Toshiba, to:
Toshiaki Ogi
General Manager
International Operations
Electronic Components
Toshiba Corporation
1-1, Shibaura 1-chome
Minato-ku, Tokyo 105-01
Japan
If to NeoMagic, to:
Prakash Agarwal
NeoMagic Corporation
c/o Caledonian Bank & Trust Ltd.
Ground Floor
Caledonian House
Mary Street
P.O. Box 1043
Georgetown, Grand Cayman, B.W.I.
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Michael J. Danaher
VI.9 Relationship of Parties. The relationship between NeoMagic and
-----------------------
Toshiba under this Agreement is that of independent contractors and
neither shall be, nor represent itself to be, the joint venture,
franchiser, franchisee, partner, broker, employee, servant, agent, or
representative of the other for any purpose whatsoever. No party is
granted any right or authority to assume or create any obligation or
responsibility, express or implied, on behalf of, or in the name of,
another party or to bind another in any matter or thing whatsoever.
VI.10 Waiver. Should any of the parties fail to exercise or enforce any
------
provision of this Agreement or to waive any rights in respect thereto,
such waiver or failure shall not be construed as constituting a
continuing waiver or a waiver of any other right.
-8-
<PAGE>
VI.11 Severability. In the event that any provision or provisions of this
------------
Agreement shall be held to be unenforceable, the parties shall
renegotiate those provisions in good faith to be valid, enforceable
substitute provisions which provisions shall reflect as closely as
possible the intent of the original provisions of this Agreement. If
the parties fail to negotiate a substitute provision, this Agreement
will continue in full force and effect without said provision and will
be interpreted to reflect the original intent of the parties.
VI.12 Entire Agreement. This Agreement, including the Exhibits referred to
----------------
herein and attached hereto sets forth the entire understanding of the
parties, and supersedes any prior agreement between or among the
parties with respect to the subject matter hereof. In case of any
conflicts between this Agreement and any purchase orders, acceptances,
correspondence, memorandum, listing sheets or other documents forming
part of any order for Products, this Agreement shall govern. This
Agreement shall not be amended or modified except by written
instrument signed by the duly authorized representatives of the
parties hereto.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized representatives or officers, effective as of the
Effective Date.
Toshiba Corporation NeoMagic Corporation
By: /s/ TOSHIAKI OGI By: /s/ PRAKASH AGARWAL
---------------- -------------------
Name: Toshiaki Ogi Name: Prakash Agarwal
------------ ---------------
General Manager International CEO President
Operations, Electrical Components Toshiba
Title: Title:
Date: Date:
Exhibits.
- --------
I. Toshiba's Technical Information
II. DRAM Module Specification
III. Logic Portion Specification
-10-
<PAGE>
EXHIBIT I
---------
Toshiba's Technical Information
-------------------------------
Design Rule
SPICE Parameters
DRAM Core Size
Pin Configuration for DRAM Portion
Test Items for DRAM Portion
-11-
<PAGE>
EXHIBIT II
----------
DRAM Module Specification
[*]
[*] Confidential Treatment Requested
<PAGE>
EXHIBIT III
-----------
Logic Portion Specification
---------------------------
The "Logic Portion" is the logic circuitry necessary to realize the graphics
controller function and the input-output circuits (and associated circuits
thereof) of the Product(s) developed by NeoMagic or its Associated Companies
hereunder. The "Logic Portion" includes analog components developed by NeoMagic
or its Associated Companies hereunder.
<PAGE>
EXHIBIT 10.17
TO THE EXTENT THAT THIS LEASE AND ANY LEASE SCHEDULE CONSTITUTES CHATTEL
PAPER (AS DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN OR THEREIN MAY BE CREATED EXCEPT
THROUGH THE TRANSFER AND POSSESSION OF THE ORIGINAL EXECUTED COUNTERPART OF SUCH
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED AS THE ORIGINAL EXECUTED COUNTERPART
NO. 1 BY THE LESSOR ON THE SIGNATURE PAGE THEREOF. NO SECURITY INTEREST CAN BE
CREATED IN THIS LEASE BY TRANSFER OR POSSESSION OF THIS LEASE ALONE WITHOUT AN
ACCOMPANYING ORIGINAL COUNTERPART OF A LEASE SCHEDULE. NO TRANSFER, SALE,
MORTGAGE OR OTHER DISPOSITION OF ANY INTEREST IN THIS LEASE CAN BE EFFECTED BY
DISPOSITION OF THIS INSTRUMENT ALONE.
MASTER EQUIPMENT LEASE AGREEMENT
--------------------------------
MASTER EQUIPMENT LEASE AGREEMENT dated as of June 28, 1996 (this
"Lease"), by and between VENTURE LENDING & LEASING, INC., a Maryland corporation
("Lessor"), and NeoMagic Corporation, a California corporation ("Lessee").
Lessee desires to obtain from Lessor purchase money financing for
certain items of equipment used in Lessee's business, which equipment is
described more particularly under the caption "Description of Equipment" in one
or more Lease Schedules (as defined below) to this Lease (such equipment
together with all substitutions, renewals or replacements of, and all additions,
improvements and accessions to, any and all thereof, being hereinafter
collectively and separately referred to as the "Equipment").
Lessor is willing to provide financing for the Equipment to Lessee,
all on the terms and conditions hereinafter set forth, and on such additional
terms as are set forth in Lessor's commitment letter to Lessee dated March 13,
1996 (the "Commitment").
Accordingly, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto hereby agree as follows:
1. Lease. This Lease establishes the general terms and conditions by
-----
which Lessor may provide financing to Lessee with respect to the Equipment
listed on each lease schedule (sometimes, a "Lease Schedule" or "Schedule")
executed periodically pursuant to this Lease. Each Schedule shall be in the form
provided by Lessor, shall incorporate by reference the terms of this Lease, and
shall be and constitute a separate agreement as to the Equipment listed thereon
for all purposes, including default. If any provision of a Lease Schedule
conflicts with or supplements the provisions of this Lease, the provisions of
such Schedule shall be controlling. Pursuant to the Commitment, Lessor has
<PAGE>
agreed to arrange for the furnishing and lease to Lessee, and Lessee has agreed
to accept and lease Equipment having an aggregate Equipment Cost (as defined in
each Schedule) of not in excess of Two Million Dollars ($2,000,000.00).
Notwithstanding anything in the Lease to the contrary, it is understood and
agreed that Lessee is purchasing the Equipment and Lessor is financing such
purchases. Accordingly, title to the Equipment shall be vested in Lessee upon
its acceptance thereof. To secure its obligations hereunder to Lessor, Lessee
hereby grants to Lessor a security interest in: (i) all Equipment, whether now
owned or hereafter acquired by Lessee; (ii) all leases and other agreements
covering the Equipment and any and all subleases of such Equipment (whether or
not permitted under this Lease); (iii) all software, source code, source code
escrow arrangements, object code, user manuals and other technical
documentation, and licenses purchased as part of or for use with the Equipment;
and (iv) all additions and accessions to, substitutions for and proceeds
(whether cash or non-cash) and products of any of the foregoing, including,
without limitation, all payments under insurance. Upon payment in full of all
rentals for such Equipment in accordance with the applicable Schedule and the
other terms of this Lease, the provisions of Sections 6 through 10 of this Lease
shall no longer apply to such items of Equipment and such security interest
shall be released.
2. Term. The term of this Lease as to each item of Equipment leased
----
hereunder, shall commence on the date of acceptance of such item and shall end
at the expiration of the term therefor specified under "Term" in the applicable
Schedule.
3. Rent. Lessee shall pay to Lessor as rent for each item of
----
Equipment during the applicable Term, on each Rent Payment Date (as defined in
the Schedule), the amount specified under "Lease Rental Payments" in the
Schedule (hereinafter referred to as "Rent"). If any amount due hereunder is not
paid, within five days of its due date, Lessee shall pay to Lessor, on demand, a
reasonable late charge in the amount of 5% of such overdue amount and interest
on such overdue amount at the rate of 2% per month (the "Late Payment Rate");
such late charge and interest shall apply only if permitted by applicable law,
and if not so permitted, such late charge and interest shall be calculated at
the maximum rates permitted by applicable law. All payments of Rent and other
amounts payable by Lessee to Lessor hereunder shall be made at the office of
Lessor specified under "Lessor's Address" in the Schedule, or to such other
person, firm or corporation or Assignee (as defined in Section 20, "Assignment
by Lessor") and at such other place as Lessor or Assignee, as the case may be,
may from time to time designate in writing to Lessee.
2
<PAGE>
Notwithstanding any provisions hereof to the contrary, and payment, including
Rent, required under this Lease which is due on a day which is not a business
day shall be made on the business day next preceding the day on which such
payment is due. This Lease is non-cancellable and irrevocable for the entire
term set forth in the Schedule. Lessee's obligation to pay all rentals and other
amounts payable hereunder are absolute and unconditional and shall not be
subject to any abatement, reduction, setoff, defense, counterclaim or recoupment
for any reason whatsoever, including but not limited to Lessee's right to
possession of the Equipment being terminated or Lessor retaking possession of
the Equipment because of a default by Lessee hereunder.
4. Lessee's Selection, Inspection and Acceptance. Lessee has
---------------------------------------------
selected or will select all items of Equipment to be leased hereunder from the
manufacturer or vendor thereof on the basis of its own judgment, and is not
relying on any statements, representations or warranties made by Lessor or its
representatives. Upon delivery, Lessee, at its own expense, shall make all
necessary inspections and tests of the Equipment in order to determine whether
the Equipment conforms to specifications and is in good condition and repair.
If the Equipment is in good condition and repair, Lessee shall execute and
deliver to Lessor a Certificate of Acceptance, in substantially the form thereof
attached hereto. Lessee warrants that each item of the Equipment is leased
solely for commercial or business use.
5. DISCLAIMER OF WARRANTIES BY LESSOR. LESSOR DOES NOT MAKE, HAS
----------------------------------
NOT MADE, AND SHALL NOT BE DEEMED TO MAKE OR HAVE MADE, ANY REPRESENTATION OR
WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING,
WITHOUT LIMITATION, THE DESIGN OR CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY, DURABILITY, SUITABILITY OR ITS FITNESS FOR ANY PARTICULAR
PURPOSE, THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE EQUIPMENT, OR THE
CONFORMITY OF THE EQUIPMENT TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE
ORDER OR ORDERS RELATING THERETO OR TITLE TO THE EQUIPMENT OR ANY COMPONENT
THEREOF, AND LESSOR HEREBY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY (WHICH
DISCLAIMER LESSEE HEREBY ACKNOWLEDGES). WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, LESSOR SHALL NOT BE LIABLE OR RESPONSIBLE FOR ANY DEFECTS, EITHER
PATENT OR LATENT (WHETHER OR NOT DISCOVERABLE BY LESSEE OR LESSOR), IN ANY UNIT
OF THE EQUIPMENT, OR FOR ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR PROPERTY
RESULTING THEREFROM, OR FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING
STRICT OR ABSOLUTE LIABILITY IN TORT), it being agreed that all such risks, as
between Lessor and Lessee, are to be borne solely by Lessee. Lessee acknowledges
that Lessor is not a dealer in or manufacturer of equipment of any kind, and
that each item of Equipment subject to this Lease is of a type, size, design and
capacity selected solely by Lessee. If the Equipment is not properly
3
<PAGE>
installed, does not operate as represented or warranted by the manufacturer or
seller thereof, or is unsatisfactory for any reason, Lessee shall make any claim
on account thereof solely against the manufacturer or seller, and, once the
Equipment is accepted by Lessee, no such occurrence shall relieve Lessee of any
of its obligations hereunder. Lessor hereby assigns to Lessee any interest
Lessor may have in any manufacturer's or seller's warranty, whether express or
implied, on such item. All claims or actions on any warranty shall be made or
prosecuted by Lessee, at its sole expense, and lessor shall have no obligation
whatsoever to make any claim on such warranty. At Lessor's option, all cash
proceeds or equivalent thereof from such warranty recovery shall be used to
repair or replace the Equipment.
6. Equipment to be and Remain Personal Property. Lessee shall take
--------------------------------------------
all such actions as may be required to assure that the Equipment shall be, and
at all times shall remain, personal property, notwithstanding the manner in
which the Equipment may be attached or affixed to real property. Lessee shall
give Lessor prompt notice of any circumstances which may permit any reason to
acquire, and shall obtain and record such instruments and take such steps as may
be reasonably requested by Lessor to prevent any such person from acquiring,
any rights in the Equipment by reason of the Equipment being claimed or deemed
to be real property. If requested by Lessor, Lessee shall obtain and deliver to
Lessor valid and effective waivers, in recordable form, by the owners,
landlords and mortgagees of any real property upon which the Equipment is
located, or certificates of Lessee that it is the owner of such real property
and that such real property is not leased and/or mortgaged. Lessee will at all
times protect and defend, at its own cost, Lessor's security interests in the
Equipment from and against all claims, liens and legal process of creditors of
Lessee.
7. Location and Right of Inspection. The Equipment at all times
--------------------------------
shall be located at the address of Lessee specified under "Location of
Equipment" in the Schedule or such other place as shall be agreed upon in
writing between Lessor and Lessee. Lessor shall at all reasonable times during
customary business hours (but with the minimum practicable interference to
Lessees business operations) have the right to enter into and upon the premises
where the Equipment may be located for the purpose of inspecting the Lessee's
business premises and properties, including its use of the Equipment. Lessee
shall not move the Equipment from its agreed location except with the prior
written consent of Lessor which consent shall not unreasonably be withheld.
Lessee shall promptly advise Lessor of any circumstances with respect to
location which may adversely affect the Equipment or Lessor's security interest
therein.
4
<PAGE>
8. Markings and Filings. Lessee shall affix to the Equipment such labels,
--------------------
plates or decals as may be provided by Lessor, or conspicuously mark the
Equipment with such language as Lessor may reasonably request, to reflect the
interest of Lessor therein and, if there is an Assignee of Lessor, that such
Assignee has such interest in the Equipment specified by Lessor. Lessor is
hereby authorized at Lessee's expense to cause this Lease or any financing or
other statement in respect thereto, showing the interest of Lessor and any
Assignee in and to this Lease and the Equipment, to be filed or recorded with
any governmental office deemed appropriate by Lessor. Lessee shall execute any
such financing statements presented to it by Lessor or any Assignee, and shall
be responsible for the payment of any fees for filing or recording such
statements, which filing or recording shall be the sole responsibility of
Lessor.
9. Alterations. Lessee shall not make any alterations, additions or
-----------
improvements to the Equipment without the prior written consent of Lessor which
consent shall not unreasonably be withheld. Except as may be otherwise agreed
between Lessor and Lessee, all such alterations, additions and improvements
shall be considered accessions to the Equipment.
10. Use, Maintenance and Repair. Lessee shall use the Equipment solely in
---------------------------
the conduct of its business and shall comply with all laws, ordinances or
regulations, and all conditions contained in any insurance policies or
manufacturers' warranties, relating to the Equipment or its use, operation or
maintenance. Lessee shall put the Equipment only to the use contemplated by the
manufacturers thereof. Lessee shall at Lessee's own expense maintain the
Equipment in good operating condition, repair and appearance, furnish all parts
and labor required to keep the Equipment in such condition, and protect same
from deterioration other than normal wear and tear. Lessee shall cause the
Equipment to be maintained in accordance with the supplier's standard preventive
maintenance contract, if available.
11. Insurance. Lessee will maintain at all times, at its own expense, with
---------
insurers of recognized standing, (i) insurance against "all physical loss"
perils subject to standard exclusions in an amount not less than the greater of
the full replacement value or the Stipulated Loss Value of such item of
Equipment as set forth on any Schedule B attached to the Lease Schedule, and
----------
(ii) public liability and property damage insurance policies insuring against
third party personal and property damage in respect of the use and operation of
the Equipment in an amount not less than $1,000,000 for each occurrence. Each
policy shall: (i) name Lessor and Assignee, if any, as an additional insured and
loss payee, as their interests may appear to the extent of outstanding amounts
owed under the lease
5
<PAGE>
obligation. Any excess should be remitted to NeoMagic; (ii) contain an agreement
by the insurer that any loss thereunder shall be payable to Lessor and Assignee
notwithstanding any breach of representation or warranty by Lessee; (iii)
provide that there shall be no recourse against Lessor or Assignee for payment
of premiums or other amounts with respect thereto; and (iv) provide that at
least thirty (30) days' prior written notice of cancellation, change or lapse
shall be given to Lessor and Assignee by the insurer. All insurance for loss or
damage shall provide that losses, if any, shall be adjusted only with and
payable to Lessor or its Assignee, if any to the extent of outstanding amounts
owed under the lease obligation. Any excess should be remitted to NeoMagic.
Lessee shall pay all premiums for such insurance and shall deliver to Lessor
evidence of such payment and of the maintenance of the insurance coverages
required hereunder.
12. All Risk of Loss. All risk of loss, damage, theft or destruction
----------------
(a "Loss") to the Equipment shall be borne entirely by Lessee, whether or not
the Loss is insured. Except as expressly provided in this Section, no Loss of
any kind shall relieve or release Lessee of its Rent and other obligations under
this Lease, all of which shall continue in full force and effect. In the event
of a Loss to any Equipment, Lessee shall promptly notify Lessor in writing of
such fact and of all details with respect thereto, and shall promptly, at
Lessee's option (or if an Event of Default has occurred and is continuing, at
the option of Lessor):
(a) repair and restore the item of Equipment to good mechanical
condition and working order;
(b) replace the Equipment with other equipment of the same type,
capacity and condition, and free and clear of claims or encumbrances in
favor of any third party other than Lessor, whereupon such replacement
equipment shall be subject to this Lease and be deemed Equipment for
purposes hereof; or
(c) pay to Lessor, on the Rent Payment Date next succeeding the
date on which the Loss occurred, an amount equal to the sum of (A) all
accrued and unpaid Rent payable for such Equipment through and including
such Rent Payment Date, and (B) the Stipulated Loss Value of the Equipment
as of such Rent Payment Date as set forth on any Schedule B attached to the
----------
Lease Schedule pertaining to such Equipment.
13. Licensing, Registration and Taxes. Lessee shall, at its sole cost
---------------------------------
and expense, (i) obtain any licensing and registration of the Equipment as may
be required by law, (ii) pay and discharge when due all license and registration
fees, assessments, taxes (excluding any tax measured by
6
<PAGE>
Lessor's net income), including, without limitation, sales, use, excise,
personal property, ad valorem, stamp, documentary and other taxes, and all
other governmental charges, fees, fines or penalties whatsoever, whether payable
by or assessed to Lessor or Lessee, on or relating to the Equipment or the use,
registration, rental, shipment, transportation, delivery, ownership, operation
or disposition thereof, and on or relating to this Lease, (iii) file all returns
required therefor and furnish copies thereof to Lessor at its request, and (iv)
indemnify and hold Lessor harmless from any of the foregoing.
14. Liens. Lessee will not directly or indirectly, voluntarily or by
-----
operation of law, create, incur, assume or permit to exist any claim, mortgage,
security interest, pledge, lien, charge or other encumbrance ("Liens") against
the Equipment, except the following: (i) the rights of Lessee, Lessor and any
Assignee under this Lease; (ii) Liens against Lessor's interests in the
Equipment created or granted by Lessor or resulting from claims against Lessor
not related to the transactions contemplated hereby; (iii) Liens for taxes,
assessments or governmental charges or levies, not due and delinquent; (iv)
undetermined or inchoate materialmen's, mechanics', workmen's, repairmen's or
other like Liens arising in the ordinary course of business which in each case,
either are not delinquent or have been bonded ("Permitted Liens"). Lessee, at
its own cost and expense, will promptly pay, satisfy, discharge and otherwise
take such action as may be necessary to keep the Equipment free and clear of,
and duly to discharge, any Lien other than Permitted Liens.
15. Indemnification. Lessee assumes liability for, will pay when due
---------------
and will indemnify, protect, save, defend and hold Lessor, its agents,
employees, successors and assigns harmless from and against, any and all
obligations, liabilities, losses, damages, injuries, fines, penalties, interest,
claims, demands, actions, suits, costs and expenses, including reasonable
attorneys' fees and expenses, of every kind and nature whatsoever imposed on,
incurred by or asserted against, Lessor, its agents, employees, successors and
assigns in any way relating to or arising out of (a) the manufacture, ordering,
purchase, acceptance or rejection, ownership, delivery, leasing, possession,
use, operation or disposition of the Equipment, including, without limitation,
any of such as may arise from patent or latent defects in the Equipment (whether
or not discoverable by Lessee or Lessor), any claims based on strict liability
in tort, and any claims based on patent, trademark or copyright infringement,
except to the extent any of the foregoing arises out of gross negligence
or willful misconduct of Lessor or (b) any failure on the part of Lessee to
perform or comply with any of the terms of this Lease required to be performed
or complied with by Lessee. Lessee shall give
7
<PAGE>
written notice to Lessor of any occurrence, event or condition known to Lessee
as a consequence of which Lessor may be entitled to indemnification hereunder.
If any action, suit or proceeding is brought against any indemnified party in
connection with any claim indemnified against under this Section, Lessee may,
and upon the reasonable request of such indemnified party shall, at Lessee's
expense, resist and defend such action, suit or proceeding, or cause the same to
be resisted or defended, by counsel selected by Lessee and reasonably approved
by such indemnified party, and Lessee shall pay all costs and expenses
(including without limitation attorneys' fees and expenses) incurred by such
indemnified party in connection with such action, suit or proceeding. If a claim
is made against any indemnified party with respect to which such indemnified
party is entitled to indemnification from Lessee under this Section, Lessor
shall reasonably promptly notify Lessee thereof. Lessee shall forthwith upon
demand of Lessor reimburse Lessor and any other indemnified party for amounts
expended by Lessor or such other indemnified party in connection with any of the
foregoing or pay such amounts directly. The provisions of this Section shall
apply from the date of the execution of this Lease and shall survive the
expiration or earlier termination of this Lease.
16. Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an "Event of Default" hereunder (whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
(a) Default by Lessee in payment of any installment of Rent or
other monetary obligation now or hereafter owed by Lessee to Lessor under
this Lease or under any other lease of equipment now or hereafter existing
between Lessee and Lessor or any affiliate of Lessor, and the continuance
of such default for 5 consecutive days (for purposes of this subparagraph
(a) "affiliate of Lessor" shall mean any person or entity which controls or
is controlled by or under common control with Lessor);
(b) Default by Lessee in the performance of any of the covenants
of Lessee set forth in Sections 7 ("Location and Right of Inspection"), 11
("Insurance"), 18 ("Return of Equipment") and 19 ("Assignment by Lessee")
hereof;
(c) Default by Lessee in the payment or performance of any
obligation with respect to any indebtedness for any borrowing or the
deferred purchase of property or any lease of property, in excess of 10%
8
<PAGE>
of Lessee's net worth or a default by Lessee under any agreement, license
or other document relating to software used in connection with the
Equipment, the effect of which would permit any licensor or third party to
terminate either Lessee's or Lessor's license or other rights with respect
to such software;
(d) Any representation or warranty made by Lessee in this Lease
or in any other document or certificate furnished to Lessor in connection
herewith or pursuant hereto, shall prove to be untrue or incorrect in any
material respect as of the date of issuance or making thereof;
(e) Lessee becomes insolvent or bankrupt or admits in writing
its inability or fails to pay its debts as they mature, or makes an
assignment for the benefit of creditors, or applies for or consents to the
appointment of a trustee or receiver for any of its properties or assets;
(f) Any proceedings shall be authorized by corporate action
taken by Lessee's shareholders or directors, or shall be commenced by or
against Lessee, for any relief under any bankruptcy or insolvency laws, or
laws relating to the relief of debtors, readjustments of indebtedness,
reorganizations, arrangements, compositions or extensions, unless, in the
case of involuntary proceedings only, such proceedings shall have been
dismissed within 60 days after such proceedings shall have been commenced;
(g) Default by Lessee under any warrant to purchase capital
stock of Lessee issued to Lessor in connection with the execution of this
Agreement (a "Warrant"), or material breach of any undertaking, covenant or
material representation or warranty made by Lessee for the benefit of
Lessor in any document, instrument or agreement relating to the Warrant or
made in connection therewith, including any registration rights or
anti-dilution provisions; or
(h) Default by Lessee in the performance or observance of any
other obligation, covenant or liability of Lessee contained in this Lease
and the continuance of such default for 30 consecutive days after written
notice thereof by Lessor to Lessee.
17. Remedies of Lessor. Upon the occurrence of any Event of Default
------------------
and at any time thereafter while such Event of Default is continuing, Lessor (i)
shall have no further obligations under the Commitment, and (ii) may, without
any further notice, exercise one or more of the
9
<PAGE>
following remedies as Lessor in its sole discretion shall elect:
(a) Declare all unpaid Rent and other sums due or to become due
under this Lease to be immediately due and payable;
(b) Terminate this Lease, whereupon all rights of Lessee to the
use of the Equipment shall absolutely cease and terminate but Lessee shall
remain liable as herein provided, and thereupon Lessee will permit Lessor
to store the Equipment on Lessee's premises or wherever the Equipment may
then be located, without charge, until sold or otherwise disposed of and,
if so requested by Lessor, shall at the expense of Lessee, promptly deliver
possession of the Equipment to Lessor at such place as Lessor shall
designate in the manner provided in Section 18 hereof;
(c) Take possession of the Equipment wherever found, and for
this purpose enter upon any premises of Lessee and remove the Equipment all
without liability on the part of Lessor for or by reason of such entry or
taking of possession, whether for the restoration of damage to property
caused by such taking or otherwise. Taking possession of the Equipment
shall not be construed to be an election to terminate this Lease and this
Lease shall remain in effect and Lessee shall remain liable for all
payments to be made hereunder. Lessee consents to the granting of one or
more applications for a writ of possession on an ex parte basis by a court
of competent jurisdiction upon posting of such undertaking or bond as may
be required by law, and agrees that the amount of such undertaking may be
limited to the depreciated value of the Equipment determined by Lessor as
of the proposed date of repossession;
(d) Sell the Equipment at public or private sale, in such
commercially reasonable manner as Lessor may deem appropriate (giving
Lessee at least ten (10) days' prior written notice of the time and place
of any such public sale, or the time after which a private sale may be
made, which notice Lessee hereby agrees is reasonable), or otherwise
dispose of, hold, use, operate or keep idle the Equipment, all as Lessor,
in its sole discretion, may determine and all free and clear of any rights
of Lessee and without any duty to account to Lessee (except as hereinafter
provided) for such action or inaction or for any proceeds resulting
therefrom. Lessor shall apply the net proceeds (the proceeds of any sale
minus all costs and expenses incurred with the recovery, repair, storage,
sale) of any such sale to the payment of Lessee's obligations hereunder,
Lessee
10
<PAGE>
remaining liable for any deficiency (and any excess to be paid over to
Lessee), which at Lessor's option, shall be paid monthly, as suffered, or
immediately in a lump sum, or at the end of the term, as damages for
Lessee's default;
(e) By written notice to Lessee, cause Lessee to pay Lessor (as
liquidated damages for loss of a bargain and not as a penalty) on the date
specified in such notice, an amount equal to the sum of: (A) any unpaid
Rent that accrued on or before the occurrence of the Event of Default, and
(B) the Stipulated Loss Value of such Equipment, as of the date of
occurrence of the Event of Default, as set forth on any Schedule B attached
----------
to the Lease Schedule pertaining to such Equipment. Should Lessor, however,
estimate its actual damages to exceed the foregoing, Lessor may, at its
option, recover its actual damages in lieu of or in addition thereto. If
Lessor proceeds pursuant to this subsection (e), Lessor hereby appoints
Lessee its agent to dispose of the Equipment at the best price obtainable
on an "as-is", "where is" basis, without representation or warranty,
express or implied. If Lessee has previously paid the amount of liquidated
damages specified above to Lessor, Lessee shall be entitled to the proceeds
of such sale of the Equipment; or
(f) Avail itself of any other remedy provided by any statute or
otherwise available at law, in equity or in bankruptcy.
No remedy referred to in this Section is intended to be exclusive, but each
shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law, in equity or in bankruptcy, and the
exercise or beginning of exercise by Lessor of any one or more of such remedies
shall not preclude the simultaneous or later exercise by Lessor of any or all
such other remedies. No waiver by Lessor of any Event of Default hereunder shall
in any way be or be construed to be a waiver of any future or subsequent Event
of Default. Lessee shall be liable for all costs and expenses (including
reasonable attorneys' fees and disbursements and the costs of any retaking)
incurred by reason of the occurrence of any Event of Default and the exercise of
Lessor's remedies with respect thereto.
18. Return of equipment After Default. Upon early termination of this
---------------------------------
Lease pursuant to Section 17 ("Remedies of Lessor"), Lessee shall return each
item of Equipment to Lessor in good condition, ordinary wear and tear resulting
from proper use thereof excepted, in the following manner: by forthwith
delivering possession of the Equipment to Lessor. Lessee will, at its sole cost
and risk, forthwith prepare, dismantle, crate and deliver the Equipment
11
<PAGE>
at the place designated by Lessor, arrange for storage of the Equipment until
the Equipment has been sold or otherwise disposed of by Lessor, and/or deliver
the same to any carrier for shipment (insurance and freight prepaid) to such
place within the continental United States as shall be designated by Lessor, all
as directed by Lessor. The preparation, dismantling, crating, delivery, storage
and transporting of the Equipment shall be at the expense and risk of Lessee and
are of the essence of this Lease, and upon application to any court of equity
having jurisdiction Lessor shall be entitled to a decree against Lessee
requiring specific performance of the covenants of Lessee so to prepare,
dismantle, crate, deliver, store and transport the Equipment. During any storage
period, Lessee will, at its own expense and risk, maintain and keep the
Equipment fully insured and in good order and repair and will permit Lessor or
any person designated by it, including the authorized representative or
representatives of any prospective purchaser of any item of the Equipment, to
inspect the same. Lessee shall be responsible, at its sole cost and expense, for
any repairs necessary to place the Equipment in the condition hereinabove
required upon return, and for the discharge of all Liens (other than Permitted
Liens) thereon at the time of such return.
19. Assignment by Lessee. Lessee shall not assign, pledge or
--------------------
hypothecate this Lease in whole or in part, or any interest therein, nor shall
Lessee sublease or otherwise relinquish possession of, any item of the Equipment
without the prior written consent of Lessor. Lessee's interest herein may not be
assigned or transferred by operation of law. Consent to any of the foregoing
acts by Lessor shall not be deemed to be consent to any subsequent similar act
by Lessor. Any assignment by Lessee in violation of the provisions of this
Section shall be void.
20. Assignment by Lessor. Lessor may at any time, with or without
--------------------
notice to Lessee, transfer, sell, mortgage, grant a security interest in or
assign this Lease, any Lease Schedule (each such schedule constituting a
separate Lease as to the Equipment described therein), any Rent due or to become
due hereunder, or its security interests in the Equipment; and in such event
Lessor's transferee, purchaser, mortgagee, secured party or assignee (an
"Assignee") shall have all of Lessor's rights, powers, privileges and remedies
hereunder and shall not be obligated to perform any duty, covenant or condition
required to be observed or performed by Lessor, subject only to the rights of
Lessee to possession and quiet enjoyment of the Equipment as long as no Event of
Default has occurred under this Lease. All amounts payable to Lessor under this
Lease shall be payable to Assignee at such address as Assignee may designate in
writing to Lessee. Lessee acknowledges and agrees that the rights of any
Assignee in and to the sums payable by Lessee under any
12
<PAGE>
provision of this Lease shall not be subject to any abatement whatsoever and
shall not be subject to any defense, setoff, counterclaim or recoupment of any
nature whatsoever by reason of any liability or obligation, howsoever and
whenever arising, of Lessor to Lessee or to any other person, firm or
corporation or governmental authority, or for any other cause whatsoever.
21. Successors and Assigns. All of the covenants, conditions and
----------------------
obligations of each party contained in this Lease shall be binding upon, and,
subject to the provisions of Section 19, inure to the benefit of, the respective
successors and assigns of the parties hereto.
22. Lessor's Performance of Lessee's Obligations. If Lessee shall
--------------------------------------------
fail to duly and promptly perform any of its obligations under this Lease
with respect to the Equipment, Lessor may (at its option) perform any act or
make any payment required of Lessee, and Lessee shall reimburse Lessor (payable
by Lessee on demand) for all sums so paid or incurred by Lessor, together with
interest at the Late Payment Rate and any reasonable legal fees incurred by
Lessor in connection therewith. The performance of any act or payment by Lessor
as aforesaid shall not be deemed a waiver or release of any obligation or
default on the part of Lessee.
23. Managerial Assistance. During the Term and so long as any
---------------------
obligations under this Lease remain outstanding:
(a) Lessor shall make available to Lessee "significant
managerial assistance", as defined in Section 2(a)(47) of the Investment
Company Act of 1940, as amended, either in the form of: (i) consulting
arrangements with Lessor or any of its officers, directors, employees or
affiliates, (ii) Lessee's allowing Lessor to designate members of Lessee's
Board of Directors, or (iii) Lessor, at Lessee's request, seeking the
services of third-party consultants to aid Lessee with respect to its
management and operations; and
(b) Lessee may in its discretion, permit Lessor, as a "venture
capital operating company," to participate in, and influence the conduct of
management of Lessee through the exercise of "management rights", as those
terms are defined in Section 2510.3-101 of the U.S. Department of Labor's
regulations, Title 29 of the Code of Federal Regulations.
24. Financial and other Reports. During the Term and so long as any
---------------------------
obligations under this Lease remain outstanding, Lease shall:
13
<PAGE>
(a) Furnish to Lessor and any Assignee of Lessor identified to
Lessee (i) within 90 days after the close of each fiscal year of Lessee, an
audited balance sheet and statement of changes in financial position of Lessee
at and as of the end of such fiscal year, together with an audited statement of
income of Lessee for such fiscal year; (ii) within 45 days after the close of
each calendar month (or, if the stock of Lessee is publicly traded, each fiscal
quarter) of each fiscal year of Lessee, an unaudited balance sheet of Lessee at
and as of the end of such month (or quarter, as the case may be), together with
an unaudited statement of income of Lessee for such month or quarter, as the
case may be; and (iii) from time to time, such other information as Lessor or
Assignee may reasonably request regarding Lessee's business, financial condition
and prospects; and
(b) Consider permitting Lessor, upon reasonable request, to
substantially participate in management of Lessee by consulting with and
advising officers of Lessee regarding Lessee's equipment acquisition and
financing plans, and such other matters affecting the business, financial
condition and prospects of Lessee as Lessor shall reasonably deem relevant; and
(c) If Lessor reasonably believes that financial or other
developments affecting Lessee have impaired or are likely to impair Lessee's
ability to perform its obligations under this Lease, permit Lessor reasonable
access to Lessee's management and/or Board of Directors and opportunity to
present Lessor's views with respect to such developments.
Lessee hereby warrants and represents that all financial statements delivered to
Lessor or such Assignee by or upon behalf of Lessee, and any statements and data
submitted in writing to Lessor or such Assignee in connection with this Lease,
are true and correct and fairly present the financial condition of Lessee for
the periods involved, and are prepared in accordance with generally accepted
accounting principles consistently applied, and that there has occurred no
material adverse change in the financial condition of Lessee since the date of
the last financial statement delivered to Lessor which has not been disclosed in
writing to Lessor.
25. Power; Absence of Conflict. Lessee is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The execution, delivery and performance of
this Lease, and the obligations of Lessee hereunder have been duly authorized by
all necessary corporate action, and constitute the valid and binding obligations
of Lessee
14
<PAGE>
enforceable in accordance with their terms. The performance by Lessee of its
obligations hereunder will not result in a material breach or violation of, or
constitute a material default under, any statute, note, agreement, lease or
other instrument to which Lessee is a party or by which Lessee is bound,
Lessee's Articles of Incorporation or Bylaws, or, to Lessee's knowledge any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over Lessee.
26. Attorneys' Fees. If Lessor or Lessee institutes legal action
---------------
against the other to interpret or enforce this Lease or to obtain damages for
any alleged breach thereof, the prevailing party in such action shall be
entitled to an award of reasonable attorneys' fees and costs.
27. Notices. All notices required or permitted under this Lease shall
-------
be in writing and shall be deemed to have been duly given on the date of service
if served personally on the party to whom notice is to be given, or on the third
calendar day after deposit in the mail, if sent by first class mail, registered
or certified, postage prepaid, and properly addressed to Lessor or Lessee, as
the case may be, at their respective addresses set forth in the Schedule, or at
such other address as either party shall from time to time designate in the
manner provided above to the other party.
28. Governing Law. This Lease shall be governed by, and construed in
-------------
accordance with, the laws of the State of California, without regard to the
conflicts of laws provisions thereof. The parties acknowledge and agree that
this agreement and the transactions contemplated hereunder involve the provision
of equipment financing by Lessor and the creation of security interests in such
equipment, and shall not be deemed a lease as defined in Division 10 of the
California Commercial Code.
29. Entire Agreement; Amendments; Waivers. This Lease, together with
-------------------------------------
any and all Schedules and exhibits attached hereto, constitutes the entire
agreement between Lessor and Lessee, and supersedes all prior oral or written
agreements or understandings, with respect to the subject matter hereof, and it
shall not be amended, altered or changed, except by written agreement signed by
the parties hereto. No waiver of any provision of this Lease and no consent to
any departure by Lessee therefrom shall be effective unless the same shall be in
writing and signed by both parties, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
30. Severability. If any term or provision of this Lease or the
------------
application thereof shall, to any extent,
15
<PAGE>
be invalid or unenforceable, such invalidity or unenforceability shall not
affect or render invalid or unenforceable any other provision of this Lease, and
this Lease shall be valid and enforced to the fullest extent permitted by law.
31. Headings. The Section headings used herein are solely for
--------
convenience of reference and shall not be construed to define or limit any of
the terms or provisions hereof.
32. Further Assurances. Lessee shall execute and deliver to Lessor,
------------------
upon Lessor's request, such instruments and assurances as Lessor deems necessary
or desirable for the confirmation of Lessor's rights hereunder. In furtherance
thereof, Lessee agrees to take whatever action as may be necessary to enable
Lessor or any Assignee to file, register or record, and refile, re-register and
re-record, this Lease and any financing statements or other documents requested
by Lessor or any Assignee pursuant to the Uniform Commercial Code or otherwise.
Lessee authorizes Lessor to effect any such filing (including, where permitted
by applicable law, the filing of any financing statements without the signature
of Lessee) and Lessor's expenses with respect hereto shall be payable by Lessee
on demand.
TO THE EXTENT THAT THIS LEASE AND ANY LEASE SCHEDULE CONSTITUTES CHATTEL
PAPER (AS DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN OR THEREIN MAY BE CREATED EXCEPT
THROUGH THE TRANSFER AND POSSESSION OF THE ORIGINAL EXECUTED COUNTERPART OF SUCH
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED AS THE ORIGINAL EXECUTED COUNTERPART
NO. 1 BY THE LESSOR ON THE SIGNATURE PAGE THEREOF. NO SECURITY INTEREST CAN BE
CREATED IN THIS LEASE BY TRANSFER OR POSSESSION OF THIS LEASE ALONE WITHOUT AN
ACCOMPANYING ORIGINAL COUNTERPART OF A LEASE SCHEDULE. NO TRANSFER, SALE,
MORTGAGE OR OTHER DISPOSITION OF ANY INTEREST IN THIS LEASE CAN BE EFFECTED BY
DISPOSITION OF THIS INSTRUMENT ALONE.
16
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Lease as of the day
and year first above written.
LESSOR:
VENTURE LENDING & LEASING, INC.,
a Maryland corporation
By: Salvador Gutierrez
----------------------------
Its: President
---------------------------
LESSEE:
NeoMagic Corporation
a California corporation
By: Lori Holland
----------------------------
Its: VP & CFO
--------------------------
17
<PAGE>
LEASE SCHEDULE NO. 48-001
TO
MASTER EQUIPMENT LEASE AGREEMENT
--------------------------------
TO THE EXTENT THAT THIS LEASE SCHEDULE CONSTITUTES CHATTEL PAPER (AS
DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN MAY BE CREATED EXCEPT THROUGH THE
TRANSFER OR POSSESSION OF THE ORIGINAL EXECUTED "COUNTERPART NO. 1" OF THIS
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED ON THE SIGNATURE PAGE HEREOF.
This Lease Schedule is executed in accordance with the terms of the
Master Equipment Lease Agreement ("Master Lease") dated as of June 28, 1996 by
and between Venture Lending & Leasing, Inc., ("Lessor"), and NeoMagic
Corporation, a California corporation ("Lessee"). Unless otherwise expressly
defined herein, capitalized terms used herein shall have the same meaning as in
the Master Lease. All terms and conditions of the Master Lease are incorporated
herein by this reference.
I. Delivery and Acceptance Period:
------------------------------
Not later than June 30, 1996
II. Location(s) of Equipment:
------------------------
3260 Jay Street
Santa Clara, CA 95054
Mitsubishi Electric Corporation, Saijo Factory
8-6 Hiuchi Saijo-City Erime-Prefecture
793 Japan
III. Term:
----
With respect to each item of Equipment, a Term of 42 months,
commencing on the first day of the month next following the date
of acceptance of such item hereunder by Lessee; with an interim
Term commencing on the date of acceptance of such item and
continuing to but not including the first day of the Term.
IV. Equipment Cost:
--------------
"Equipment Cost" shall mean the total purchase price, paid or
financed by Lessor in respect of each item of Equipment.
<PAGE>
V. Rent Payment Dates:
------------------
July 1, 1996 two (2) Rental Payments, first and last in advance,
and the payment of Rent for any interim Term; Forty (40)
consecutive monthly Rent payments on the first day of each month
commencing on August 1, 1996 to and including November 1, 1999
and January 1, 2000.
VI. Lease Rental Payments:
---------------------
With respect to each item of Equipment, a monthly amount equal to
2.87% multiplied by the Equipment Cost of such item, in advance;
plus a final payment in an amount equal to 10% multiplied by the
Equipment Cost of such item, payable on the first day of the
month next following the last day of the Term. Rent for any
period less than a month shall be prorated daily on the basis of
a 30-day month.
VII. Lessee's Address:
----------------
3260 Jay Street
Santa Clara, CA 95054
VIII. Name and address of Lessor:
--------------------------
Venture Lending & Leasing, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131-2038
Address to which Rental and other payments are to be sent:
Bank of Boston
Payment Unit
P.O. Box 1323
Providence, RI 02901-1323
2
<PAGE>
IX. Description of Equipment:
------------------------
Mfg. or I.D. or Unit Equipment
Quantity Vendor Description Serial Cost Cost
- -----------------------------------------------------------------------
(EQUIPMENT FULLY DESCRIBED ON ATTACHED EQUIPMENT LIST)
3
<PAGE>
NEOMAGIC CORPORATION
EQUIPMENT LIST FOR LEASE SCHEDULE NO. 48-001
<TABLE>
<CAPTION>
MANUFACTURER QTY DESCRIPTION SERIAL INVOICE INVOICE EQUIPMENT
OR NUMBER NUMBER DATE COST
VENDOR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DNP AMERICA, INC. 1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 0.5 UM SPOT SIZE 85BQG 60339 2/29/96 39,300.00
1 PHOTEMASK 6" QZ EB PELLICLIZED 5X RETICLE 0.25 UM SPOT SIZE 62BTG
2 PHOTOMAST 6" QZ EB PELLICLIZED 5X RETICLE 0.125UM SPOT SIZE 56BOG
61BUG
DNP AMERICA, INC. 2 PHOTOMASK 7" QZ EB PELLICLIZED 1X MASTER 0.5U SPOT SIZE 57AG 60336 2/29/96 7,400.00
65AP
DNP AMERICA, INC. 2 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 0.5U SPOT SIZE 77ATG 60334 2/29/96 130,300.00
99AUG
1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 0.25U SPOT SIZE 62ATG
2 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 0.125U SPOT SIZE 91AUG
76AUG
53AUG
55AQG
56AUG
61AUG
2 PHOTOMASK 6" QZ EB PELLICLIZED pHASE SHIFT 5X0.125U 80AVG
SPOT SIZE 75AVG
INTELLIGRAPHICS 1 ACCELERATED NM2070 NT DRIVER 159 4/30/96 53,700.00
1 ACCELERATED NM2090 PM DRIVER
INTELLIGRAPHICS 1 2090 NT ACCELERATION BETA 153 4/25/96 15,000.00
INTELLIGRAPHICS, INC. 1 FINAL ACCEPTANCE OF ACCELERATED NM2070 NT DRIVER 171 5/23/96 60,000.00
1 FINAAL ACCEPTANCE OF ACCELERATED NM2090 PM DRIVER
INTELLIGRAPHICS, INC. 1 5.0 DUMB FRAM BUFFER 170 5/23/96 5,000.00
INTELLIGRAPHICS, INC. 1 2090 NT ACCELERATION 168 5/16/96 15,950.00
COMNET INTERNATIONAL TRANSLATION INTO 7 DIFFERENT LANGUAGES 11409 5/10/96 1,000.00
WCS 1 VPM DRIVER AND RELEASE 6125 5/1/96 6,000.00
SPECTRUM ASSOCIATES, INC. 1 POINT MAN SOFTWARE 25977A 5/21/96 165,976.00
PIVOT POINT, INC. 1 POINT MAN SOFTWARE TOOLS
SUN MICROSYSTEMS, INC. 1 ULTRA1/170 TX1, 20, C 64MB, 2GB SUN SPARC 611F12BA 11532838 3/20/96 30,647.53
1 US UNIX COUNTRY KIT
1 64MB BYTE MEMORY EXPANSION
1 120 MBBTE MEMORY EXPANSION
</TABLE>
Page 1
<PAGE>
NEOMAGIC CORPORATION
EQUIPMENT LIST FOR LEASE SCHEDULE NO. 48-001
<TABLE>
<CAPTION>
MANUFACTURER QTY DESCRIPTION SERIAL INVOICE INVOICE EQUIPMENT
OR NUMBER NUMBER DATE COST
VENDOR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 SBUS INTLGNT SCSI HOST ADP SGL 11774
1 8.4GB MULTIPACK 609G2344
1 INTERNAL TRPL DNSTY FLOPPY DISK DRIVE
1 SUNCO 4XINTERNAL DR FOR FUSION 9605702548
1 4.8GB 4MM DDS-2 SPARCSTORAGE 611G0856
1 SOLARIS 2.X DESKTOPO MEDIA KIT
1 SOLARIS 2.X FULL DOCUMENTS SET 1027-76392
1 SW ASSY, WORKSHP C2.0 1 USR
1 MF COBOL 3.2 COMPILER/TOOLBOX
1 MF COBOL 3.2 DIALOG SYSTEM
SUN MICROSYSTEMS, INC. 1 SPARCWORKS PRO 30.1 SLIM 421-77360 11539218 3/28/96 896.25
SUN MICROSYSTEMS, INC. 1 150MHZ TGX DESKTOP WORKSTATION 610F0105 D0813461 3/20/96 13,072.12
1 US UNIX COUNTRY KIT
1 32MB MEMORY EXPANSION
1 SOL 1.X SIDEGRADE - LIC & CD
SUN MICROSYSTEMS, INC. 1 MODULE UPGRADE TO S10 151 15321 11527962 3/11/96 2,918.75
1 US UNIX COUNTRY KIT
1 DT UPGRADE TO SOL 2 CURRENT
FLORE STORAGE 1 YAMAHA 2X CDR A736B-N 496 3/13/96 1,077.50
MOMENTUM MICORSYSTEM, INC. 1 US ROBOTICS "SPORTSTER: 28.8 INTERNAL FAXMODEM V.34 84100142071326 15580 3/6/96 903.48
1 MS VISUAL C++ V4.0 SUBSCRIPTION CD ROM
1 MS MASM V6.11 MACRO ASSEMBLY LANGUAGE DEVELOPMENT SYSTEM
MOMENTUM MICROSYSTEM, INC. 1 ACER PENTIUM 100 SYSTEM INCLUDES
MEDIUM TOWER D3156970 15603 3/7/96 3,387.58
TRITON 586 MOTHERBOARD, INTEL 100MHZ CPU & COLLING FAN,
2 16MB RAM MEMORY
1.44MB FLOPPY DRIVE, QUANTUM 1.2GB IDE HARD DRIVE
INT. 4X CD-ROM IDE, 3C509COMBO ETHERLINK III, VGA PCI
TR1064
W2MB, ACER 101 TOUCH KEYBOARD, MS-II ERGONOMIC
MOUSE MS WINDOWS 95 INSTALLED
ACER 701 17" MULTISYNC MONITOR M71H60700408
MS OFFICE PRO W/BOOKSHELF WIN 95
W/DOCS CD ROM
</TABLE>
Page 2
<PAGE>
NEOMAGIC CORPORATION
EQUIPMENT LIST FOR LEASE SCHEDULE NO. 48-001
<TABLE>
<CAPTION>
MANUFACTURER QTY DESCRIPTION SERIAL INVOICE INVOICE EQUIPMENT
OR NUMBER NUMBER DATE COST
VENDOR
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MOMENTUM MICROSYSTEM, INC. 1 ACER PENTIUM 100 SYSTEM INCLUDES 33422D1 15782 3/21/96 3,763.93
MEDIUM TOWER
TRITON 586 MOTHERBOARD, INTEL 100MHZ
CPU & COLLING FAN,
2 16MB RAM MEMORY
1.44MB FLOPPY DRIVE, CONNER 1.2GB IDE
HARD DRIVE
INT. 4X CD-ROM IDE, 3C508COMBO
ETHERLINK III, VGA PCI TR1064
W2MB, ACER 101 TOUCH KEYBOARD, MS-II
ERGONOMIC MOUSE
MS WINDOWS 95 INSTALLED
NEC XE17" MULTYSYNE MONITOR JC-1733VMA
MS OFFICE PRO W/BOOKSHELF WIN 95
W/DOCS CD ROM
NCA COMPUTER PRODUCTS 2 NEC XV17" PLUS MONITORS 6203574RA 253387 3/25/96 1,788.54
6207192RA
JEM AMERICA CORP. 1 PROBE CARD FOR TESTING 20851 3/19/96 2,371.04
VOICE PRO 1 VOICE PRO VOICE MAIL SYSTEM AND 40
PHONES 13158-IN 5/6/96 27,209.60
----------
607,652.52
</TABLE>
Page 3
<PAGE>
X. Additional Terms and Conditions:
-------------------------------
By execution of this Lease Schedule, Lessee and Lessor agree that the
additional terms, conditions and/or provisions set forth in any
Rider(s) attached hereto shall be incorporated by this reference in
this Lease Schedule and the Master Lease with respect to the items of
Equipment described in this Lease Schedule. In the event of any
conflict between the provisions of any Rider and the Master Lease, the
terms of the Rider shall be controlling.
If a Schedule B is attached hereto, such Schedule B sets forth the
----------
Stipulated Loss Value of the accepted Equipment.
XI. Entire Agreement:
----------------
LESSEE REPRESENTS THAT IT HAS READ, RECEIVED, RETAINED A COPY OF AND
UNDERSTANDS THIS LEASE SCHEDULE, AND AGREES TO BE BOUND BY ITS TERMS
AND CONDITIONS. LESSOR AND LESSEE AGREE THAT THIS LEASE SCHEDULE, ALL
RIDERS AND SCHEDULES HERETO, AND THE MASTER LEASE SHALL CONSTITUTE THE
ENTIRE LEASE AND AGREEMENT AND SUPERSEDE ALL PROPOSALS, ORAL OR
WRITTEN, ALL PRIOR NEGOTIATIONS AND ALL OTHER COMMUNICATIONS BETWEEN
LESSOR AND LESSEE WITH RESPECT TO ANY ITEM OF EQUIPMENT.
THIS LEASE SCHEDULE IS NOT CANCELLABLE BY LESSEE FOR THE TERM HEREOF.
4
<PAGE>
TO THE EXTENT THAT THIS LEASE SCHEDULE CONSTITUTES CHATTEL PAPER (AS
DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN MAY BE CREATED EXCEPT THROUGH THE
TRANSFER OR POSSESSION OF THE ORIGINAL EXECUTED "COUNTERPART NO. 1" OF THIS
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED AS THE ORIGINAL EXECUTED COUNTERPART
NO. 1 BELOW.
IN WITNESS WHEREOF, the parties hereto have caused this Lease Schedule
to be duly executed on the date set forth below by their authorized
representative.
LESSOR: LESSEE:
VENTURE LENDING & LEASING, INC. NEOMAGIC CORPORATION
By: /s/ Salvador O. Gutierrez By: /s/ Lori Holland
-------------------------- --------------------------
Name: SALVADOR O. GUTIERREZ Name: LORI HOLLAND
------------------------ ------------------------
Title: President Title: VP & CFO
----------------------- -----------------------
Date: 6/26/96 Date: 6/26/96
---------------------- ------------------------
This is Counterpart No. 2 of 2 counterparts
--- ---
Sg
------------------------
(Lessor's initials)
5
<PAGE>
SCHEDULE B
This schedule is attached to and becomes a part of Lease Schedule No.
48-001 to Master Equipment Lease Agreement dated June 28, 1996 between the
undersigned, as Lessee, and VENTURE LENDING & LEASING, INC., as Lessor.
STIPULATED LOSS VALUE SCHEDULE FOR BASIC TERM
<TABLE>
<CAPTION>
Lease Period Prior to Stipulated Lease Period Prior to Stipulated
Rental Payment No. Loss Value (1) Rental Payment No. Loss Value (1)
- ------------------ ---------- ------------------ ----------
<S> <C> <C> <C>
1 115.00 25 55.00
2 112.50 26 52.50
3 110.00 27 50.00
4 107.50 28 47.50
5 105.00 29 45.00
6 102.50 30 42.50
7 100.00 31 40.00
8 97.50 32 37.50
9 95.00 33 35.00
10 92.50 34 32.50
11 90.00 34 30.00
12 87.50 36 27.50
13 85.00 37 25.00
14 82.50 38 22.50
15 80.00 39 20.00
16 77.50 40 17.50
17 75.00 41 15.00
18 72.50 42 12.50
19 70.00 Thereafter 10.00
20 67.50
21 65.00
22 62.50
23 60.00
24 57.50
</TABLE>
(1) Percentage of Equipment Cost
This Schedule B is hereby verified by the undersigned who acknowledges receipt
of a Copy.
LESSEE: NEOMAGIC CORPORATION
BY:/s/ Lori Holland
----------------------------
TITLE: LORI HOLLAND
-------------------------
<PAGE>
[LOGO OF WESTERN TECHNOLOGY INVESTMENT APPEARS HERE]
PAYMENT INSTRUCTION LETTER
EQUIPMENT LEASE SCHEDULE NUMBER 48-001
Date: June 24, 1996
NEOMAGIC CORPORATION
3260 Jay Street
Santa Clara, CA 95054
RE: Equipment Lease Schedule No. 48-001 ("Lease Schedule") to Master Equipment
Lease Agreement dated June 28, 1996 ("Lease") between NEOMAGIC CORPORATION,
as Lessee and VENTURE LENDING & LEASING, INC., as Lessor
Dear Karin:
Pursuant to Article 3 of the above referenced Lease and Sections V and VI of the
above referenced Lease Schedule, Rent Payment Dates and Lease Rental Payments
are due and payable as follows:
Advance Payment Breakdown:
Description Rent Payment Payment Date
----------- ---- ------- ------- ----
First Rent Payment 17,439.63 In Advance
Last Rent Payment 17,436.63 In Advance
----------
Total Advance Payments $34,879.26
Commencing on July 1, 1996 consecutive Rent Payments are due and payable on
the first day of each month as indicated below:
42 Lease Rental Payments in the amount of $17,439.63 each first and last
paid in advance
1 final payment due on January 1, 2000 as indicated in Item VI of
Equipment Lease Schedule No. 48-001
Commencing on August 1, 1996, please send your remittance to the following
address using the loan transaction Number indicated below on each remittance.
Your checks should be made payable to Venture Lending & Leasing, Inc.
Loan payment remittance address:
Bank of Boston
Payment Unit
P.O. Box 1323
Providence, RI 02901-1323
Loan Transaction No. P99990312
---------
<PAGE>
NEOMAGIC CORPORATION
Payment Instruction Letter for Lease Schedule No. 48-001
June 24, 1996
Page 2
PLEASE BE ADVISED THAT THIS IS THE ONLY PAYMENT NOTICE YOU WILL RECEIVE. WE DO
- ------ -- ------- ---- ---- -- --- ---- ------- ------ --- ---- -------- -- --
NOT PROCESS MONTHLY INVOICES.
- --- ------- ------- --------
Please acknowledge your receipt of this letter by signing the enclosed
counterpart of this letter where indicated below.
Sincerely
/s/ Linda White
Linda White
Lease Administrator
Acknowledged and agreed to:
NEOMAGIC CORPORATION
By: /s/ Lori Holland
---------------------------
Title: VP & CFO
------------------------
Date: 6/26/96
-------------------------
<PAGE>
LEASE SCHEDULE NO. 48-002
TO
MASTER EQUIPMENT LEASE AGREEMENT
--------------------------------
TO THE EXTENT THAT THIS LEASE SCHEDULE CONSTITUTES CHATTEL PAPER (AS
DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN MAY BE CREATED EXCEPT THROUGH THE
TRANSFER OR POSSESSION OF THE ORIGINAL EXECUTED "COUNTERPART NO. 1" OF THIS
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED ON THE SIGNATURE PAGE HEREOF.
This Lease Schedule is executed in accordance with the terms of the
Master Equipment Lease Agreement ("Master Lease") dated as of June 28, 1996 by
and between Venture Lending & Leasing, Inc., ("Lessor"), and NeoMagic
Corporation, a California corporation ("Lessee"). Unless otherwise expressly
defined herein, capitalized terms used herein shall have the same meaning as in
the Master Lease. All terms and conditions of the Master Lease are incorporated
herein by this reference.
I. Delivery and Acceptance Period:
------------------------------
Not later than September 30, 1996
II. Location(s) of Equipment:
------------------------
3260 Jay Street
Santa Clara, CA 95054
Mitsubishi Electric Corporation, Saijo Factory 8-6 Hiuchi
Saijo-City Erime-Prefecture 793 Japan
III. Term:
----
With respect to each item of Equipment, a Term of 42 months,
commencing on the first day of the month next following the date
of acceptance of such item hereunder by Lessee; with an interim
Term commencing on the date of acceptance of such item and
continuing to but not including the first day of the Term.
IV. Equipment Cost:
--------------
"Equipment Cost" shall mean the total purchase price, paid or
financed by Lessor in respect of each item of Equipment.
<PAGE>
V. Rent Payment Dates:
------------------
October 1, 1996 two (2) Rental Payments, first and last in
advance, and the payment of Rent of any interim Term; Forty
(40) consecutive monthly Rent payments on the first day of each
month commencing on November 1, 1996 to and including February
1, 2000 and April 1, 2000.
VI. Lease Rental Payments:
---------------------
With respect to each item of Equipment, a monthly amount equal
to 2.87% multiplied by the Equipment Cost of such item, in
advance; plus a final payment in an amount equal to 10%
multiplied by the Equipment Cost of such item, payable on the
first day of the month next following the last day of the Term.
Rent for any period less than a month shall be prorated daily
on the basis of a 30-day month.
VII. Lessee's Address:
----------------
3260 Jay Street
Santa Clara, CA 95054
VIII. Name and address of Lessor:
--------------------------
Venture Lending & Leasing, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131-2038
Address to which Rental and other payments are to be sent:
Bank of Boston
Payment Unit
P.O. Box 1323
Providence, RI 02901-1323
2
<PAGE>
IX. Description of Equipment:
------------------------
Mfg. or I.D. or Unit Equipment
Quantity Vendor Description Serial Cost Cost
- --------------------------------------------------------------------------------
(EQUIPMENT FULLY DESCRIBED ON ATTACHED EQUIPMENT LIST)
3
<PAGE>
NEOMAGIC CORPORATION
EQUIPMENT LIST FOR LEASE SCHEDULE NO. 48-002
<TABLE>
<CAPTION>
MANUFACTURER QTY DESCRIPTION SERIAL INVOICE INVOICE EQUIPMENT
OR NUMBER NUMBER DATE COST
VENDOR
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DNP AMERICA, INC. 1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE LAYER: M1 56BUG 60983 7/2/96 35,400.00
1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE NMG3 51BQG
1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE LAYER VIA 61BUG
DNP AMERICA, INC. 1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE LAYER M2 62BTG 60984 7/2/96 9,900.00
DNP AMERICA, INC. 1 PHOTOMASK 6" QZ EB PELLICLIZED 5X RETICLE 0.25U SPOT SIZE 62CTG 61000 7/8/96 9,900.00
WCS 1 VPM WINDOW 95 SUPPORT - RELEASE VERSION WITH SOURCE CODE 6163 6/28/96 5,200.00
-----------
60,400.00
</TABLE>
Page 1
<PAGE>
X. Additional Terms and Conditions:
-------------------------------
By execution of this Lease Schedule, Lessee and Lessor agree that
the additional terms, conditions and/or provisions set forth in
any Rider(s) attached hereto shall be incorporated by this
reference in this Lease Schedule and the Master Lease with
respect to the items of Equipment described in this Lease
Schedule. In the event of any conflict between the provisions of
any Rider and the Master Lease, the terms of the Rider shall be
controlling.
If a Schedule B is attached hereto, such Schedule B sets forth
----------
the Stipulated Loss Value of the accepted Equipment.
XI. Entire Agreement:
----------------
LESSEE REPRESENTS THAT IT HAS READ, RECEIVED, RETAINED A COPY OF
AND UNDERSTANDS THIS LEASE SCHEDULE, AND AGREES TO BE BOUND BY
ITS TERMS AND CONDITIONS. LESSOR AND LESSEE AGREE THAT THIS LEASE
SCHEDULE, ALL RIDERS AND SCHEDULES HERETO, AND THE MASTER LEASE
SHALL CONSTITUTE THE ENTIRE LEASE AND AGREEMENT AND SUPERSEDE ALL
PROPOSALS, ORAL OR WRITTEN, ALL PRIOR NEGOTIATIONS AND ALL OTHER
COMMUNICATIONS BETWEEN LESSOR AND LESSEE WITH RESPECT TO ANY ITEM
OF EQUIPMENT.
THIS LEASE SCHEDULE IS NOT CANCELLABLE BY LESSEE FOR THE TERM HEREOF.
4
<PAGE>
TO THE EXTENT THAT THIS LEASE SCHEDULE CONSTITUTES CHATTEL PAPER (AS
DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN MAY BE CREATED EXCEPT THROUGH THE
TRANSFER OR POSSESSION OF THE ORIGINAL EXECUTED "COUNTERPART NO. 1" OF THIS
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED AS THE ORIGINAL EXECUTED COUNTERPART
NO. 1 BELOW.
IN WITNESS WHEREOF, the parties hereto have caused this Lease Schedule
to be duly executed on the date set forth below by their authorized
representative.
LESSOR: LESSEE:
VENTURE LENDING & LEASING, INC. NEOMAGIC CORPORATION
By:______________________ By: /s/ P.C. AGARWAL
-------------------------
Name:____________________ Name: /s/ PRAKASH AGARWAL
-----------------------
Title:___________________ Title: President/CEO
----------------------
Date:____________________ Date: 9/20/96
-----------------------
This is Counterpart No. 1 of 2 counterparts
--- ---
__________________________
(Lessor's initials)
3
<PAGE>
SCHEDULE B
This schedule is attached to and becomes a part of Lease Schedule No.
48-002 to Master Equipment Lease Agreement dated June 28, 1996 between the
undersigned, as Lessee, and VENTURE LENDING & LEASING, INC., as Lessor.
STIPULATED LOSS VALUE SCHEDULE FOR BASIC TERM
<TABLE>
<CAPTION>
Lease Period Prior to Stipulated Lease Period Prior to Stipulated
Rental Payment No. Loss Value(1) Rental Payment No. Loss Value(1)
- ------------------ ---------- ------------------ ----------
<S> <C> <C> <C>
1 115.00 25 55.00
2 112.50 26 52.50
3 110.00 27 50.00
4 107.50 28 47.50
5 105.00 29 45.00
6 102.50 30 42.50
7 100.00 31 40.00
8 97.50 32 37.50
9 95.00 33 35.00
10 92.50 34 32.50
11 90.00 34 30.00
12 87.50 36 27.50
13 85.00 37 25.00
14 82.50 38 22.50
15 80.00 39 20.00
16 77.50 40 17.50
17 75.00 41 15.00
18 72.50 42 12.50
19 70.00 Thereafter 10.00
20 67.50
21 65.00
22 62.50
23 60.00
24 57.50
</TABLE>
(1) Percentage of Equipment Cost
This Schedule B is hereby verified by the undersigned who acknowledges receipt
of a Copy.
LESSEE: NEOMAGIC CORPORATION
BY: /s/ P.C. Agarwal
------------------------
TITLE: President/CEO
---------------------
<PAGE>
[LOGO OF WESTERN TECHNOLOGY INVESTMENT APPEARS HERE]
PAYMENT INSTRUCTION LETTER
EQUIPMENT LEASE SCHEDULE NUMBER 48-002
Date: September 17, 1996
NEOMAGIC CORPORATION
3260 Jay Street
Santa Clara, CA 95054
RE: Equipment Lease Schedule No. 48-002 ("Lease Schedule") to Master Equipment
Lease Agreement dated June 28, 1996 ("Lease") between NEOMAGIC CORPORATION,
as Lessee and VENTURE LENDING & LEASING, INC., as Lessor
Dear Karin:
Pursuant to Article 3 of the above referenced Lease and Sections V and VI of the
above referenced Lease Schedule, Rent Payment Dates and Lease Rental Payments
are due and payable as follows:
Advance Payment Breakdown:
<TABLE>
<CAPTION>
Description Rent Payment Payment Date
----------- ---- ------- ------- ----
<S> <C> <C>
First Rent Payment 1,733.48 In Advance
Last Rent Payment 1,733.48 In Advance
----------
Total Advance Payments $ 3,466.96
</TABLE>
Commencing on October 1, 1996 consecutive Rent Payments are due and payable
on the first day of each month as indicated below:
42 Lease Rental Payments in the amount of $1,733.48 each first and last
paid in advance
1 final payment due on April 1, 2000 as indicated in Item VI of
Equipment Lease Schedule No. 48-002
Commencing on November 1, 1996, please send your remittance to the following
address using the loan transaction Number indicated below on each remittance.
Your checks should be made payable to Venture Lending & Leasing, Inc.
Loan payment remittance address:
Bank of Boston
Payment Unit
P.O. Box 1323
Providence, RI 02901-1323
Loan Transaction No. 992991117
<PAGE>
NEOMAGIC CORPORATION
Payment Instruction Letter for Lease Schedule No. 48-002
September 17, 1996
Page 2
PLEASE BE ADVISED THAT THIS IS THE ONLY PAYMENT NOTICE YOU WILL RECEIVE. WE DO
- ------ -- ------- ---- ---- -- --- ---- ------- ------ --- ---- ------- -- --
NOT PROCESS MONTHLY INVOICES.
- --- ------- ------- --------
Please acknowledge your receipt of this letter by signing the enclosed
counterpart of this letter where indicated below.
Sincerely,
/s/ Linda White
Linda White
Lease Administrator
Acknowledged and agreed to:
NEOMAGIC CORPORATION
By: /s/ P. C. Agarwal
--------------------------
Title: President/CEO
------------------------
Date: 9/20/96
------------------------
<PAGE>
EXHIBIT 10.18
[LETTERHEAD OF CORNISH & CAREY COMMERCIAL APPEARS HERE]
[LOGO OF C&C APPEARS HERE]
SUBLEASE
Sublandlord: NeoMagic Corporation Master Premises:3260 Jay Street,
Santa Clara, California
Subtenant: Juniper Networks, Inc. Date: June 17, 1996
1. Parties:
This Sublease is made and entered into as of June 11, 1996, by and between
NeoMagic Corporation ("Sublandlord"), and Juniper Networks, Inc. ("Subtenant"),
under the Master Lease dated February 5, 1996, between Boyd C. Smith, Trustee,
or his Successor Trustee, UTA dated 12/27/76 (Richard T. Peery 1976 Children
Trusts) and Louis B. Sullivan, Trustee, or his Successor Trustee, UTA dated
12/27/76 (John Arrillaga 1976 Children Trusts) dba A&P Family Investments, as
"Landlord", and Sublandlord, as "Tenant", ("Master Lease"). A copy of the Master
Lease is attached hereto as Attachment I and incorporated herein by this
reference. Pursuant to the Master Lease, Sublandlord leases all of that certain
45,000+/- square foot, two-story building located at 3260 Jay Street, Santa
Clara, California 95054 (the "Master Premises").
2.Provisions Constituting Sublease:
2.1 This Sublease is subject to all of the terms and conditions of the Master
Lease. Subtenant hereby assumes and agrees to perform all of the obligations
of "Lessee" under the Master Lease to the extent said obligations apply to the
Subleased Premises and Subtenant's use of the Common Areas as depicted in
Exhibit "A" attached, except as specifically set forth herein. Sublandlord
hereby agrees to cause Lessor under the Master Lease to perform all of the
obligations of Lessor thereunder to the extent said obligations apply to the
Subleased Premises and Subtenant's use of the Common Areas. Neither Subtenant
nor its employees, agents, contractors or invitees ("Subtenant's Agents")
shall commit on the Subleased Premises or on any other portion of the Master
Premises any act or omission which violates any term or condition of the
Master Lease. Except to the extent waived or consented to in writing by the
other party or parties hereto who are affected thereby, neither of the parties
hereto will, by renegotiation of the Master Lease, assignment, subletting,
default or any other voluntary action, avoid or seek to avoid the observance
or performance of the terms to be observed or performed hereunder by such
party, but will at all times in good faith assist in carrying out all the
terms of this Sublease and in taking all such action as may be necessary or
appropriate to protect the rights of the other party or parties hereto who are
affected thereby against impairment. Nothing contained in this Section 2.1 or
elsewhere in this Sublease shall prevent or prohibit Sublandlord (a) from
exercising its right to terminate the Master Lease pursuant to the terms
thereof or (b) from assigning its interest in this Sublease or subletting
portions of the Master Premises other than the Subleased Premises. If
Sublandlord has a right under the Master Lease to terminate the Lease and
Sublandlord elects to exercise such right, Sub landlord shall so notify
Subtenant by giving at least thirty (30) days' notice, prior to the effective
date of such termination.
2.2 With respect to all of the provisions of the Master Lease incorporated into
this Sublease, wherever the word "Premises" is used in the Master Lease, for
purposes of this Sublease, the word "Subleased Premises" shall be substituted;
wherever in the Master Lease the word "Tenant" appears, for the purposes of this
Sublease, the word "Subtenant" shall be substituted; wherever in the Master
Lease the word "Landlord" appears, for the
<PAGE>
[LETTERHEAD OF C&C APPEARS HERE]
SUBLEASE
purposes of this Sublease, the word "Sublandlord" shall be substituted.
Notwithstanding the foregoing, the word "Landlord" in Paragraph 5 of the Master
Lease shall be deemed to refer to "Master Landlord," and the word "Sublandlord"
shall not be substituted therefor. All of the terms and conditions contained in
the Master Lease are incorporated herein, except as specifically provided below,
and the terms and conditions specifically set forth in this Sublease, shall
constitute the complete terms and conditions of this Sublease, except the
following paragraphs of the Master Lease which shall solely be the obligation of
Sublandlord: the description of the premises leased pursuant to the Master
Lease, Paragraphs, 2, 3 , 4A, 4D, 4E, 4F, 6, 7, 10, 11 (excluding telephone,
telex and other electronic communications), 12, 15, the words "of which
negligence Landlord has knowledge and reasonable time to correct" in Paragraph
16, 20, last two sentences of Paragraph 22(d), 34, 41, 43, 44, 46, 49, 50.
3. Subleased Premises and Rent:
3.1 Subleased Premises:
Sublandlord leases to Subtenant and Subtenant leases from Sublandlord the
Subleased Premises upon all of the terms, covenants and conditions contained
in this Sublease. The Subleased Premises consist of approximately
11,989+/- square feet (subject to Juniper's verification) of the Master
Premises and as shown in red on Exhibit "A" attached hereto.
3.2
Prior to the Commencement Date, Subtenant shall have access to the Subleased
Premises so that Subtenant may measure the floor area of the Subleased
Premises in order to verify the aforesaid square footage. If such
measurement determines that the actual floor area differs from the area set
forth hereinabove, Subtenant shall so notify Sublandlord and shall submit to
Sublandlord such data as Sublandlord may reasonably request to certify or
substantiate any measurements of the Subleased Premises performed by or for
Sublandlord in connection with this Sublease. If Sublandlord does not agree
with the measurement of the floor area as determined by Subtenant, the
parties shall promptly meet to measure the Subleased Premises together and
shall mutually determine the actual floor area. The Base Monthly Rent
payable pursuant to Paragraph 3.3 shall be adjusted accordingly so that it
is an amount equal to the monthly per square foot rental rate set forth in
Paragraph 3.3 multiplied by the actual square footage of the Subleased
Premises as so determined.
3.3 Rent:
Month Modified Full Service Rent
01 - 12 $1.65 per square foot per month
13 - 21 $1.75 per square foot per month
Subtenant shall pay to Sublandlord rent for the Subleased Premises without
deductions, offset, prior notice or demand. Rent shall be payable by
Subtenant to Sublandlord in consecutive monthly installments on or before
the first day of each calendar month during the Sublease Term. This is a
modified full service rent. Sublandlord shall be responsible for real
property taxes, property insurance, utilities (subject to the provisions of
Paragraph 10 below concerning HVAC) and general operating expenses. All
personal property insurance of Subtenant shall be the sole responsibility of
the Subtenant. Sublandlord shall not be responsible for providing janitorial
for Subleased Premises, however, Sublandlord shall be responsible for
maintaining the Common Areas including, but not limited to, the restrooms.
Maintenance shall be provided five (5) days a week.
<PAGE>
[LETTERHEAD OF C&C APPEARS HERE]
SUBLEASE
3.4 Security Deposit:
In addition to the Rent specified above, Subtenant shall pay to Sublandlord
an equivalent to last month's rent as a non-interest bearing Security
Deposit. Sublandlord shall return to Subtenant, within ten days after
Subtenant has vacated the Subleased Premises, the Security Deposit less any
sums due and owing to Sublandlord and/or the cost to Sublandlord to cure
any other of the Subtenant's breaches of the Sublease, all in accordance
with California Civil Code Section 1950.7 or any successor statute thereto.
3.5
Upon execution of the Sublease Agreement, Subtenant shall pay to
Sublandlord the first month's rent and security deposit.
4. Rights of Access and Use:
4.1 Use:
Subtenant shall use the Subleased Premises only for those purposes
permitted in the Master Lease, unless Sublandlord and Master Landlord
consent in writing to other uses prior to the commencement thereof.
5. Sublease Term:
5.1 Sublease Term:
The Sublease Term shall commence on July 1, 1996 subject to adjustment as
set forth in Paragraph 5.3 ("Commencement Date") and terminate twenty-one
(21) months after lease commencement or March 31, 1998 whichever date is
earlier. In no event shall the Sublease Term extend beyond the Term of the
Master Lease.
5.2
Upon the Commencement Date, Sublandlord shall deliver the Subleased
Premises with the roof, fire sprinkler system, HVAC system, electrical
(including all outlets), plumbing, exterior doors, interior doors, window
coverings and lighting in good working condition and with the tenant
improvements described in Paragraph 11 substantially completed to the
reasonable satisfaction of Subtenant.
5.3 Inability to Deliver Possession:
In the event Sublandlord is unable to deliver possession of the Subleased
Premises on July 1, 1996, Sub landlord shall not be liable for any damage
caused thereby, nor shall this Sublease be void or voidable but Subtenant
shall not be liable for Rent until such time as Sublandlord offers to
deliver possession of the Subleased Premises to Subtenant, but the term
hereof shall not be extended by such delay. If Subtenant, with Sub
landlord's consent, takes possession prior to commencement of the term,
Subtenant shall do so subject to all the covenants and conditions hereof
and shall pay Rent for the period ending with the commencement of the term
at the same rental as that prescribed for the first month of the term
prorated at the rate of 1/30th thereof per day. In the event Sublandlord
has been unable to deliver possession of the Subleased Premises by August
1, 1996, Subtenant, at Subtenant's option, may terminate this Sublease.
6. Option to Extend:
Subject to Sublandlord's right to terminate described below, provided Subtenant
is not in default, Sublandlord grants Subtenant one (1) Option to Extend the
term of the Sublease for a period of six (6) months. The terms and
<PAGE>
[LETTERHEAD OF C&C APPEARS HERE]
SUBLEASE
conditions shall remain the same, except for the monthly rent which shall be
adjusted to $1.85 modified full service per square foot per month. In order to
exercise the Option, Subtenant shall provide Sublandlord with written notice not
less than one hundred eighty (180) days preceding the expiration date of the
Sublease term.
Sublandlord shall have the right to terminate Subtenant's Option to Extend
provided Sublandlord provides Subtenant with thirty (30) days written notice,
from receipt of Subtenant's written notice to exercise its Option to Extend, of
its intent to terminate the Option to Extend. Sublandlord has no obligation to
Subtenant to exercise its Option to Extend.
7. Parking:
Sublandlord will grant Subtenant their prorata share of the 150 parking spaces
granted to the building by the Master Lease. Said proration to be determined by
dividing square footage of Subleased Premises by the total Master Premises'
square footage then multiplying this percent by the total parking spaces
granted.
8. Elevator:
Subtenant shall be permitted access to the building's elevator in order to move
into and vacate the Premises, as well as on a case by case basis, with adequate
advance notice, when a need might arise.
9. Mail Delivery:
Subtenant will have the right to assist in the sorting of the mail upon mail
arrival.
10. HVAC Hours:
Sublandlord shall provide HVAC Monday through Friday from 7:00 a.m. to 7:00 p.m.
and Saturday from 9:00 a.m. to 1:00 p.m. After hour HVAC will be $20 per hour.
11. Tenant Improvements:
Sublandlord, at Sublandlord's sole cost and expense, shall demise the Subleased
Premises and provide secondary emergency exit doors. Sublandlord and Subtenant
shall split the cost 50%/50% for card key access to the Common Area restroom
doors only. In addition, said demising shall include the following: (1)
segregation of Sub landlord and Subtenant as depicted in Exhibit "A" page 1 and
2, (2) switches that control the lights and HVAC within the Subleased Premises
located within the Subleased Premises, (3) alarmed panic door hardware where
required for security purposes. The parties shall attach a mutually acceptable
demising plan to this Sublease within five (5) days after mutual execution and
delivery of this Sublease by Sublandlord and Subtenant.
12. Capital Improvement Costs:
Subtenant shall be responsible for its prorata share of capital improvement
costs charged to Sublandlord under the Master Lease.
13. Alterations:
Subtenant shall not make any alterations to the interior or exterior of the
Premises without prior written consent of Sublandlord.
13.1
Subject to approval of the particular plans therefor, Sublandlord (and
Master Landlord by execution of the Consent to Sublease) hereby approves
the addition within the Subleased Premises of the following: (i) a
<PAGE>
[LETTERHEAD OF C&C APPEARS HERE]
SUBLEASE
"server room" (of approximately 250 square feet), (ii) a laboratory (of
approximately 300 square feet), (iii) anti-static flooring in the
laboratory, and (iv) customized electrical distribution for the "server
room" and the laboratory. The improvements stated in 13.1 and all other
improvements made to the Subleased Premises by the Subtenant shall be
removed prior to the termination of the Sublease and the Subleased Premises
shall be returned back to the condition as of the Commencement Date except
for the following: ordinary wear and tear, casualty damage, condemnation
and Hazardous Materials (as defined in Paragraph 47 of the Master Lease)
not introduced in, on, to, under or around the Subleased Premises by
Subtenant or its employees, agents, contractors or invitees.
14. Code Compliance Work:
In the event code compliance work is required, Sublandlord shall be responsible
for code compliance work related to the demising of the second floor sublease
space. However, if any actions by Subtenant trigger said code compliance work,
Subtenant shall be responsible for said costs.
15. Notices:
Any notice or report required or desired to be given regarding this Sublease
shall be in writing, may be given by personal delivery, by facsimile, by courier
service or by certified mail, return receipt requested. Any notice or report
addressed to Subtenant or to Sublandlord at the addresses shown on the signature
page hereof, as appropriate, shall be deemed to have been given (i) on the date
the U.S. Post office certifies delivery, nondeliverability or refusal of
delivery if such notice or report was deposited in the United States mail,
certified, postage prepaid, (ii) when delivered if given by personal delivery,
(iii) on the business day following deposit, cost prepaid, with Federal Express
or similar private carrier, if next business day delivery was requested, and
(iv) in all other cases when actually received. Either party may change its
address by giving notice of the same in accordance with this Paragraph. The term
"business day" shall mean a day on which the carrier used (Federal Express or
other private carrier, or the U.S. Postal Service, as applicable) delivers,
whether by special request or in the ordinary course of operations.
16. Broker Fee:
Sublandlord shall pay Cornish & Carey Commercial, a licensed real estate broker
representing Sublandlord, fees set forth in a separate agreement between Sub
landlord and Broker, such fees will be split 50%/50% between Cornish & Carey
Commercial and Colliers Parrish International, a licensed real estate broker
representing Subtenant.
17. Broker:
Each party warrants and represents to the other party hereto that it has not
dealt with any brokers in connection with this Sublease other than the brokers
identified in Paragraph 16 of this Sublease (the "Brokers"). Each party hereby
indemnifies and holds the other party hereto harmless from any and all loss,
damage, claim, liability, cost or expense (including, but not limited to,
reasonable attorneys' fees, expenses and court costs) arising out of or in
connection with any breach of the foregoing warranty and representation. The
provisions of this Paragraph shall survive the expiration or earlier termination
of this Sublease.
18. Assignment and Subletting:
Notwithstanding any provision to the contrary in this Sublease, including,
without limitation, any provision of the Master Lease incorporated herein,
Sublandlord shall not withhold its consent to any assignment or subletting which
either does not require the consent of Master Landlord or which requires the
consent of Master Landlord and to which Master Landlord consents. If Subtenant
desires to Sublease the Subleased Premises, Sublandlord
<PAGE>
[LETTERHEAD OF C&C APPEARS HERE]
SUBLEASE
shall have Right of First Refusal of such space. Upon receiving written notice
of Subtenant's desire to Sublease, Sublandlord shall respond in writing its
decision to Sublease within ten (10) days. The rental rate shall be the same as
Paragraph 3.3.
19. Waiver of Subrogation:
Notwithstanding any provision to the contrary m this Sublease, including,
without limitation, any provision incorporated from the Master Lease, the
parties hereto release each other and their respective agents, employees,
successors, assignees and subtenants from all liability for damage to any
property that is caused by or results from a risk which is actually insured
against, which is required to be insured against by either party under this
Sublease or the Master Lease, or which would normally be covered by the standard
form of "all risk-extended coverage" property insurance, without regard to the
negligence or willful misconduct of the entity so released. Each party shall use
its best efforts to cause each insurance policy it obtains to provide that the
insurer thereunder waives all right of recovery by way of subrogation as
required herein in connection with any injury or damage covered by the policy.
If such insurance policy cannot be obtained with such waiver of subrogation, or
if such waiver of subrogation is only available at additional cost and the party
for whose benefit the waiver is not obtained does not pay such additional cost,
then the party obtaining such insurance shall immediately notify the other party
of that fact.
20. Waiver of Subrogation in Master Lease:
Upon Master Landlord's execution of the Consent to Sublease which follows this
Sublease, the waiver of subrogation provision in Paragraph 15 of the Master
Lease, notwithstanding any provision to the contrary in this Sublease or the
Master Lease; shall be effective between Master Landlord and Subtenant with
respect to insured casualties regarding the Subleased Premises as well as
between Master Landlord and Sublandlord.
21. Master Lease Enforcement:
Sublandlord shall diligently attempt to enforce Master Landlord's obligations
under the Master Lease with respect to or affecting the Subleased Premises
and/or any common areas used (or available for use by Subtenant). Subtenant
acknowledges that Sublandlord is under no duty to make repairs or improvements
to the Subleased Premises except as specifically set forth in the Master Lease.
22. Sublandlord's Cooperation:
If Master Landlord's consent is required for any action which Subtenant desires
to take under this Sublease, Sublandlord shall cooperate with Subtenant to
obtain such consent. If Master Landlord fails to perform any of its obligations
under the Master Lease, Sub landlord, at the request of Subtenant, shall use its
good faith efforts to obtain Master Landlord's performance of such
obligation(s).
23. Sublandlord's Corporate Authority:
Sublandlord represents (a) that it is a corporation organized and existing under
the laws of the State of California and is qualified to do business in the State
of California; (b) that this Sublease has been duly authorized by all required
corporate action; and (c) that the persons executing this Sublease are
authorized to execute this Sublease on behalf of Sublandlord.
24. Representations:
Sublandlord represents to Subtenant that the Master Lease has not been amended
or modified, that to the best of Sub landlord's knowledge Sub landlord is not
now and as of the Commencement Date will not be, in default or breach of any of
the provisions of the Master Lease, that Sublandlord has no knowledge of any
claim by Master
<PAGE>
[LETTERHEAD OF C&C APPEARS HERE]
SUBLEASE
Landlord that Sublandlord is in default or breach of any of the provisions of
the Master Lease, that to the best of Sublandlord's knowledge Master Landlord
has performed all obligations and covenants to be performed or observed by
Master Landlord under the terms of the Master Lease, and that Sublandlord has
not previously assigned or sublet all or any portion of the Subleased Premises.
25. Covenant of Quiet Enjoyment:
Sublandlord shall secure to Subtenant and Subtenant's employees and invitees the
quiet and peaceful possession of the Subleased Premises for the term (including
any extensions thereof), subject to the terms of this Sublease.
26. Damage and Destruction:
Sublandlord shall give Subtenant a copy of any notice Sublandlord receives from
Landlord under paragraph 24 of the Master Lease promptly upon Sublandlord's
receipt of any such notice. Subtenant shall have the same rights of termination
of the Sublease in the event of damage and destruction that Sublandlord has with
respect to the Master Lease under paragraph 24 of the Master Lease.
27. Access:
Subtenant shall have access to the Subleased Premises and the Common Areas
twenty-four (24) hours a day, every day.
28. Signage:
Subtenant, at Subtenant's sole cost and expense, shall have the right to install
signage as depicted in Exhibit "B" attached.
Sublandlord: NEOMAGIC CORPORATION
3260 Jay Street, Santa Clara, CA 95054
By: /s/ Lori Holland Date: 6/19/96
------------------------------ -----------------------------
Subtenant: JUNIPER NETWORKS, INC.
3260 Jay Street, Santa Clara, CA 95054
By: [SIGNATURE APPEARS HERE] Date: 6/18/96
------------------------------ -----------------------------
NOTICE TO SUBLANDLORD AND SUBTENANT: CORNISH & CAREY COMMERCIAL, IS NOT
AUTHORIZED TO GIVE LEGAL OR TAX ADVICE; NOTHING CONTAINED IN THIS SUBLEASE OR
ANY DISCUSSIONS BETWEEN CORNISH & CAREY AND SUBLANDLORD AND SUBTENANT SHALL BE
DEEMED TO BE A REPRESENTATION OR RECOMMENDATION BY CORNISH & CAREY COMMERCIAL,
OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
DOCUMENT OR ANY TRANSACTION RELATING THERETO. ALL PARTIES ARE ENCOURAGED TO
CONSULT WITH THEIR INDEPENDENT FINANCIAL CONSULTANTS AND/OR ATTORNEYS REGARDING
THE TRANSACTION CONTEMPLATED BY THIS PROPOSAL.
<PAGE>
3260 Jay Street, Santa Clara
[FLOOR PLAN APPEARS HERE]
[Common Area]
[EXHIBIT A]
Page 1 of 2
<PAGE>
[FLOOR PLAN APPEARS HERE]
[EXHIBIT A]
Page 2 of 2
<PAGE>
[SIGN 1*] [SIGN 2*]
[JUNIPER NETWORKS]
[NEOMAGIC] [JUNIPER NETWORKS]
[LOBBY]
[SHIPPING/RECEIVING]
[*SIGNAGE WILL BE VISABLE FROM FRONT AND REAR OF EACH SIGN, DIRECTIONAL ARROWS
ADJUSTED ACCORDINGLY]
[EXHIBIT B]
<PAGE>
Peery/Arrillaga
June 6, 1996
Ms. Lori Holland
Chief Financial Officer
Neomagic Corporation
3260 Jay Street
Santa Clara, CA 95054
Re: CONSENT TO SUBLEASE TO JUNIPER NETWORKS, INC., CALIFORNIA CORPORATION
Gentlemen:
This letter is written with regard to your proposed sublease of approximately
11,989(+)(-) square feet of space (as shown on Exhibit A attached hereto) (the
---------
"Sublet Premises") of the 45,000 square feet of space leased by Tenant at 3260
Jay Street, Santa Clara, California, under Lease Agreement dated February 6,
1996 ("Master Lease"), by and between A&P Family Investments ("Master
Landlord"), and Neomagic Corporation, a California corporation ("Tenant"), which
Tenant is proposing to sublease to Juniper Networks, Inc., a California
corporation ("Subtenant") on the terms and conditions set forth in the proposed
Sublease dated May 22, 1996, submitted by Tenant to Master Landlord on May 24,
1996 (the "Sublease").
Master Landlord hereby approves Tenant's subleasing said space to Subtenant,
under the Sublease, subject to the following terms and conditions:
1. Master Landlord's Consent shall in no way void or alter any of the terms of
the Lease by and between Master Landlord and Tenant, nor shall this Consent
alter or diminish in any way Tenant's obligations to Master Landlord.
2. Tenant shall not give Subtenant any rights or privileges in excess of those
given Tenant under the terms of the Master Lease.
3. Master Landlord has not reviewed the terms of any agreement between Tenant
and Subtenant, and in approving said Sublease, Master Landlord is in no way
approving any term, covenant or condition therein contained, and said
Sublease is subject and subordinate to all terms, covenants and conditions
of the Master Lease. Master Landlord shall not be bound by any agreement
other than the terms of the Master Lease between Master Landlord and
Tenant. In the event of conflict in the terms, covenants and conditions
between the Sublease and the Master Lease, the terms, covenants and
conditions of the Master Lease shall prevail and take precedence over said
Sublease. Master Landlord does not make any warranties or representations
as to the condition of the Leased Premises or the terms of the Lease
between Master Landlord and Tenant. This Consent to Sublease shall in no
event be construed as consent to any future sublease agreement (including
any extensions and/or amendments to the current Sublease) between Tenant
and Subtenant, or any other party;
Initial [Initials Appear Here]
----------------------
<PAGE>
and any future sublease agreement (including any extensions and/or amendments to
the current Sublease) between Tenant and Subtenant, or any other party shall
require the prior written consent of Master Landlord.
4. A. It is agreed by all parties hereto that in the event Master Landlord
terminates the Master Lease, pursuant to any right therein contained, said
Sublease shall automatically terminate simultaneously with the Master
Lease. Notwithstanding anything to the contrary set forth above, Master
Landlord, at Master Landlord's sole option and election, may choose to
allow Subtenant to remain in possession of the Sublet Premises leased under
said Sublease subject to all terms, covenants and conditions of said Master
Lease by giving Subtenant written notice prior to the effective date of
termination of said Master Lease, of Master Landlord's election to allow
Subtenant to remain in possession of the Sublet Premises in which event
Subtenant shall be entitled and obligated to remain in possession of the
Sublet Premises under the terms of said Sublease, subject to all terms,
covenants and conditions of the Master Lease, including, without limitation
to, payment of Basic Rent at the greater of (i) the rate provided for in
the Master Lease, or (ii) the rate provided for in the Sublease. Such
election by Master Landlord shall not operate as a waiver of any claims
Master Landlord may have against Tenant. Following such written notice by
Master Landlord Subtenant shall then, as of the effective date of said
termination of said Master Lease, be liable to and shall attorn in writing
directly to Master Landlord as though said Sublease were executed directly
between Master Landlord and Subtenant; provided, however, it is
specifically agreed between the parties hereto, that whether Master
Landlord elects to allow Subtenant to remain in possession of the Sublet
Premises under the terms of the Sublease, subject to the Master Lease, or
allow said Sublease to automatically terminate simultaneously with the
Master Lease, Master Landlord shall not, in any event, nor under any
circumstances be responsible or liable to Subtenant for (i) the return of
any security deposit paid by Subtenant to Tenant, nor shall Subtenant be
given credit for any prepaid rental or other monetary consideration paid by
Subtenant to Tenant under said Sublease; (ii) any other claim or damage of
any kind or nature whatsoever by reason of or in connection with Master
Landlord's termination of said Master Lease and/or Sublease; and (iii) any
default of Tenant under the Sublease.
B. In the event Master Landlord has terminated the Master Lease, and has
not elected, in writing prior to the effective date of termination of said
Master Lease, to allow Subtenant to remain in the Sublet Premises as set
forth above, said Sublease shall terminate coterminously with the effective
termination of the Master Lease automatically, without notice, and
Subtenant and/or Tenant, jointly and severally, shall surrender the Sublet
Premises to Master Landlord in good condition and repair as of the
effective termination of the Master Lease, with Master Landlord having no
obligation or liability whatsoever to Subtenant by reason of or in
connection with such early termination of the Master Lease. In the event
Subtenant and/or Tenant fails to timely surrender the Sublet Premises to
Master Landlord in good condition and repair as of the date the Master
Lease terminates, Subtenant and/or Tenant, jointly and severally, shall be
liable to Master Landlord in such event for all damages, costs, claims,
losses, liabilities, fees or expenses sustained by Master Landlord,
including, but not limited to, loss of rental income, attorney's fees and
court costs
Initial [Initials Appear Here]
----------------------
<PAGE>
resulting from or m connection with Subtenant's failure to timely vacate the
Sublet Premises and surrender the Sublet Premises to Master Landlord as of
the effective termination date of said Master Lease.
C. As a condition to Landlord's consent to the Sublease, by execution of this
Consent to Sublease, Subtenant hereby agrees to be bound by the following
provision in relation to both Tenant and Master Landlord.
If Master Landlord and Tenant jointly and voluntarily elect, for any
reason whatsoever, to terminate the Master Lease prior to the scheduled
Master Lease Termination Date, then this Sublease (if then still in
effect) shall terminate concurrently with the termination of the Master
Lease. Subtenant expressly acknowledges and agrees that (1) the voluntary
termination of the Master Lease by Master Landlord and Tenant and the
resulting termination of this Sublease shall not give Subtenant any right
or power to make any legal or equitable claim against Master Landlord or
Tenant, including without limitation any claim for interference with
contract or interference with prospective economic advantage, and (2)
Subtenant hereby waives any and all rights it may have under law or at
equity to challenge such an early termination of the Sublease, and
unconditionally releases and relieves Master Landlord and Tenant, and
their officers, directors, employees and agents, from any and all claims,
demands, and/or causes of action whatsoever (collectively, "Claims"),
whether such matters are known or unknown, latent or apparent, suspected
or unsuspected, foreseeable or unforeseeable, which Subtenant may have
arising out of or in connection with any such early termination of this
Sublease. Subtenant knowingly and intentionally waives any and all
protection which is or may be given by Section 1542 of the California
Civil Code which provides as follows: "A general release does not extend
to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must
have materially affected his settlement with debtor."
The term of this Sublease is therefore subject to early termination.
Subtenant's initials here below evidence (a) Subtenant's consideration of
and agreement to this early termination provision, (b) Subtenant's
acknowledgment that, in determining the net benefits to be derived by
Subtenant under the terms of this Sublease, Subtenant has anticipated the
potential for early termination, and (c) Subtenant's agreement to the
general waiver and release of Claims above.
[Initials [Initials
Initials: Appear Here] Initials: Appear Here]
---------- ----------
Subtenant Tenant
5. In consideration of Master Landlord's consent to the Sublease, Tenant
irrevocably assigns to Master Landlord, as security for Tenant's obligations
under this Lease, all rent and income payable to Tenant under the Sublease.
Therefore Master Landlord may collect all
Initial [Initials Appear Here]
----------------------
<PAGE>
rent due under the Sublease and apply it towards Tenant's obligations under
the Master Lease. Tenant and Subtenant agree to pay same to Master Landlord
upon demand without further consent of Tenant and Subtenant required;
provided, however, that until the occurrence of a default by Tenant under the
Master Lease, Tenant shall have the right to collect such rent. Tenant hereby
irrevocably authorizes and directs Subtenant, upon receipt of a written
notice from Master Landlord stating that a default exists in the performance
of Tenant's obligations under the Master Lease, to pay to Master Landlord the
rents due and to become due under the Sublease. Tenant agrees that Subtenant
shall have the right to rely on any such statement and request from Master
Landlord, and that Subtenant shall pay such rents to Master Landlord without
any obligation or right to inquire as to whether such default exists and
notwithstanding any notice or claim from Tenant to the contrary. Tenant shall
have no right or claim against Subtenant or Master Landlord for any such
rents so paid by Subtenant to Master Landlord. It is further agreed between
the parties hereto that neither Tenant's assignment of such rent and income,
nor Master Landlord's acceptance of any payment of rental or other sum due by
Subtenant to Tenant under said sublease, whether payable directly to Master
Landlord or endorsed to Master Landlord by Tenant, shall in any way nor in
any event be construed as creating a direct contractual relationship between
Master Landlord and Subtenant, unless the Parties expressly so agree in
writing and such acceptance shall be deemed to be an accommodation by Master
Landlord to, and for the convenience of, Tenant and Subtenant. Any direct
contractual agreement between Master Landlord and Subtenant must be in
writing.
6. Pursuant to the provisions of Paragraph 19 entitled "Assignment and
Subletting" of the Master Lease, Master Landlord hereby requires Tenant to
pay to Master Landlord, as Additional Rent, all rents or additional
consideration received by Tenant from said Sublease in excess of the Rent
payable to Master Landlord in said Lease (hereinafter referred to as "Excess
Rent"). Tenant and Subtenant acknowledge that any Excess Rent is owed to
Master Landlord and Tenant hereby agrees to pay any Excess Rent to Master
Landlord upon receipt of the same. Tenant and Subtenant represent and warrant
to Master Landlord that: (1) the information to be completed and provided by
Tenant and Subtenant on the attached Exhibit B "Summary of
---------
Amounts/Consideration to be Paid by Subtenant" accurately represents amounts
to be paid by Subtenant under said Sublease; (2) no additional consideration
is due Tenant under said Sublease, other than the additional consideration
(if any) identified on Exhibit B; and (3) no changes in the terms and/or
---------
conditions of said Sublease shall be made without Master Landlord's prior
written approval.
7. This Consent is conditional upon Master Landlord's receipt of Master
Landlord's reasonable costs and attorney's fees, to which Master Landlord is
entitled under Paragraph 19 of the Master Lease. Tenant shall immediately
reimburse Master Landlord for such fees and costs upon receipt of Master
Landlord's statement.
8. This Consent to Sublease shall only be considered effective, and Master
Landlord's consent to the Sublease given, when this Letter Agreement is
executed by Master Landlord, Tenant, and Subtenant, and Guarantors (if any)
under the Master Lease.
Initial [Initial Appears Here]
----------------------
<PAGE>
Please execute this letter in the space provided below, obtain the signature of
Subtenant, and return all copies to our office. A fully executed copy will be
returned to you after execution by the Master Landlord.
Very truly yours,
A&P FAMILY INVESTMENTS
By /s/ Boyd C. Smith
---------------------------
Boyd C. Smith
THE UNDERSIGNED Lessee and Subtenant do hereby jointly and severally agree to
the terms and conditions of this Consent to Sublease.
TENANT: SUBTENANT:
NEOMAGIC CORPORATION JUNIPER NETWORKS, INC.
a California corporation a California corporation
By /s/ Lori Holland By /s/ Pradeep S. Sindhu
--------------------------- ----------------------------
Print Name Lori Holland Print Name Pradeep S. Sindhu
------------------- --------------------
Title VP & CFO Title CEO
------------------------ -------------------------
<PAGE>
EXHIBIT A TO CONSENT TO SUBLEASE DATED
---------
JUNE 6, 1996 BY AND BETWEEN A&P FAMILY
INVESTMENTS, AS LANDLORD AND NEOMAGIC
CORPORATION, AS TENANT.
JAY 5
3260 Jay Street,
[FLOORPLAN APPEARS HERE]
<PAGE>
EXHIBIT A TO CONSENT TO SUBLEASE DATED
---------
JUNE 6, 1996 BY AND BETWEEN A&P FAMILY
INVESTMENTS, AS LANDLORD AND NEOMAGIC
CORPORATION, AS TENANT.
JAY 5
[FLOORPLAN APPEARS HERE]
EXHIBIT A
Page 2 of 2
<PAGE>
EXHIBIT B TO "CONSENT TO SUBLEASE"
SUMMARY OF AMOUNTS/CONSIDERATION TO BE PAID BY SUBTENANT
<TABLE>
<CAPTION>
PERIOD * BASIC RENT R E TAXES PROP. INS UTILITIES*
BY MONTH TOTAL PSF TOTAL PSF TOTAL PSF TOTAL PSF
=======================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/1/96 15,449 1.29 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
8/1/96 15,449 1.29 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
9/1/96 15,449 1.29 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
10/1/96 15,449 1.29 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
11/1/96 15,449 1.29 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
12/1/96 15,449 1.29 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
1/1/97 15,449 1.29 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
2/1/97 15,449 1.29 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
3/1/97 15,449 1.29 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
4/1/97 15,449 1.29 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
5/1/97 15,449 1.29 887 .074 360 .03 2,398 .20
</TABLE>
<TABLE>
<CAPTION>
LANDSCAPE MISCELLANEOUS MISCELLEANEOUS TOTAL CHARGE PER PERIOD
TOTAL PSF TOTAL PSF TOTAL PSF TOTAL PSF
=======================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
89 .0074 120 .01 480 .04 $19,782 $1.65
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $19,782 $1.65
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $19,782 $1.65
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $19,782 $1.65
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $19,782 $1.65
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $19,782 $1.65
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $19,782 $1.65
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $19,782 $1.65
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $19,782 $1.65
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $19,782 $1.65
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $19,782 $1.65
</TABLE>
ADDITIONAL CONSIDERATION YES____ NO____
IF "YES", IDENTIFY TYPE CONSIDERATION AND DOLLAR VALUE ASSIGNED TO SAID
CONSIDERATION: TYPE_______________ $ VALUE_____________
* IF PAYMENTS ARE REQUIRED OTHER THAN MONTHLY, PLEASE INCLUDE THESE PAYMENTS
AS WELL
** IF SUBLEASE RENT PAID INCLUDES MISCELLANEOUS EXPENSES. PLEASE IDENTIFY THE $
AMOUNT/PSF OF THE TOTAL RENT PAYMENT ALLOCATED TO BASIC RENT AND EACH
ADDITIONAL EXPENSE ITEM.
IF ADDITIONAL SPACE IS NEEDED, PLEASE DUPLICATE AND ATTACH
TENANT: SUBTENANT:
NEOMAGIC CORPORATION JUNIPER NETWORKS, INC.
By: /s/ Lori Holland By: /s/ Pradeep S. Sindhu
-------------------------------- -------------------------------
Printed: Lori Holland Printed: Pradeep S. Sindhu
--------------------------- --------------------------
Title: VP & CEO Title: CEO
----------------------------- ----------------------------
<PAGE>
EXHIBIT B TO "CONSENT TO SUBLEASE"
SUMMARY OF AMOUNTS/CONSIDERATION TO BE PAID BY SUBTENANT
<TABLE>
<CAPTION>
PERIOD * BASIC RENT R E TAXES PROP. INS UTILITIES*
BY MONTH TOTAL PSF TOTAL PSF TOTAL PSF TOTAL PSF
=======================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6/1/97 15,449 1.29 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
7/1/97 16,048 1.34 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
8/1/97 16,048 1.34 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
9/1/97 16,048 1.34 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
10/1/97 16,048 1.34 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
11/1/97 16,048 1.34 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
12/1/97 16,048 1.34 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
1/1/98 16,048 1.34 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
2/1/98 16,048 1.34 887 .074 360 .03 2,398 .20
- ---------------------------------------------------------------------------------------
3/1/98 16,048 1.34 887 .074 360 .03 2,398 .20
</TABLE>
<TABLE>
<CAPTION>
LANDSCAPE * MISCELLANEOUS * MISCELLEANEOUS TOTAL CHARGE PER PERIOD
TOTAL PSF TOTAL PSF TOTAL PSF TOTAL PSF
=======================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
89 .0074 120 .01 480 .04 $19,782 $1.65
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $20,381 $1.70
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $20,381 $1.70
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $20,381 $1.70
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $20,381 $1.70
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $20,381 $1.70
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $20,381 $1.70
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $20,381 $1.70
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $20,381 $1.70
- ---------------------------------------------------------------------------------------
89 .0074 120 .01 480 .04 $20,381 $1.70
</TABLE>
ADDITIONAL CONSIDERATION YES NO
---- ----
IF "YES", IDENTIFY TYPE CONSIDERATION AND DOLLAR VALUE ASSIGNED TO SAID
CONSIDERATION: TYPE $ VALUE
--------------- -------------
* IF PAYMENTS ARE REQUIRED OTHER THAN MONTHLY, PLEASE INCLUDE THESE PAYMENTS
AS WELL
** IF SUBLEASE RENT PAID INCLUDES MISCELLANEOUS EXPENSES. PLEASE IDENTIFY THE $
AMOUNT/PSF OF THE TOTAL RENT PAYMENT ALLOCATED TO BASIC RENT AND EACH
ADDITIONAL EXPENSE ITEM.
IF ADDITIONAL SPACE IS NEEDED. PLEASE DUPLICATE AND ATTACH
* ESTIMATED UTILITIES AND MISCELLANEOUS
SUBLEASE COMMISSIONS : $21,040.69
TENANT IMPROVEMENTS : $25,000.00
(estimated)
TENANT: SUBTENANT:
NEOMAGIC CORPORATION JUNIPER NETWORKS, INC.
By: /s/ Lori Holland By: /s/ Pradeep S. Sindhu
-------------------------------- -------------------------------
Printed: Lori Holland Printed: Pradeep S. Sindhu
--------------------------- --------------------------
Title: VP & CFO Title: CEO
----------------------------- ----------------------------
<PAGE>
EXHIBIT 11.1
EXHIBIT 11.1 COMPUTATION OF NET LOSS AND PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
Year Ended January 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net loss $(4,791,000) $(6,869,000) $ (788,000)
Weighted average common shares outstanding 5,425,408 6,362,535 6,794,792
Shares related to Staff Accounting
Bulletin Topic 4D:
Common stock (1) 410,679 410,679 410,679
Common stock options (2) 2,084,927 2,084,927 2,084,927
Preferred stock warrants (3) 5,175 5,175 5,175
----------- ---------- ----------
Total shares used in computing
net loss per share 7,926,189 8,863,316 9,295,573
Net loss per share $ (0.60) $ (0.77) $ (0.08)
=========== =========== =========
Calculation of shares outstanding for
computing pro forma net loss per share:
Shares used in computing net loss
per share
Adjustment to reflect the effect of the 9,295,573
assumed conversion of noncumulative
convertible preferred stock from the
date of issuance(4) 12,259,614
----------
Shares used in computing pro forma
net loss per share 21,555,187
Pro forma net loss per share $ (0.04)
===========
</TABLE>
- -----------------------------------------
(1) Net additional outstanding shares assuming common shares issued after
January 1, 1996 were issued and outstanding for all prior periods presented
and the proceeds were applied to repurchase shares at $8.00 per share.
(2) Net additional shares from stock options granted after January 1, 1996
assuming the exercise of stock options and repurchase of shares at $8.00
per share, and assumes shares are outstanding in all prior periods.
(3) Net additional shares from Series D preferred stock warrants issued after
January 1, 1996 assuming the exercise of the warrants, conversion to common
stock and repurchase of shares at $8.00 per share and assumes shares are
outstanding in all prior periods.
(4) Series A, B, C and D preferred stock issued before January 1, 1996 (which
converts into Common Stock at a rate of one share of preferred stock to one
share of Common Stock).
