As filed with the Securities and Exchange Commission on March 11, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
MAKER COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
--------------
<TABLE>
<S> <C> <C>
Delaware 3674 04-3276285
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
73 Mount Wayte Avenue
Framingham, MA 01702
(508) 628-0622
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
William N. Giudice
President and Chief Executive Officer
Maker Communications, Inc.
73 Mount Wayte Avenue
Framingham, MA 01702
(508) 628-0622
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
<TABLE>
<S> <C>
Richard M. Stein, Esquire Edwin L. Miller, Jr., Esquire
HUTCHINS, WHEELER & DITTMAR TESTA, HURWITZ & THIBEAULT, LLP
A Professional Corporation 125 High Street
101 Federal Street Boston, Massachusetts 02110
Boston, Massachusetts 02110 (617) 248-7000
(617) 951-6600
</TABLE>
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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, check the following box and
list the Securities Act registration statement number of 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 number of the earlier effective registration statement for the
same offering. [ ] ---------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the earlier
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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Aggregate Offering Amount of
Title of Each Class of Securities to be Registered Price (1) Registration Fee
- ---------------------------------------------------- -------------------- -----------------
<S> <C> <C>
Common Stock, $.01 par value per share ............ $40,250,000 $11,200
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
--------------
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, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
Subject to Completion, dated March 11, 1999
PROSPECTUS
Shares
[Maker logo]
MAKER COMMUNICATIONS, INC.
Common Stock
- --------------------------------------------------------------------------------
Maker is offering shares of common stock in its initial public
offering.
No public market currently exists for these shares.
Maker is listing the shares on the Nasdaq National Market under the symbol
"MAKR."
Anticipated Price Range: to per share
Investing in the shares involves risks. Risk Factors begin on page 4.
<TABLE>
<CAPTION>
Per Share Total
----------- ----------
<S> <C> <C>
Public Offering Price .......... $ $
Underwriting Discount .......... $ $
Proceeds to Maker .............. $ $
</TABLE>
Maker has granted the underwriters the right to purchase up to
additional shares within 30 days to cover any over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers expects to deliver the shares on or about , 1999.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
BT ALEX.BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1999
The information in this prospectus is not complete and may change. Maker and
the underwriters may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
<PAGE>
[Diagram showing a communications network and the location of Maker's product
within the network.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary ............................ 1
Risk Factors .................................. 4
Use of Proceeds ............................... 12
Dividend Policy ............................... 12
Capitalization ................................ 13
Dilution ...................................... 14
Selected Consolidated Financial Data .......... 15
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ................................. 16
Business ...................................... 21
Management .................................... 32
Principal Shareholders ........................ 39
Certain Transactions with Executive
Officers, Directors and Principal
Shareholders ............................... 41
Description of Capital Stock .................. 42
Shares Eligible for Future Sale ............... 44
Underwriting .................................. 46
Legal Matters ................................. 47
Experts ....................................... 47
Additional Information ........................ 48
Index to Consolidated Financial
Statements ................................. F-1
</TABLE>
ABOUT THIS PROSPECTUS
Investors may rely only on the information contained in this prospectus.
Maker and the underwriters have not authorized anyone to provide any different
or additional information. This prospectus is not an offer to sell or a
solicitation of an offer to buy common stock in any jurisdiction where it is
unlawful. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. This preliminary prospectus is
subject to completion prior to this offering.
This prospectus makes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Investors should consider any
statements that are not statements of historical fact to be forward-looking
statements. The words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates" and similar expressions identify forward-looking statements. There
are a number of important factors that could cause the results of Maker to
differ materially from those indicated by such forward-looking statements,
including those discussed under the section of this prospectus entitled "Risk
Factors."
All trademarks and trade names appearing in this prospectus are the
property of their respective holders.
Until , 1999, all dealers selling shares of the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This 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.
i
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes appearing elsewhere in this
prospectus. Unless otherwise indicated, information in this prospectus assumes
that the underwriters will not exercise their over-allotment option. This
prospectus also assumes the redemption of all outstanding shares of Class A
Redeemable Preferred Stock and the conversion into common stock of all
outstanding shares of Junior Convertible Preferred Stock, Class B Convertible
Preferred Stock and Class C Convertible Preferred Stock upon the closing of
this offering.
Maker
Maker is a fabless semiconductor company that develops and markets
high-performance programmable communications processors, development tools and
application software for use in communications systems equipment. Our
processors have a proprietary architecture and instruction set optimized for
processing and switching data, voice and video in broadband networks. They
perform high-bandwidth or compute-intensive functions such as traffic
management and internetworking in Asynchronous Transfer Mode (ATM) and Internet
Protocol (IP) packet switching networks. We have over 50 design wins with over
30 telecommunications and network equipment vendors, of which over 15 were in
production during the first quarter of 1999. Our top five customers in 1998
were Ascend, Cisco, Fore, Lucent and Nortel.
The explosive growth of the Internet, the increase in demand for higher
speed interconnectivity between wide area networks (WANs) and local area
networks (LANs) and the growing demand for remote network access are creating a
rapidly expanding and increasingly complex communications network
infrastructure. Network service providers are adding bandwidth and offering
enhanced services that require new equipment with much higher performance and
the flexibility to support rapidly evolving standards and protocols. This
equipment traditionally has incorporated fixed-function integrated circuits
(ASICs and ASSPs) which provide the requisite level of performance but cannot
adapt to changing market requirements and require lengthy development cycles,
or general purpose processors (RISC and CISC processors) that are programmable
but have limited performance.
Our communications processors are optimized for ATM cell and IP packet
processing with performance levels equivalent to fixed function integrated
circuits and superior to general purpose processors. Unlike hard-wired ASICs
and ASSPs, our processors provide functional flexibility which enables
communications systems vendors to:
o quickly adapt to rapidly evolving standards and market requirements;
o improve time-to-market of new and improved products;
o add features to create product differentiation; and
o utilize a common architecture across product lines.
We focus on emerging high growth segments of communications systems
equipment markets that require sophisticated traffic management and
internetworking functions. Our MXT3010 Cell Processor and related software
target the high-performance segment of the ATM equipment market. We believe
that we have become a leading provider of ATM Segmentation and Reassembly (SAR)
devices that operate at OC-12 (622Mbps) rates. We recently announced the
introduction of our MXT4000 Traffic Stream Processor family and related
software to address the opportunity for IP-based services in addition to ATM.
These devices will support sophisticated traffic management and internetworking
at rates up to OC-48 (2.5 Gbps). We offer complete production-tested
application software that runs on our processor families. Customers may use
this software as is, customize it or write their own custom software to address
specific applications using our development tools.
Our principal executive offices are located at 73 Mount Wayte Avenue,
Framingham, Massachusetts 01702, and our telephone number is 508-628-0622. We
were incorporated in California in 1994 and reincorporated in Delaware in 1996.
1
Prospectus Summary
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock Offered by Maker .......... _______ shares
Common Stock to be Outstanding after the
Offering .............................. _______ shares
Use of Proceeds ........................ For working capital, the redemption of redeemable
preferred stock in the amount of $8,635,000 and other
general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol "MAKR"
</TABLE>
Common stock to be outstanding after the offering excludes 2,545,460
shares issuable upon exercise of currently outstanding stock options and
125,000 shares issuable under certain circumstances upon conversion of a
convertible note.
2
Prospectus Summary
<PAGE>
Summary Consolidated Financial Data
The following table summarizes the financial data of our business. The pro
forma basic and diluted net loss per share gives effect to the automatic
conversion of all the outstanding shares of Junior Convertible Preferred Stock,
the Class B Convertible Preferred Stock and the Class C Convertible Preferred
Stock into common stock which will occur upon the closing of this offering. See
Note 2(d) of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Period from
inception
(October 21, 1994) Year Ended December 31,
to December 31, --------------------------------------------------------
1994 1995 1996 1997 1998
------------------- ------------- ------------- ------------- -------------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenue ...................................... $ -- $ -- $ 342 $ 1,774 $ 7,694
Gross profit ................................. -- -- 13 743 4,456
Loss from operations ......................... (14) (957) (1,890) (4,080) (4,210)
Net loss ..................................... (14) (1,003) (1,971) (3,901) (3,754)
Basic and diluted net loss per share ......... $ (0.00) $ (0.25) $ (1.30) $ (0.72) $ (0.66)
Basic and diluted weighted average
common shares outstanding ................... 4,019,654 4,019,654 1,515,998 5,383,080 5,646,822
Pro forma basic and diluted
net loss per share .......................... $ (0.31)
Pro forma basic and diluted weighted average
common shares outstanding ................... 12,229,795
</TABLE>
The following table summarizes our balance sheet data as of December 31,
1998. The pro forma column reflects the receipt of $450,000 from the issuance
of an additional 102,272 shares of Class C Convertible Preferred Stock in
January 1999 and the automatic conversion of all the outstanding shares of
Junior Convertible Preferred Stock, Class B Convertible Preferred Stock and
Class C Convertible Preferred Stock into common stock which will occur upon the
closing of this offering. The pro forma as adjusted column reflects the sale of
shares of common stock offered by Maker at an assumed initial public
offering price of $ per share, after deducting the estimated
underwriting discount and offering expenses, the redemption of all outstanding
shares of Class A Redeemable Preferred Stock for $8,635,000 and the repayment
of bank debt (approximately $950,000 at December 31, 1998). See "Use of
Proceeds" and "Capitalization".
<TABLE>
<CAPTION>
As of December 31, 1998
-------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ----------- ------------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents .................... $ 13,615 $14,065
Working capital .............................. 12,228 12,678
Total assets ................................. 15,957 16,407
Long-term debt, less current portion ......... 1,142 1,142
Redeemable preferred stock ................... 23,440 8,635
Stockholders' equity (deficit) ............... (11,346) 3,909
</TABLE>
3
Prospectus Summary
<PAGE>
RISK FACTORS
An investment in our common stock is risky. You should carefully consider
the following risks, as well as the other information contained in this
prospectus.
We Have a Limited Operating History and Have Not Had a Profitable Quarter
We were incorporated in 1994 and did not begin shipping products in volume
until 1996. We have a limited operating history upon which investors may
evaluate us and our prospects. Although our revenues have increased in recent
years, and revenues for recent quarters have exceeded revenues for the same
quarter for the prior year, we have not yet completed a profitable quarter. In
1998, we incurred a net loss of $3.8 million. We intend to increase our
operating expenses significantly in 1999, particularly in research and
development and sales and marketing. Our operating results will be adversely
affected if our revenues do not increase significantly over the same period. We
cannot assure you that we will be able to achieve profitability on a quarterly
or an annual basis.
We Experience Fluctuations in Our Operating Results
We have experienced fluctuations in our operating results in the past and
we expect such fluctuations to occur in the future due to a variety of factors.
These factors include:
o changes in demand by the end user for our customers' products;
o timing and amount of orders from our customers, including
cancellations and reschedulings;
o the gain or loss of significant customers, including as a result of
industry consolidation;
o changes in the mix of products sold by us, including the mix
between processors and development tools and application software;
o timing of "design wins" with related software application and
development tool revenue, which have much greater average selling
prices than individual communications processors;
o market acceptance of our current and new products;
o new product introductions by us or our competitors;
o variability of our customers' product life cycles;
o erosion of average selling prices due to a number of factors,
including our customers reaching volume production, rapid
technological change, price/ performance enhancements and product
obsolescence;
o cancellations, changes or delays of deliveries to us by our
suppliers, including the availability and terms of foundry
capacity;
o the cyclical nature of the semiconductor industry;
o significant increases in expenses associated with the expansion of
operations; and
o general economic conditions.
Revenue derived from communications processors is dependent upon design
wins, production ramp-up and the timing of orders due to customers' management
of inventory. Revenue from the licensing of application software and
development tools primarily coincides with design wins at new customers and in
limited instances at existing customers. Our gross margins are impacted by
changes in the mix of revenue between software and communications processors.
As a result of these factors, our lengthy sales cycle and our dependence on
relatively few customers whose order cycles vary significantly, we expect our
revenue and gross margins to fluctuate significantly from period to period.
These and other factors could materially and adversely affect our
business, financial condition and results of operations. You should be aware
that we cannot accurately forecast all of the above factors.
4
Risk Factors
<PAGE>
We believe that period-to-period comparisons are not necessarily meaningful and
should not be relied upon as indicative of future operating results.
Our operating results in a future quarter or quarters may fall below the
expectations of public market analysts or investors. In such event, the price
of our common stock will likely be materially and adversely affected.
We Have a Costly and Lengthy Sales Cycle
Our sales cycle typically includes a three to six month evaluation and
test period, a twelve to eighteen month development period by our customers and
an additional three to six month period before a customer commences volume
production of equipment incorporating our products. During our sales cycle, our
engineers assist our customers in implementing our solutions into their
product. We incur significant research and development and selling, general and
administrative expenses as part of this process before we generate the related
revenues from such customer. If our design is not selected, we derive no
revenue from this process. Our lengthy sales cycle creates risks related to
customer decisions to cancel or change product plans, which could result in the
loss of anticipated sales. Achieving a "design win" with a communications
systems vendor provides no assurance that such communications systems vendor
will ultimately ship products incorporating our communications processors. It
is possible that in some circumstances a customer may cancel orders even after
we have achieved a design win. Our business, operating results and financial
condition could be materially and adversely affected if customers curtail,
reduce or delay orders during our sales cycle, choose not to use our products
or choose not to release products employing our communications processors.
We Depend on Growth in Demand for Communications Systems
We derive all of our revenue from the sale of communications processors,
development tools and application software to communications markets. These
markets are characterized by intense competition and rapid technological
change. Although these markets have grown rapidly in the last few years, we
cannot be certain that they will continue to grow or that a significant
slowdown in these markets will not occur.
In addition, a substantial majority of our revenues have been, and are
expected to continue to be, derived from sales of products for ATM equipment.
We have announced new products directed at communications systems that are
based on other technologies, such as IP over SONET and native IP over Fiber. If
these other technologies were to quickly achieve widespread acceptance before
our new products have achieved market acceptance, or if our new products do not
achieve market acceptance, our business will be materially and adversely
affected.
We Depend on the Development of the Market for Programmable Communications
Processors
Our future prospects depend on the acceptance of programmable
communications processors as an alternative to fixed-function
Application-Specific Integrated Circuits ("ASICs") and Application Specific
Standard Products ("ASSPs") and general purpose processors traditionally used
by communications systems vendors. Our future prospects also depend upon
acceptance by our customers of third party sourcing for communications
processors as an alternative to in-house development. Many of our current and
potential customers have substantial technological capabilities and financial
resources which enable them to develop ASIC components and to program general
purpose processors used in their products. In the future, these customers may
continue to use internally-developed ASIC components and general purpose
processors or may decide to develop or acquire components, technologies or
communications processors that are similar to, or are substitutes for, our
products. We must anticipate market trends and the price, performance and
functionality requirements of such communications systems vendors and must
successfully develop and manufacture products that meet these changing
requirements. In addition, we must make products available to our customers on
a timely basis and at competitive prices. Our business, financial condition and
results of operations would be materially and adversely affected if:
o communications systems vendors do not accept programmable communications
processors;
o communications systems vendors develop or acquire the technology to
develop such components internally rather than purchase our products;
5
Risk Factors
<PAGE>
o we fail to anticipate market trends, price or performance requirements;
or
o we are otherwise unable to develop strong relationships with
communications systems vendors.
In addition, we may experience substantial fluctuations in future
operating results due to general semiconductor industry conditions, overall
economic conditions or other factors.
We Must Introduce New Products on a Timely Basis that Keep Pace with an
Evolving Communications Systems Industry
The communications systems industry is characterized by rapidly changing
technology, frequent product introductions and evolving industry standards.
Accordingly, our future performance depends on a number of factors, including
our ability to:
o identify target markets and emerging technological trends in these
markets, including new standards and protocols;
o define new products accurately;
o develop and maintain competitive products by improving performance and
adding innovative features that differentiate our products from those of
our competitors;
o bring products to market on a timely basis at competitive prices; and
o respond effectively to new technological changes or new product
announcements by others.
We cannot assure you that the design and introduction schedules for any
additions and enhancements to our existing and future products will be met,
that these products will achieve market acceptance or that we will be able to
sell these products at average selling prices that are favorable to us.
These risks are made more acute because our products are based on
continually evolving industry standards. New standards and protocols could
render our existing products unmarketable or obsolete. We may not be able to
successfully design and manufacture new products that comply with these
standards and protocols.
In addition, products as complex as those which we offer frequently
contain errors, defects and bugs when first introduced or as new versions are
released. Delivery of products with production defects or reliability, quality
or compatibility problems could require significant expenditures of capital and
resources and significantly delay or hinder market acceptance of such products.
This could damage our reputation and adversely affect our ability to retain our
existing customers and to attract new customers. As a result, this could
materially and adversely affect our business, financial condition and results
of operations.
We Depend on the Acceptance of Our New MXT4400 Product
We announced our newest product, the MXT4400 Traffic Stream Processor, in
March 1999. While we have delivered design plans for the MXT4400 to our
foundry, we have not yet been provided with finished prototypes. We cannot be
certain that the MXT4400 will perform as anticipated or that there will not be
unforeseen delays in its final release. Our failure to release the product on
schedule or the failure of the MXT4400 to meet our customers' expectations
would materially and adversely affect our business, financial condition and
results of operations. We do not expect to receive significant revenues from
the MXT4400 in 1999, and we cannot assure you that future revenues will be
sufficient to recover the costs associated with its development.
We Rely on a Small Number of Significant Customers
Historically, a relatively small number of customers have accounted for a
significant portion of our total revenues in any particular period. Maker's top
five customers in 1998 were Ascend, Cisco, Fore, Lucent and Nortel. These
customers generated an aggregate of 74% of 1998 revenues. The largest of such
customers generated 28% of 1998 revenues and the smallest of such customers
generated 5% of
6
Risk Factors
<PAGE>
1998 revenues. We anticipate that sales of our products to relatively few
customers will continue to account for a significant portion of our total
revenues. We have no long-term volume purchase commitments from any of our
significant customers. Each of our customers could cease purchasing our
products with limited notice and with little or no penalty.
Our dependence on few customers increases our exposure to potential
adverse consequences resulting from business combinations or consolidations of
our customers. Specifically, two of our top five customers are in the process
of completing such a consolidation. We cannot assure you that such
consolidation will not result in the cancellation of current products. This
industry may experience further consolidation in the future and we cannot
assure you that such consolidation would not result in product duplication and
a resulting cancellation of current projects or that such consolidation will
not materially and adversely affect our business, financial condition and
results of operations.
Our relationships with many of our manufacturers' representatives have
been established within the last year, and we are unable to predict the extent
to which some of these representatives will be successful in marketing and
selling our products. We cannot be certain that our current customers will
continue to place orders with us, that orders by existing customers will
continue at the levels of previous periods or that we will be able to obtain
orders from new customers.
We Operate in a Competitive Industry
A number of our competitors are more established, benefit from greater
market recognition and have substantially greater financial, development,
manufacturing and marketing resources than we have. Moreover, several of the
largest electronics and semiconductor suppliers have recently entered or
indicated an intent to enter the communications market for semiconductor
devices.
Intel has announced an intention to expand its presence in the networking
business, and has announced an agreement to acquire Level One Communications,
one of our stockholders. We have an agreement with Level One that requires us
to disclose to Level One upon request (and its successors, which would include
Intel) certain early versions of technology incorporated into our MXT3010 Cell
Processor. Although this agreement does not permit this technology to be
incorporated in a product that competes with us, there may be other ways in
which this technology could be used that would be detrimental to us.
In addition, many of our existing and potential customers internally
develop ASICs, general purpose processors, communications processors and other
devices which attempt to perform all or a portion of the functions performed by
our products.
Our ability to compete successfully in the rapidly evolving area of
high-performance communications processors depends on factors both within and
outside our control, including:
o performance;
o price;
o features and functionality;
o adaptability of products to specific applications;
o support of product differentiation by our customers;
o length of development cycle;
o design wins with major communications systems vendors;
o support for new communications standards and protocols;
o reliability;
o technical service and support; and
o protection of products by effective utilization of intellectual property
laws.
7
Risk Factors
<PAGE>
Our failure to compete successfully as to any of these or other factors
could materially and adversely affect our business, financial condition and
results of operations. To the extent that our competitors offer distributors or
sales representatives more favorable terms or a higher volume of business, such
distributors or sales representatives may decline to carry, or discontinue
carrying, our products. Our business, financial condition and results of
operations could be materially and adversely affected by any failure to
maintain and expand our distribution network.
We Depend on Key Personnel and the Hiring of Additional Personnel
Our success depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing and
manufacturing personnel, many of whom would be difficult to replace. In
particular, we believe that our future success is highly dependent on William
Giudice, President and Chief Executive Officer, and Paul Bergantino, Vice
President and Chief Technology Architect. We have neither employment contracts
with, nor key person life insurance on, any of our key personnel.
We believe our future success will also depend in large part upon our
ability to attract and retain highly skilled managerial, engineering, sales and
marketing, finance and manufacturing personnel. Competition for such personnel
is intense and there can be no assurance that we will be successful in
attracting and retaining such personnel. The loss of the services of any of our
key personnel, the inability to attract or retain qualified personnel in the
future or delays in hiring required personnel, particularly engineers and sales
personnel, could materially and adversely affect our business, operating
results and financial condition.
We Depend on Independent Manufacturers
We currently outsource all manufacturing, assembly and test of our
communications processors to three outside foundries. In 1998, substantially
all of our manufacturing was outsourced to IBM. In addition, each of our
processors is manufactured for us by only one supplier. These suppliers may
allocate, and in the past have allocated, capacity to the production of other
products while reducing deliveries to us on short notice. There are other
significant risks associated with our reliance on outside foundries, including:
o the lack of assured semiconductor wafer supply and control over delivery
schedules;
o the unavailability of, or delays in obtaining access to, key process
technologies;
o limited control over quality assurance, manufacturing yields and
production costs; and
o penalties for failure to achieve targeted volume commitments.
Currently, our suppliers quote a lead time for new orders of approximately
13 to 15 weeks in advance of expected delivery which requires us to place
orders in advance of expected purchase orders from our customers. As a result,
we have only a limited ability to react to fluctuations in demand for our
products, which could cause us to have an excess or a shortage of inventory of
a particular product. We have experienced delays and may in the future
experience delays in receiving supplies of products, and we cannot assure you
that we will be able to obtain such products within the time frames and in the
volumes required by us at an affordable cost or at all. Our failure to obtain
such products on a timely basis at a favorable cost could materially and
adversely affect our business, financial condition and results of operations.
Moreover, any failure of global semiconductor manufacturing capacity to
increase in line with demand could cause foundries to allocate available
capacity to larger customers or customers with long-term supply contracts. Our
independent manufacturers' inability to provide adequate foundry capacity at
acceptable prices, or any delay or interruption in supply, could reduce our
product revenues or increase our cost of revenues and could materially and
adversely affect our business, financial condition and results of operations.
In 1999, we will begin investigating the potential for assuming greater
manufacturing responsibilities during 2000. These responsibilities may include
contracting for wafer manufacturing and subcontracting for
8
Risk Factors
<PAGE>
assembly and test rather than purchasing finished product. The assumption of
greater manufacturing responsibilities involves additional risks, including not
only the risks discussed above but also risks associated with variances in
production yields, obtaining adequate test and assembly capacity at a
reasonable cost and other general risks associated with the manufacture of
semiconductors.
We Need to Protect Our Intellectual Property and Avoid Infringement of the
Intellectual Property of Others
Our success depends in part on our ability to obtain patents and licenses
and to preserve other intellectual property rights covering our products and
development and testing tools. To that end, we have obtained certain domestic
and foreign patents and intend to continue to seek patents on our inventions
when appropriate. The process of seeking patent protection can be time
consuming and expensive. We cannot ensure that:
o patents will issue from currently pending or future applications;
o our existing patents or any new patents will be sufficient in scope or
strength to provide meaningful protection or any commercial advantage to
us;
o foreign intellectual property laws will protect our intellectual property
rights; or
o others will not independently develop similar products, duplicate our
products or design around any patents issued to us.
Intellectual property rights are uncertain and involve complex legal and
factual questions. We may be unknowingly infringing on the proprietary rights
of others and may be liable for that infringement, which could result in
significant liability for us. We have not been informed that we infringe any
third party intellectual property rights that would prevent our use and sale of
our products. If we do infringe the proprietary rights of others, we could be
forced to either seek a license to intellectual property rights of others or
alter our products so that they no longer infringe the proprietary rights of
others. A license could be very expensive to obtain or may not be available at
all. Similarly, changing our products or processes to avoid infringing the
rights of others may be costly or impractical.
If we were to become involved in a dispute regarding intellectual
property, whether ours or that of another company, we may have to participate
in legal proceedings. These types of proceedings may be costly and time
consuming for us, even if we eventually prevail. If we do not prevail, we might
be forced to pay significant damages, obtain a license or stop making a certain
product.
We also rely on trade secrets, proprietary know-how and confidentiality
provisions in agreements with employees and consultants to protect our
intellectual property. Other parties may not comply with the terms of their
agreements with us, and we may not be able to adequately enforce our rights
against these parties.
We Will Need to Manage Our Growth Over Time
We have experienced a period of rapid growth and expansion which has
placed, and continues to place, a significant strain on our resources. This
growth, as well as our product development activities, has required us to
increase our number of employees, which has resulted in increased
responsibilities for our management. As we continue to expand we may
significantly strain our management, manufacturing, financial, systems and
other resources. We cannot be certain that our systems, procedures, controls
and existing space will be adequate to support our operations.
We May Be Affected by Unexpected Year 2000 Problems
Many currently installed computer systems and software products are
dependent upon internal calendars coded to accept only two digit entries in the
date code field. These date code fields will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. Computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements.
9
Risk Factors
<PAGE>
None of our current products use internal calendars that are dependent
upon the input of a specific date. As a result, all of our current products are
inherently Year 2000 compliant. Moreover, based on assessments made to date, we
do not anticipate material disruptions to our operations as a result of Year
2000 issues.
However, if certain critical vendors, service providers or business
partners, such as foundries, public utilities providing electricity, water or
telephone service, financial institutions with whom we maintain accounts or key
suppliers of our parts and materials, fail to provide needed services to us, or
to our key outside suppliers or customers, customer orders could decline or our
operations could shut down for as long as the failure or failures persist. At
present, we have not developed contingency plans, but we will determine whether
to develop any such plans as we complete our assessment of Year 2000 issues.
Accordingly, we cannot be certain that Year 2000 issues will not adversely
affect our business, financial condition and results of operations.
The Price of Our Common Stock May Fluctuate Significantly
The market for securities of high technology companies has been highly
volatile. It is likely that the price of our common stock will fluctuate widely
in the future. Factors affecting the trading price of our common stock include:
o responses to quarter-to-quarter variations in operating results;
o announcements of technological innovations or new products by us or our
competitors;
o general conditions in the communications system market; and
o changes in earnings estimates by analysts.
Certain Factors May Delay or Prevent a Change of Control Transaction
Delaware corporate law contains, and our certificate of incorporation and
by-laws contain, certain provisions that could have the effect of delaying,
deferring or preventing a change in control of our Company. These provisions
could limit the price that certain investors might be willing to pay in the
future for shares of our common stock. Certain of these provisions:
o authorize the issuance of "blank check" preferred stock (preferred stock
which our board of directors can create and issue without prior
stockholder approval) with rights senior to those of common stock;
o provide for a board of directors with staggered terms;
o prohibit stockholder action by less than unanimous written consent; and
o establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.
Our Ownership is Concentrated
A substantial majority of our capital stock is held by a limited number of
stockholders. After completion of this offering, our officers and directors and
parties affiliated or related to such persons will own approximately % of
the shares of common stock outstanding. Accordingly, such stockholders will
likely control major decisions of corporate policy and determine the outcome of
any major transaction or other matter submitted to our stockholders or board of
directors, including potential mergers or acquisitions, and amendments to our
certificate of incorporation. Stockholders other than these principal
stockholders are therefore likely to have little or no influence on decisions
regarding such matters.
Investors Will Experience Immediate Dilution
Investors participating in this offering will incur immediate and
substantial dilution in the net tangible book value of their shares of common
stock in the amount of approximately $ per share,
10
Risk Factors
<PAGE>
at an assumed public offering price of $ per share, after deducting the
estimated underwriting discount and offering expenses. Additional dilution will
occur upon the exercise of outstanding stock options.
A Number of Shares Are or Will Be Available for Future Sale
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after the offering, or the
perception that such sales could occur. These factors also could make it more
difficult for us to raise funds through future offerings of common stock.
There will be shares of common stock outstanding immediately after
the offering. Of these shares, the shares sold in the offering will be freely
transferable without restriction or further registration under the Securities
Act, except for any shares purchased by our "affiliates" as defined in Rule 144
under the Securities Act. The remaining shares of common stock
outstanding will be "restricted securities" as defined in Rule 144. These
shares may be sold in the future without registration under the Securities Act
to the extent permitted by Rule 144 or an exemption under the Securities Act.
In addition, additional shares of common stock subject to outstanding vested
stock options and shares that may be issued upon conversion of a
convertible note could also be sold, subject in some cases to compliance with
the volume and other limitations of Rule 144. Certain shareholders will also
have registration rights allowing them to cause us to register their shares
under the Securities Act.
In connection with the offering, our executive officers, directors and
holders of shares have agreed that, with certain exceptions, without the
consent of Lehman Brothers Inc., they will not sell any shares of common stock
for at least 150 days after the date of this prospectus, will not sell more
than one-third of their shares of common stock for at least 180 days after the
date of this prospectus, and will not sell more than two-thirds of their shares
of common stock for at least 210 days after the date of this prospectus. These
lock-up agreements expire in full 210 days after the date of this prospectus.
Our Common Stock Has Never Been Publicly Traded
There has not been a public market for our common stock. We are applying
to list the common stock for trading on the Nasdaq National Market System. We
do not know the extent to which investor interest in us will lead to the
development of a trading market or how liquid that market might be. The initial
public offering price for the shares of common stock will be determined through
negotiations with the underwriters. Investors may not be able to resell their
shares at or above the initial public offering price.
11
Risk Factors
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $ , or $ if the underwriters exercise their
over-allotment option in full, assuming an initial public offering price of $
per share after deducting the estimated underwriting discount and offering
expenses. We will use the net proceeds for working capital, to redeem the Class
A Redeemable Preferred Stock in the amount of $8,635,000, to repay bank debt
(approximately $950,000 at December 31, 1998), and for other general corporate
purposes. Our bank lines are described in Note (5) of Notes to Consolidated
Financial Statements. Pending these uses, we intend to invest the proceeds in
investment-grade, interest-bearing investments.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently anticipate that we will retain all available funds for use in our
business, and do not anticipate paying any cash dividends in the foreseeable
future. In addition, our existing lines of credit prohibit the distribution of
dividends without the lender's consent.
12
Use of Proceeds/Dividend Policy
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998.
Our capitalization is presented:
o on an actual basis;
o on a pro forma basis to give effect to the receipt of $450,000 from the
issuance of an additional 102,272 shares of Class C Convertible
Preferred Stock in January 1999, and the automatic conversion of all
outstanding shares of Junior Convertible Preferred Stock, Class B
Convertible Preferred Stock and Class C Convertible Preferred Stock into
an aggregate of 7,708,433 shares of common stock which will occur upon
the closing of this offering; and
o on a pro forma as adjusted basis to reflect our receipt of the estimated
net proceeds from the sale of shares of common stock at an
assumed initial public offering price of $ per share after
deducting the estimated underwriting discount and offering expenses, the
redemption of all outstanding shares of Class A Redeemable Preferred
Stock for $8,635,000 and the repayment of bank debt (approximately
$950,000 at December 31, 1998).
<TABLE>
<CAPTION>
As of December 31, 1998
-------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ----------- ------------
(in thousands, except share and per
share amounts)
<S> <C> <C> <C>
Current portion of long-term debt ....................................... $ 308 $ 308 $
======= ======= ============
Long-term debt, less current portion .................................... $ 1,142 $ 1,142 $
Redeemable preferred stock:
Class A preferred stock ............................................... 8,635 8,635
Class B convertible preferred stock ................................... 10,249 --
Class C convertible preferred stock ................................... 4,556 --
------- -------
Total redeemable preferred stock ...................................... 23,440 8,635
Stockholders' equity (deficit):
Junior convertible preferred stock, $.01 par value; 3,154,000 shares
authorized, issued and outstanding, actual; no shares authorized,
issued and outstanding, pro forma and pro forma as adjusted ........... 32 --
Preferred stock, $.01 par value, no shares authorized, issued or
outstanding, actual; 1,000,000 shares authorized and none issued and
outstanding pro forma and pro forma as adjusted ....................... -- --
Common stock, $.01 par value; 17,174,670 shares authorized,
5,882,490 shares issued and outstanding actual; shares
authorized, 13,590,923 shares issued and outstanding, pro forma and
shares issued and outstanding, pro forma as adjusted ...... ... 59 136
Additional paid-in capital ............................................ 68 15,278
Accumulated deficit ................................................... (11,505) (11,505)
------- ------- ------------
Total stockholders' equity (deficit) .............................. (11,346) 3,909
------- ------- ------------
Total capitalization .............................................. $13,236 $13,686 $
======= ======= ============
</TABLE>
Common stock to be outstanding after the offering excludes 2,545,460
shares issuable upon exercise of currently outstanding stock options and
125,000 shares issuable under certain circumstances upon conversion of a
convertible note.
See "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto included in this prospectus.
13
Capitalization
<PAGE>
DILUTION
The pro forma net tangible book value of the common stock as of December
31, 1998 was $3,909,000, or $.29 per share, after giving effect to the receipt
of $450,000 from the issuance of an additional 102,272 shares of Class C
Convertible Preferred Stock in January 1999, and the automatic conversion of
all outstanding shares of Junior Convertible Preferred Stock, Class B
Convertible Preferred Stock and Class C Convertible Preferred Stock into an
aggregate of 7,708,433 shares of common stock which will occur upon the closing
of this offering. After giving effect to the sale of the common stock pursuant
to this offering at an assumed initial public offering price of $ per
share (assuming that the underwriters' over-allotment option is not exercised,
and after deducting the estimated underwriting discount and expenses of the
offering), the adjusted pro forma net tangible book value at December 31, 1998,
would have been $ , or $ per share.
Pro forma net tangible book value per share before the offering has been
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding at December 31, 1998. The offering will result in an increase in
pro forma net tangible book value per share of $ to existing stockholders
and dilution in pro forma net tangible book value per share of $ to new
investors who purchase shares in the offering. Dilution is determined by
subtracting pro forma net tangible book value per share from the assumed
initial public offering price of $ per share. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price ....................................................... $
Pro forma net tangible book value per share at December 31, 1998 ................. $ .29
Increase attributable to sale of common stock in the offering (1) ................
------
Pro forma net tangible book value per share after the offering .............................. .
-----------
Dilution of net tangible book value per share to persons who purchase shares in the
offering ................................................................................... $ .
===========
</TABLE>
- ------------
(1) After deduction of the estimated underwriting discount and offering
expenses totaling $ .
If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after the offering would be $ per
share, the increase in net tangible book value per share to existing
stockholders would be $ per share and the dilution to persons who purchase
shares in the offering would be $ per share.
The following table summarizes, on a pro forma basis as of December 31,
1998, the differences between the total consideration paid and the average
price per share paid by the existing shareholders and the new investors with
respect to the number of shares of common stock purchased from us based on an
assumed initial public offering price of $ per share:
<TABLE>
<CAPTION>
Shares Total Consideration Average
---------------------- ----------------------- Price Per
Number Percent Amount Percent Share
------------ --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Shares purchased in the offering .............. % $ % $
Shares owned by existing stockholders ......... 13,590,923 15,414,000 1.13
---------- ---------- -------
Total ......................................... % $ % $
</TABLE>
These tables do not assume exercise of stock options outstanding at
December 31, 1998 or conversion of a $500,000 convertible note. At December 31,
1998, there were 2,618,250 shares of common stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of $1.42 per
share and there were 125,000 shares issuable upon the conversion under certain
circumstances of a $500,000 convertible note. To the extent that outstanding
options are exercised and the convertible note is converted in the future,
there will be further dilution to new investors.
14
Dilution
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of Maker set forth below as of
December 31, 1997 and 1998 and for each of the years ended December 31, 1996,
1997 and 1998 are derived from consolidated financial statements of Maker
audited by Arthur Andersen LLP, independent public accountants, which are
included elsewhere in this prospectus. The selected consolidated financial data
as of December 31, 1994, 1995 and 1996 and for the period from inception
(October 21, 1994) through December 31, 1994 and the year ended December 31,
1995 are derived from audited consolidated financial statements of Maker which
are not included in this prospectus. The pro forma basic and diluted net loss
per share is described in Note 2(d) of Notes to Consolidated Financial
Statements. The pro forma December 31, 1998 balance sheet data reflects receipt
of $450,000 from the issuance of an additional 102,272 shares of Class C
Convertible Preferred Stock in January 1999 and the automatic conversion of all
the outstanding shares of Junior Convertible Preferred Stock, Class B
Convertible Preferred Stock and Class C Convertible Preferred Stock into common
stock which will occur upon the closing of this offering. The data should be
read in conjunction with the Consolidated Financial Statements and the Notes
thereto and with Management's Discussion and Analysis of Financial Condition
and Results of Operations appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
Inception
(October 21, 1994) Years Ended December 31,
to December 31, ------------------------------------------------------
1994 1995 1996 1997 1998
------------------- ------------ ------------- ------------- -------------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenue ...................................... $ -- $ -- $ 342 $ 1,774 $ 7,694
Cost of revenue .............................. -- -- 329 1,031 3,238
---------- ---------- ---------- ---------- -----------
Gross profit ................................. -- -- 13 743 4,456
---------- ---------- ---------- ---------- -----------
Operating expenses:
Research and development ................... 4 644 1,198 2,727 4,171
Selling and marketing ...................... -- 86 332 883 2,078
General and administrative ................. 10 227 373 751 1,299
Litigation ................................. -- -- -- 462 1,118
---------- ---------- ---------- ---------- -----------
Total operating expenses ................ 14 957 1,903 4,823 8,666
---------- ---------- ---------- ---------- -----------
Loss from operations ......................... (14) (957) (1,890) (4,080) (4,210)
Interest income .............................. -- -- 51 212 538
Interest expense ............................. -- (46) (132) (33) (82)
---------- ---------- ---------- ---------- -----------
Net loss ..................................... $ (14) $ (1,003) $ (1,971) $ (3,901) $ (3,754)
========== ========== ========== ========== ===========
Basic and diluted net loss per share ......... $ (0.00) $ (0.25) $ (1.30) $ (0.72) $ (0.66)
Basic and diluted weighted average common
shares outstanding .......................... 4,019,654 4,019,654 1,515,998 5,383,080 5,646,822
Pro forma basic and diluted net loss
per share ................................... $ (0.31)
Pro forma basic and diluted weighted
average common shares outstanding ........... 12,229,795
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------
Actual Pro Forma
1994 1995 1996 1997 1998 1998
--------- ----------- ---------- ---------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents .................. $ 3 $ 93 $ 4,591 $ 10,865 $ 13,615 $14,065
Working capital (deficit) .................. (4) (16) 4,631 10,649 12,228 12,678
Total assets ............................... 25 363 5,204 12,937 15,957 16,407
Long-term debt, less current portion ....... 26 1,260 35 290 1,142 1,142
Redeemable preferred stock ................. -- -- 8,601 18,795 23,440 8,635
Stockholders' equity (deficit) ............. (13) (1,016) (3,671) (7,634) (11,346) 3,909
</TABLE>
15
Selected Consolidated Financial Data
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of Maker should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
prospectus. Maker's actual results could differ significantly from those
discussed in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
prospectus.
Overview
Maker is a leading developer of high-performance programmable
communications processors, development tools and application software for
communications markets requiring high-intensity communications processing. From
its inception in October 1994 through 1996, Maker was engaged principally in
research and development, and a substantial portion of Maker's operating
expenses during such period was related to such activities. Maker commenced
volume shipments of its MXT3010 Cell Processors and related development tools
and application software in 1997. Substantially all of Maker's revenue to date
has been derived from the sales of the MXT3010 Cell Processor and related
software.
Maker recognizes product revenue upon shipment of its communications
processors. Maker recognizes revenue from software license agreements upon
execution of a license agreement and delivery of the software. In certain
instances, software license agreements include royalty fees based upon customer
shipments, revenue from which is recognized upon payment to Maker. Maker
recognizes revenue from software maintenance agreements ratably over the term
of the maintenance period, which is typically one year.
Our sales cycle typically includes a three to six month evaluation and
test period, a twelve to eighteen month development period by our customers and
an additional three to six month period before a customer commences volume
production of equipment incorporating our products. Maker's engineers work
closely with its customers in designing and implementing its solutions into
their products. Maker incurs significant research and development and selling
and administrative expenses as part of this process before it generates any
related revenue from such customer.
Revenue derived from communications processors is dependent upon design
wins, production ramp-up and the timing of orders due to customers' management
of inventory. Revenue from the licensing of software and development tools
primarily coincides with design wins at new customers and in limited instances
at existing customers. Maker's gross margins are impacted by changes in the mix
of revenues between software and communications processors. As a result,
Maker's revenue and gross margins can fluctuate from period to period.
Maker markets and sells its products primarily through a direct sales
force in the United States, manufacturers' representatives in the United States
and Canada and a distributor in Japan. Substantially all of Maker's sales to
date have been to customers located in North America.
Maker's top five customers in 1998 were Ascend, Cisco, Fore, Lucent and
Nortel. These customers generated an aggregate of 74% of 1998 revenue. The
largest of such customers generated 28% of 1998 revenue and the smallest of
such customers generated 5% of 1998 revenue. Maker expects that these five
customers will continue to account for a significant portion of Maker's total
revenue for 1999. Lucent and Ascend recently announced that they have entered
into a definitive agreement pursuant to which they will combine their
operations. Maker expects that significant customer concentration will continue
for the foreseeable future. Maker's customers typically place large orders
which could cause revenue to fluctuate significantly from period to period.
16
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
Results of Operations
Years Ended December 31, 1996, 1997 and 1998
Revenue. Revenue increased from $342,000 in 1996 to $1.8 million in 1997
to $7.7 million in 1998. Maker commenced sales of its products in late 1996 and
substantially increased shipments to its new and existing customers in 1997 and
1998. The increase in revenue reflects certain customers reaching volume
production and increased software revenue from new customer design wins.
Cost of Revenue. Cost of revenue increased from $329,000 in 1996 to $1.0
million in 1997 to $3.2 million in 1998. The increase in cost of revenue is
primarily due to the increase in revenue as well as an increase in
pre-production costs. The gross margin increased from 3.8% in 1996 to 41.9% in
1997 to 57.9% in 1998. Cost of revenue includes the cost of purchasing fully
assembled, tested and packaged communications processors from Maker's
independent foundries, production related expenses, warranty, and quality
assurance for those products, as well as costs of personnel and equipment
associated with supporting Maker's customers.
Research and Development Expenses. Research and development expenses
increased from $1.2 million in 1996 to $2.7 million in 1997 to $4.2 million in
1998. The increase in 1997 reflects the continued development of the MXT3010
Cell Processor and related development tools and application software and the
development of the MXT3020 Circuit Co-processor and related development tools
and application software. The increase in 1998 primarily reflects the
development of the MXT4400 Traffic Stream Processor and related development
tools and application software and the continued development of development
tools and application software for the MXT3010 Cell Processor. Research and
development expenses consist primarily of salaries and related costs of
employees engaged in research, design and development activities.
Selling and Marketing Expenses. Selling and marketing expenses increased
from $332,000 in 1996 to $883,000 in 1997 to $2.1 million in 1998. The
increases were primarily due to additional personnel, including senior level
management, increased product marketing costs associated with new products,
increased commissions as a result of higher sales and costs associated with the
establishment of a sales office in Santa Clara, California. Selling and
marketing expenses consist mainly of employee-related expenses, commissions to
sales representatives, product marketing, and promotional expenses.
General and Administrative Expenses. General and administrative expenses
increased from $373,000 in 1996 to $751,000 in 1997 to $1.3 million in 1998.
The increases were primarily due to the hiring of additional personnel,
including senior level management, and costs associated with supporting the
business. General and administrative expenses consist substantially of expenses
to support the business, including, corporate, accounting, legal, information
technology systems, and human resources.
Litigation Expense. In July 1998, Maker settled a lawsuit with LSI Logic
Corporation. Costs associated with the litigation and settlement of the lawsuit
were $462,000 in 1997 and $1.1 million in 1998.
Interest Income. Interest income increased from $51,000 in 1996 to
$212,000 in 1997 to $538,000 in 1998. The increase reflects interest earned on
higher balances of cash, cash equivalents and short-term investments resulting
from sales of preferred stock in September 1996, October 1997 and December
1998.
Interest Expense. Interest expense was $132,000, $33,000 and $82,000 in
1996, 1997 and 1998, respectively. The decrease in interest expense in 1997 was
primarily the result of the repayment of a note payable to one of Maker's
shareholders. The increase in interest expense in 1998 was due to increased
borrowing under Maker's equipment line of credit to finance the purchase of
capital equipment.
17
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
Quarterly Results of Operations
The following tables set forth certain statement of operations data for
each quarter of 1998, as well as such data expressed as a percentage of Maker's
revenue for each quarter. This information has been presented on the same basis
as the audited Consolidated Financial Statements appearing elsewhere in this
prospectus and, in the opinion of management, includes all adjustments,
consisting only of normal recurring adjustments, that Maker considers necessary
to present fairly the unaudited quarterly results. This information should be
read in conjunction with Maker's audited Consolidated Financial Statements and
Notes thereto appearing elsewhere in this prospectus. The operating results for
any quarter are not necessarily indicative of results for any future period.
See "Risk Factors--We Experience Fluctuations in Our Operating Results."
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
----------- ------------ --------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Revenue ............................. $ 1,019 $ 1,675 $ 2,216 $2,784
Cost of revenue ..................... 486 845 946 961
-------- -------- -------- ------
Gross profit ........................ 533 830 1,270 1,823
-------- -------- -------- ------
Operating expenses:
Research and development ........... 894 976 932 1,369
Selling and marketing .............. 443 548 480 607
General and administrative ......... 341 330 275 353
Litigation ......................... 171 232 715 --
-------- -------- -------- ------
Total operating expenses .......... 1,849 2,086 2,402 2,329
-------- -------- -------- ------
Loss from operations ................ (1,316) (1,256) (1,132) (506)
Interest income ..................... 133 138 136 131
Interest expense .................... (10) (15) (29) (28)
-------- -------- -------- ------
Net loss ............................ $ (1,193) $ (1,133) $ (1,025) $ (403)
======== ======== ======== ======
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
----------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
Revenue ............................. 100% 100% 100% 100%
Cost of revenue ..................... 48 50 43 35
---- ---- ---- ----
Gross margin ........................ 52 50 57 65
---- ---- ---- ----
Operating expenses:
Research and development ........... 88 58 42 49
Selling and marketing .............. 43 33 22 22
General and administrative ......... 33 20 12 12
Litigation ......................... 17 14 32 0
---- ---- ---- ----
Total operating expenses .......... 181 125 108 84
----- ----- ----- ----
Loss from operations ................ (129) (75) (51) (18)
Interest income ..................... 13 8 6 5
Interest expense .................... (1) (1) (1) (1)
----- ----- ----- ----
Net loss ............................ (117%) (68%) (46%) (14%)
===== ===== ===== ====
</TABLE>
18
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
During 1998, revenue increased each quarter, due primarily to growth in
sales of communications processors. Over the course of the year, several
significant customers commenced shipment of communications systems using
Maker's communications processors. Gross margin improved over the course of the
year from 52% in the first quarter to 65% in the fourth quarter, due primarily
to Maker achieving volume shipments of the MXT3010 Cell Processor which enabled
Maker to amortize fixed costs over greater revenue. Research and development
expenses generally increased during the year due to the addition of personnel.
The increase in selling and marketing expenses during the year is primarily due
to an increase in personnel and related costs.
Liquidity and Capital Resources
Since its inception in 1994, Maker has financed its operations and capital
requirements from the sale of $23.9 million of preferred stock, borrowings
under an equipment line of credit of $1.6 million and revenue. Net cash used in
operating activities for the years ended December 31, 1996, 1997 and 1998 was
$2.0 million, $3.6 million and $1.8 million, respectively. Cash used in
operating activities consisted primarily of cash utilized to fund operating
losses and for working capital. At December 31, 1998, Maker had $13.6 million
in cash and cash equivalents.
Maker has a $2.5 million revolving line of credit facility and a $1.0
million equipment line of credit facility with a bank. Borrowings under both
facilities bear interest at the bank's prime rate plus .25% and expire in
February 2000. At March 1, 1999, Maker had not made any borrowings under either
facility. In addition, at December 31, 1998, Maker had $950,000 outstanding
under equipment notes with the bank which bear interest at prime plus .25% to
prime plus 1.0% and which are repayable over approximately the next three
years. In 1999, Maker borrowed an additional $450,000 under these facilities.
See Note 5 of Notes to Consolidated Financial Statements.
From inception through December 31, 1998, Maker acquired approximately
$1.8 million in capital assets. Maker intends to purchase approximately $1.0
million of additional capital assets during 1999. A portion of Maker's future
capital expenditures will be devoted to enhancing and expanding Maker's
operational infrastructure, research and development tools and financial and
management information systems. Maker expects such expenditures to be funded
out of working capital or Maker's bank facilities.
Maker currently uses independent suppliers to manufacture all of its
products. These arrangements allow Maker to avoid utilizing its capital
resources for manufacturing facilities and work-in-process inventory and focus
substantially all of its resources on the design, development and marketing of
its products. Maker expects to assume more responsibility for managing product
manufacturing in the future, which may require additional expenditures. Maker
anticipates that any such expenditures will be funded by working capital.
Maker requires substantial working capital to fund its business,
particularly to finance accounts receivable and inventory, and for investments
in property and equipment. Maker believes the net proceeds of this offering
combined with its existing capital resources and cash generated from
operations, if any, will be sufficient to meet Maker's needs for the
foreseeable future, although Maker could seek to raise additional capital
during that period.
Income Taxes
At December 31, 1998, Maker had available net operating loss carryforwards
of approximately $8.7 million for federal and state income tax purposes, which
expire at various dates through 2018. Maker also has available federal tax
credits of approximately $330,000 expiring through 2010. Maker has recorded a
full valuation allowance against its deferred tax asset due to uncertainties
surrounding the realization of these assets.
The Internal Revenue Code of 1986, as amended (the "Code"), contains
provisions that may limit the net operating loss and tax credit carryforwards
available to be used in any given year upon the occurrence of certain events,
including changes in the ownership interests of significant stockholders. In
the event of a cumulative change in ownership in excess of 50% over a three
year period, the amount of
19
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
the net operating loss carryforwards that Maker can utilize in any one year may
be limited. In the event of a change in ownership the annual limitation on the
use of the existing net operating loss carryforwards is equal to an amount
determined by multiplying the value of Maker at the time of the ownership
change by the federal applicable rate of interest as determined by the Internal
Revenue Service. Maker has completed several financings since its inception and
has incurred an ownership charge as defined under the Code. The Company does
not believe that this change in ownership will have a material impact on its
ability to utilize its net operating loss and tax credit carryforwards.
Year 2000
Many currently installed computer systems and software products are
dependent upon internal calendars coded to accept only two digit entries in the
date code field. These date code fields will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. Computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Maker has completed a review of its computer systems
to assess what steps, if any, are required to achieve full Year 2000
compliance. Based upon this review Maker believes that its systems are
currently Year 2000 compliant. Maker does not anticipate that it will incur
material expenses or meaningful delays in connection with Year 2000 compliance.
None of our current products use internal calendars that are dependent
upon the input of a specific date. As a result, all of our current products are
inherently Year 2000 compliant. Moreover, based on assessments made to date, we
do not anticipate material disruptions to our operations as a result of Year
2000 issues.
Maker is currently discussing Year 2000 readiness with its material supply
and service vendors. To date, those vendors that have been contacted have
indicated that their hardware or software are or will be Year 2000 compliant on
a timely basis. However, Maker intends to continue to assess its exposure to
Year 2000 noncompliance on the part of any of its material vendors and there
can be no assurance that their systems will be Year 2000 compliant.
Maker believes that Year 2000 issues will not pose significant operational
problems for its business. Therefore, Maker does not have, and does not intend
to create, a contingency plan in the event Year 2000 compliance cannot be
achieved in a timely manner. See "Risk Factors--We May Be Affected by
Unexpected Year 2000 Problems."
20
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
BUSINESS
Maker is a fabless semiconductor company that develops and markets
high-performance programmable communications processors, development tools and
application software for use in communications systems equipment. Maker's
processors have a proprietary architecture and instruction set optimized for
processing and switching data, voice and video in broadband networks. Maker's
Processors perform high-bandwidth or compute-intensive functions such as traffic
management and internetworking in Asynchronous Transfer Mode (ATM) and Internet
Protocol (IP) packet switching networks. Maker has over 50 design wins with over
30 telecommunications and network equipment vendors, of which over 15 were in
production during the first quarter of 1999. Maker's top five customers in 1998
were Ascend, Cisco, Fore, Lucent and Nortel.
Industry Overview
Public communications networks, such as those used by local and long
distance carriers, and specialized networks, such as those used by Internet
service providers, are experiencing dramatic growth in data traffic. This
increase in data traffic reflects a number of factors, including the explosive
growth of the Internet, the increase in demand for higher speed
interconnectivity between wide area networks ("WANs") and local area networks
("LANs") and the growing demand for remote network access. While voice traffic
is growing at a modest rate, data traffic is growing much more rapidly and
represents an increasing portion of the traffic carried by public networks.
Today's telecommunications infrastructure is primarily based on circuit
switched technology, which was developed to support voice communications.
Circuit switched technology creates a dedicated circuit with a fixed amount of
bandwidth for the duration of the connection, regardless of a user's actual
bandwidth usage. Circuit switched technology is inefficient for high speed data
transmission because data is transmitted in bursts and therefore has bandwidth
requirements that vary over time. As a result, today's public communications
networks do not have the bandwidth and cannot scale cost effectively with
legacy technology to support the continuing increase in data traffic.
In addition to the increase in traffic volume, the nature of the network
traffic is becoming increasingly complex. To differentiate themselves, network
service providers are offering, on a converged voice and data network
infrastructure, enhanced communications services such as guaranteed Internet
access, virtual private networks, videoconferencing, service level agreements
and IP telephony. The increase in the volume and complexity of traffic is
driving the demand for sophisticated network traffic management, which is an
immature discipline that is continuing to evolve. Communications systems
vendors are developing schemes that intelligently manage network traffic, such
as Quality of Service ("QoS") and Class of Service ("CoS"). QoS guarantees a
specific level of end-to-end service across the network, while CoS prioritizes
service levels for different classes of users and applications.
In order to provide improvements in bandwidth and service offerings, new
standards and protocols are constantly being developed and introduced into the
network infrastructure. These standards and protocols are being deployed into
networks in an evolutionary fashion due to the mission-critical nature of
communications networks and network service providers' large investment in
existing infrastructure. As a result, communications network infrastructures
are becoming more complex. This increasing complexity is driving the demand for
sophisticated internetworking, the translation function between different
network standards and protocols.
Key standards and protocols that are emerging to address the limitations
of existing circuit switched networks include ATM and IP. ATM is based on
fixed-sized packets, called cells, and is designed to efficiently integrate
voice, data and video and easily scale in bandwidth. IP is a packet-based
protocol that is generally accepted as the industry standard for LAN data
transfer and is being increasingly used in WAN data transfer. Neither packet
nor ATM switching requires end-to-end fixed bandwidth for dedicated circuits
and therefore have inherent benefits over circuit switching in terms of
bandwidth utilization. Both ATM and IP packet switching network technologies
are being deployed over optical networks based on the complementary SONET/SDH
standards, known as ATM over SONET (Synchronous Optical Network) and Packet
over SONET (POS). SONET is a cabling and signaling standard that is widely used
in WANs for carrying circuit switched, cell or packet-based traffic.
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<PAGE>
Traditional systems vendors and multiple new entrants are competing to
meet the evolving requirements of advanced communications networks by
introducing increasingly sophisticated communications systems, including
switches, access devices, routers and transmission equipment. To achieve the
performance, functionality and price required by such communications systems,
communications systems vendors are using increasingly complex integrated
circuits. As a result of time-to-market pressures, constantly evolving
standards and protocols and the difficulty of designing and producing the
requisite integrated circuits, these vendors are increasingly using integrated
circuits supplied by specialized communications semiconductor companies.
The key integrated circuit elements of a typical communications system
consist of the physical connection elements, cell or packet processing device
and port interconnection. The physical connection elements convert and
condition the signal for transmission on or off the network cabling. The port
interconnection transfers data between ports through elements such as switching
fabrics or shared system busses. The cell or packet processing device performs
a variety of complex data manipulation functions, including traffic management
and internetworking. Of the three elements, the cell or packet processor
provides communications systems vendors with the greatest opportunity to
differentiate their products with increased functionality and features.
Traditionally, communications systems vendors have utilized general
purpose processors, fixed- function Application Specific Standard Products
(ASSP) or custom developed, fixed-function devices (often implemented utilizing
ASICs) to provide the cell or packet processing functions. General purpose
processors are programmable and therefore enable products to be brought to
market relatively rapidly. They can also be easily adapted to changes in
industry standards and to add additional features. However, these benefits are
usually not achievable without significant performance degradation. ASICs and
ASSPs can be designed to achieve high performance. However, ASICs and ASSPs are
generally fixed-function devices, and therefore cannot be adapted to changing
functional requirements and must be redesigned if errors are found in their
implementation. Furthermore, developing ASICs and ASSPs for emerging
applications is relatively time consuming and limits the ability of
communications systems vendors to meet time-to-market constraints.
Consequently, none of these approaches is ideal for meeting the market
requirements for high-performance cell or packet processing.
The Maker Solution
Maker is a leading developer of high-performance programmable
communications processors, development tools and application software targeting
communications markets requiring high-intensity (high-bandwidth or
compute-intensive) communications processing. Maker's communications processors
are based on proprietary cores which are optimized for cell and packet
processing to enable wire-speed performance equivalent to ASICs and ASSPs and
superior to general-purpose processors. Unlike ASICs and ASSPs, Maker's
processors have a programmable architecture which, together with Maker's
development tools, enable the Maker solution to address the requirements of a
variety of markets using a single processor. Maker's solution provides
functional flexibility which enables communications systems vendors to quickly
adapt to rapidly evolving standards and market requirements, improve
time-to-market of new and improved products, add features to create product
differentiation and utilize a common architecture across product lines.
Maker focuses on emerging high growth segments of the communications
systems markets that require sophisticated traffic management and
internetworking functions. Maker's MXT3010 Cell Processor, together with its
CellMaker[RegTM] and AccessMaker(TM) software applications, targets the high-
performance segment of the ATM equipment market. Maker believes it is a leading
provider of SARs (an internetworking device) that operate at OC-12 (622 Mbps)
rates. Maker recently announced the introduction of the MXT4000 Traffic Stream
Processor family and related PortMaker(TM) software application. The MXT4000
family increases Maker's market opportunity by allowing it to address the
opportunity for IP based services, to provide lower customer system costs
through higher levels of integration and to support more sophisticated traffic
management and internetworking functions.
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Business Strategy
Maker's objective is to be the leading developer of high-performance
programmable communications processors, development tools and application
software for communications markets requiring high-intensity communications
processing(TM). Key elements of Maker's strategy include:
Target Emerging High-Intensity, High Growth Communications Markets. Maker
targets emerging high growth segments of the communications market. Examples of
these segments include ATM SARing, traffic shaping for ATM or Packet over SONET
networks and multi-service WAN access. These market segments are characterized
by rapidly evolving performance and function requirements and are
well-addressed by Maker's high-performance programmable architecture.
Expand ATM Market Leadership into New Markets and Applications. Maker
believes it is a leading provider of OC-12 ATM cell processing solutions. Maker
believes that its proprietary technology is well suited for other emerging
high-performance segments of the communications industry, including packet
processing and multi-service WAN access. Maker recently announced the MXT4000
Traffic Stream Processor family and related PortMaker software application. The
MXT4000 family increases Maker's market opportunity by allowing it to address
the opportunity for IP based services.
Leverage Platforms Across Multiple Applications. Maker seeks to leverage
its processors to address a variety of applications in the communications
markets. Maker provides multiple off-the-shelf software applications based on
the same programmable processor. In addition, Maker delivers a development
platform for its processors which allows customers to support applications
which are not specifically addressed by Maker. Maker believes that this
approach allows it to diversify its market opportunities and address early
stage markets with relatively low development cost and risk.
Provide Integrated Silicon/Software Solutions. Maker seeks to
differentiate itself and reduce its customers' time-to-market by providing
off-the-shelf software for specific communications applications, such as SARing
and multi-service WAN access. The systems knowledge gained in creating these
applications also enables Maker to continue to improve its integrated circuit
designs. Approximately two-thirds of Maker's research and development engineers
are engaged in software-related activities.
Build and Capitalize on Close Relationships with Industry Leaders. Maker
has developed close customer relationships with leading communications systems
vendors, including Ascend, Cisco, Fore, Lucent and Nortel. By working with
leading customers early in their product architecture and development stage,
Maker is able to gain valuable insights into future industry requirements and
trends. These customer relationships provide Maker with multiple sales
opportunities across customers' product lines.
Leverage Fabless Semiconductor Model. Maker seeks to leverage the
flexibility of its fabless semiconductor business model to lower technology and
product risks, increase profitability and reduce the time-to-market of new
products compared to an integrated semiconductor manufacturer. Maker's fabless
model allows it to focus on its core communications processor design
competencies, while minimizing capital and operating infrastructure
requirements.
Markets and Applications
Maker focuses on emerging high growth segments of the communications
systems markets requiring high-intensity communications processing. These
market segments are characterized by rapidly evolving performance and
functional requirements. Within these markets, Maker focuses on applications
that involve high-performance internetworking and network traffic management.
Internetworking is a translation function used to interconnect different
networks and protocols. Traffic management describes a collection of functions
which are involved in optimally using network bandwidth and providing
differentiated services over the network. In particular, traffic management is
critical in allowing data to be combined with delay-sensitive information, such
as voice or video, on a network.
ATM and IP networks are two markets with significant traffic management
and internetworking requirements. ATM is based on fixed-sized packets, called
cells, and is designed to efficiently integrate
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<PAGE>
voice, data and video and to easily scale in bandwidth. IP is a packet-based
protocol that is generally accepted as the industry standard for LAN data
transfer and is being increasingly used in WAN data transfer. Maker's
high-intensity communications processing products are well suited for the high-
bandwidth and evolving functional requirements of ATM and IP networks. Maker's
products address internetworking applications, including ATM SARing, and a
variety of traffic management functions including traffic shaping, traffic
policing and queue management required by these markets.
High-Performance SARing. SARing (Segmentation and Reassembly) is the
internetworking function for translating between ATM and packet-based networks,
such as Ethernet, Frame Relay and Packet over SONET, or
time-division-multiplexed networks (commonly used in the telecommunications
infrastructure). SARing takes place in packet-based communications systems,
such as Ethernet switches and Internet routers in circumstances where an ATM
connection is required, or in ATM-based systems such as multi-service WAN
switches where packet interfaces such as Frame Relay or Packet Over SONET are
required. Maker was one of the first vendors to deliver a SAR that operates at
OC-12 (622Mbps) rates, and believes it is a leading provider of ATM SAR devices
in this market. An OC-12 SAR can support multiple configurations including one
OC-12 network port or 4 OC-3 (155Mbps) ports.
ATM Traffic Shaping. Traffic shaping is a complex function that determines
the time and rate at which various categories of network traffic can be sent
onto the network. Maker supports this application at rates up to OC-12 in ATM
switches, typically located at the edge between enterprise, carrier or service
provider networks, and in ADSL access multiplexers.
ATM Traffic Policing. Traffic policing monitors traffic coming into a port
from the network and ensures that it conforms to predetermined bandwidth
policies. Maker supports this application at rates up to OC-12 in ATM switches,
typically located at the edge between enterprise, carrier or service provider
networks.
Multi-Service WAN Access. Multi-Service WAN Access applications allow
service providers to supply a variety of ATM, Frame Relay, or leased line
services on demand on a line-by-line basis through software control. These
applications typically involve services that require relatively low bandwidth
but high computing power. Multi-Service WAN access products also can integrate
voice and data over a single access line, offering potential economic benefits
to the subscriber. This functionality can be used in WAN edge switches, ATM
access multiplexers, SONET add/drop multiplexers and wireless base station
equipment.
Packet Over SONET Link Management. This emerging application supports
traffic management (policing, shaping and queue management) and internetworking
functions such as Multi-Protocol Label Switching (MPLS) for POS ports in
Internet routers and enterprise switches. In the future, Maker expects the
MXT4400 to support this application at rates up to OC-12, with the future
members of the MXT4000 family expected to support rates up to OC-48.
Products
Maker provides high-performance programmable communications processors,
development tools and applications software. Maker's processors are adapted to
a variety of communications applications through the use of software that is
either provided by Maker or written by customers. To facilitate software
development, Maker provides a hardware/software development environment, a
library of high-performance network routines and several off-the-shelf software
applications targeted at rapidly growing markets.
Maker's product line includes the MXT3010 Cell Processor, the MXT3020
Circuit Co-processor and the MXT4400 Traffic Stream Processor. The MXT3010 Cell
Processor, together with the Company's CellMaker software application, targets
the high-performance ATM SARing market. The MXT3010 Cell Processor and the
MXT3020 Circuit Co-Processor, together with the Company's AccessMaker software,
target multi-service WAN access applications. Maker recently announced the
introduction of the MXT4000 Traffic Stream Processor family and the related
PortMaker software
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application targeting sophisticated traffic management and internetworking for
ATM and packet-based networks.
The following table summarizes Maker's products, applications targeted by
Maker and the status of the solution for each targeted application:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Communications Processors Application Software Targeted Application Status
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MXT3010 OC-12 SAR
Cell Processor CellMaker-622 4-Port OC-3 SAR Production
Customer-written ATM Traffic Shaping Production
MXT3010 Cell Processor/ AccessMaker Multi-service WAN Production
MXT3020 Circuit Co-processor Access
MXT4400 PortMaker OC-12 SAR In Development
Traffic Stream 4-Port OC-3 SAR
Processor
Customer-written ATM Traffic Shaping In Development
PortMaker with POS Link Planned
customer extensions Management
Customer-written ATM Traffic Policing Future
- -----------------------------------------------------------------------------------------------------
</TABLE>
Communications Processors
MXT3010 Cell Processor. The MXT3010 Cell Processor is a high-performance,
programmable ATM Cell Processing integrated circuit that is based on Maker's
proprietary 16-bit RISC core. This device was introduced in 1997 to address a
variety of applications ranging from OC-12 SARing to T1 (1.544 Mbps) speed
multi-service WAN access.
MXT3020 Circuit Co-processor. The MXT3020 Circuit Co-processor is a device
that works in conjunction with the MXT3010 to connect ATM and packet-based
networks to circuit switched networks. This device leverages the
programmability of the MXT3010 to adapt to evolving standards and supports a
wide range of ATM/TDM internetworking functions.
MXT4000 Traffic Stream Processor Family. The MXT4400 Traffic Stream
Processor is the first member of the MXT4000 family. The MXT4400 is a
high-performance, programmable packet and cell processor based on Maker's new
proprietary 32-bit RISC core. The MXT4000 family increases Maker's market
opportunity by allowing it to address the opportunity for IP based services, to
provide lower customer system costs through higher levels of integration, to
support rates up to OC-48 (2.5 Gbps) and to support more sophisticated traffic
management and internetworking functions.
Maker announced the introduction of the MXT4400 Traffic Stream Processor
in March 1999 and expects it to be in volume production in the second half of
the year. Maker has delivered Verilog simulation models of the MXT4400 to two
alpha customers, Lucent and Xylan. The design data base is at the foundry for
layout and an initial production run.
Application Software
Maker offers complete production-tested application software that runs on
the MXT3010 or MXT4400 processors. Customers may use this software as is,
customize it or write their own custom software to address specific
applications.
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CellMaker. CellMaker is SARing software that runs on the MXT3010 Cell
Processor. This application supports internetworking between ATM and
packet-based networks such as Ethernet or Frame Relay. Maker offers versions of
this software that support data rates of OC-3 (155Mbps) and OC-12 (622Mbps).
AccessMaker. AccessMaker is software that runs on the MXT3010 Cell
Processor coupled with up to four MXT3020 Circuit Coprocessors and supports the
integration of both voice and data over ATM networks. AccessMaker allows
customers to design a single piece of hardware that can support many common
T1/E1 services such as Frame Relay, ATM, and leased lines in any combination up
to 28 T1/E1 ports. This allows service providers to provision new services to
their end-user customers quickly and cost-effectively through software control,
rather than having to physically reconfigure equipment using field technicians.
PortMaker. PortMaker is software that runs on the MXT4400 Traffic Stream
Processor and supports OC-12 ATM SARing. This application was announced with
the MXT4400 in March 1999. Maker intends to expand the application to support a
common set of traffic management and internetworking functions for POS and ATM
networks.
Development Tools
To accelerate time-to-market for new products, Maker offers customers a
full set of development tools including Verilog models, simulation
environments, assemblers and debuggers for both of Maker's processors, as well
as a variety of demonstration cards for the MXT3010. These tools allow
customers to write and debug software for systems based on Maker's processors
prior to using actual hardware and to simulate system and network operations
for the purpose of optimizing performance. Maker's tools also allow customers
to verify any custom hardware that they have developed to interface with
Maker's products. To further facilitate software development by its customers,
Maker expects to introduce a C compiler for the MXT4400 Traffic Stream
Processor.
Customers, Sales and Marketing
Maker targets leading telecommunications and data networking vendors.
Maker has over 50 design wins with over 30 customers, of which over 15 were in
production during the first quarter of 1999. Maker defines a design win as a
discernible commitment by a vendor to use Maker products in a development
program that is funded, staffed and targeted for production. Maker can provide
no assurance that a particular design win will result in production revenue.
The following is a list of Maker's customers:
3Com nCUBE
Alcatel Netcom Systems
Ascend Communications Newbridge Networks
Cabletron Systems Nexabit Networks
Cisco Systems Nortel Networks
Ennovate Premisys
Fore Systems Siemens
GTE Sonoma Systems
Hewlett-Packard Sonus Networks
Hitachi Visual Networks
Juniper Networks Xylan
Lucent Technologies
Maker's top five customers in 1998 were Ascend, Cisco, Fore, Lucent and
Nortel. These customers generated an aggregate of 74% of 1998 revenue. The
largest of such customers generated 28% of 1998 revenue and the smallest of
such customers generated 5% of 1998 revenue. No other single customer accounted
for more than 5% of 1998 revenue. Ascend and Lucent recently announced that
they have entered into a definitive agreement pursuant to which they will
combine their operations. See "Risk Factors--We Depend on a Small Number of
Customers."
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<PAGE>
Maker's sales and marketing strategy is to achieve design wins with
industry leaders in emerging high growth segments of the communications systems
markets that require high-intensity communications processing. In many cases,
Maker's processors are a key element in the architectural designs of its
customers' communications systems. As a result, prior to a design win Maker's
engineers often act as consultants to its customers in early architectural
discussions and decisions.
Maker markets and sells its products primarily through a direct sales
force in the United States; manufacturers' representatives in the United States
and Canada and a distributor in Japan. Maker has sales offices located in
Framingham, Massachusetts and Santa Clara, California. Maker selects its
independent manufacturers' representatives based on their understanding of the
communication processor marketplace and their ability to provide effective
field sales support for Maker's products.
Sales in North America account for the substantial majority of Maker's
revenues. Although Maker achieved a number of design wins with international
customers, none of these customers has reached volume production.
Maker targets its marketing efforts at identifiable industry leaders.
Maker has a number of marketing programs designed to inform communications
systems vendors about the capabilities and benefits of Maker's products.
Maker's marketing efforts include an emphasis on applications notes, design
examples and other technical documentation to accelerate customer designs. In
addition, for the purpose of building a high level of industry awareness,
Maker's marketing efforts also include participation in industry trade shows,
technical conferences and technology seminars, publication of technical and
educational articles in industry journals, maintenance of Maker's World Wide
Web site and press tours.
Technical support to customers is provided through Maker system engineers
and, if necessary, product designers and architects. Local field support is
provided by systems engineers in person or by telephone. Maker believes that
providing communications systems vendors with comprehensive product service and
support is critical to maintaining a competitive position in the communications
market and is critical to shortening customers' design-in cycles. Maker works
closely with its customers to monitor the progress of its product designs and
to provide support at each stage of customer product development.
Technology
Maker has developed proprietary communications processors that combine
wire-speed performance with a programmable architecture. Maker's solution
architecture is comprised of both integrated circuits and software components,
including:
o a proprietary, programmable processor;
o a lightweight kernel that provides the basic software infrastructure upon
which applications are written;
o communications processing applications; and
o a well-defined application programming interface that enables customers'
systems to communicate with Maker's software.
To facilitate the development of specific applications, Maker also provides a
development environment and a library of performance-optimized software
routines that implement a number of common networking functions.
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Below is an overview of Maker's solution architecture:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Maker API
------------------------------------------------------------
Communications Processing Applications
Maker Maker Customized Software
Development Applications Maker Customer
Environment Applications Applications --------------
------------------------------------------------------------ [two way arrow] Network
Light-Weight Kernel Function Integrated
------------------------------------------------------------ Library Circuits
Communications Processor
------------------------------------------------------------
Maker's Solution Architecture
</TABLE>
The core technologies employed by Maker include its proprietary RISC
architecture, high-speed context switching, network traffic management
technology and TDM (Time Division Multiplexed) service internetworking
technology.
Proprietary RISC Architecture. Maker's philosophy is to base its
processors on the fastest and most cost-effective processor cores for
communications applications. Rather than using commercially available RISC
processors such as MIPS or PowerPC, Maker has developed proprietary processor
cores which have an architecture and instruction set that are optimized for the
tasks of processing and switching data, voice and video in broadband networks.
Optimizing the instruction set allows these processors to perform common
communications processing steps using a minimum number of instructions,
delivering higher CPU performance and higher throughput at a given clock rate
than general purpose RISC or CISC processors can provide.
High-Speed Context Switching. Maker's communications processors have
event-driven architectures that can quickly adapt to the arrival of new network
traffic or new traffic management information. One of the key differences
between communications processors and general purpose RISC processors is the
speed at which they perform context switching. Context is any descriptive
information, such as traffic contracts and network statistics, that the
processor requires to process a particular packet or ATM cell. The processor
must gather all of the context information that is relevant to that particular
cell, perform any necessary translation and traffic management processing based
on that context, and then store the updated context before the next cell
arrives. In OC-12 ATM networks, for example, new ATM cells arrive every 680
nanoseconds. The faster the processor can gather and store context, the more
time that processor has for cell or packet processing, thereby increasing the
speed of the overall solution.
Network Traffic Management Technology. Maker has developed hardware and
software technology that provides an extensive set of programmable traffic
management capabilities intended to allow its customers to adapt to evolving
and increasingly sophisticated functional requirements. Traffic management is a
critical requirement for providing high-quality network services and supporting
the convergence of voice, data and video in the communications infrastructure.
Elements of Maker's solution include per-stream buffer queuing, traffic shaping
capability, congestion and flow control algorithms. These programmable
functions can allow network equipment to deploy sophisticated traffic
management services at very high performance levels.
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TDM Service Internetworking Technology. Maker has developed a specialized
software kernel which provides a unified methodology for managing a diverse set
of the most common T1/E1 and DS3 services such as Frame Relay, a variety of ATM
services, and leased lines. This is synergistic with other Maker hardware and
software technologies such as fast context switching and advanced traffic
management and is a core element of Maker's AccessMaker application. The
specialized software kernel allows network equipment to integrate data, voice
and video traffic and permits service providers to provision new services to
their customers on demand from a single equipment platform.
Research and Development
Maker focuses its research and development efforts on the development of
programmable high-performance communications processors, development tools and
applications software. As of March 1, 1999, Maker had 33 employees and
full-time contractors engaged in research and development, of which 16 are
involved in the development of development tools and applications software and
17 are involved in algorithm and integrated circuit design and verification.
Maker's research and development facilities are located at its headquarters in
Framingham, Massachusetts.
Maker's research and development expenses for the years ended December 31,
1996, December 31, 1997 and December 31, 1998 were approximately $1.2 million,
$2.7 million and $4.2 million, respectively. Research and development expenses
primarily consist of salaries and related costs of employees engaged in ongoing
research, design and development activities.
Manufacturing
Currently, Maker outsources all of its semiconductor manufacturing,
assembly and testing to suppliers that deliver fully assembled and tested
products to Maker on a turnkey basis. This fabless semiconductor manufacturing
model allows Maker to focus substantially all of its resources on the design,
development and marketing of products and significantly reduces its capital
requirements.
In 1996 and 1997, Maker subcontracted its semiconductor manufacturing to
Toshiba, VLSI Technology and IBM. In 1998, substantially all of Maker's
manufacturing was subcontracted to IBM.
Maker uses state-of-the-art, fully digital CMOS processes for the
manufacturing of its semiconductor devices. Maker's main products currently are
fabricated in .35 micron CMOS. Maker continuously evaluates the benefits of
adopting smaller geometry processes in order to achieve optimal performance and
cost.
Maker will begin to investigate the possibility of assuming more
manufacturing responsibilities in 1999. Such changes may include contracting
for wafer processing, and subcontracting with other suppliers for assembly and
test. As a result of such changes, Maker would likely be required to enter into
volume purchase agreements pursuant to which Maker would commit to minimum
levels of purchases and which may require up front investments. See "Risk
Factors--We Depend on Independent Manufacturers."
Competition
The communications semiconductor industry is intensely competitive and is
characterized by constant technological change, rapid rates of product
obsolescence and price erosion. Maker products compete with fixed-function
integrated circuits and programmable integrated circuits which are typically
based on general purpose RISC processors. In the OC-3 SAR market, Maker
competes with a number of competitors offering fixed-function devices including
Conexant, IBM, Texas Instruments, Integrated Device Technology, PMC-Sierra,
Lucent, Fujitsu, NEC and TranSwitch. In the developing OC-12 SAR market Maker
expects to compete with several of the foregoing among others. In the ATM
traffic policing market, there are a number of competitors, including Lucent
and PMC-Sierra. In ATM markets, LSI Logic and Motorola currently offer
programmable cell processing capability.
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Business
<PAGE>
Competitive factors in the market for integrated circuits are:
o performance;
o impact of the integrated circuit on end-product cost;
o adaptability to changing market requirements;
o auality and availability of technical support;
o feature set;
o ease of designing with and debugging; and
o compatibility with customer system architectures and complementary
components.
In addition to the list above, programmable communication processors face
additional competitive factors such as:
o ease of writing and debugging high-performance software;
o availability of tools and software libraries;
o completed software applications;
o compatibility with customer simulation environments; and
o scalability across a breadth of applications.
Several of the largest electronics and semiconductor suppliers have
recently entered or indicated an intent to enter the communication market for
semiconductor devices. Many of Maker's existing and potential customers
internally develop ASICs, general purpose processors, communications processors
and other devices which attempt to perform all or a portion of the functions
performed by Maker's products. Maker understands that there may be a number of
smaller emerging companies that are contemplating entering the communications
processors market. In addition, Maker also may face competition from suppliers
of products based on new or emerging technologies. See "Risk Factors--We
Operate in a Competitive Industry."
Intellectual Property
Maker's future success and ability to compete are dependent, in part, upon
its proprietary technology. Maker has been granted 4 patents in the United
States in the field of cell processors. In addition, Maker has filed additional
U.S. patent applications in the United States. There can be no assurance that
any patents will issue pursuant to Maker's current or future patent
applications or that patents issued pursuant to such applications will not be
invalidated, circumvented, challenged or licensed to others. In addition, there
can be no assurance that the rights granted under any such patents will provide
competitive advantages to Maker or be adequate to safeguard and maintain
Maker's proprietary rights.
In addition, Maker claims copyright protection for certain proprietary
software and documentation. Maker also attempts to protect its trade secrets
and other proprietary information through agreements with its customers,
suppliers, employees and consultants, and through other security measures.
Although Maker intends to protect its rights vigorously, there can be no
assurance that these measures will be successful. In addition, the laws of
certain countries in which Maker's products are or may be manufactured or sold
may not protect Maker's products and intellectual property rights to the same
extent as the laws of the United States.
While Maker's ability to compete may be affected by its ability to protect
its intellectual property, Maker believes that, because of the rapid pace of
technological change in the communications systems industry, its technical
expertise and ability to introduce new products on a timely basis will be more
important in maintaining its competitive position than protection of its
intellectual property. Maker believes that patent, trade secret and copyright
protection are important but must be supported by expanding the knowledge,
ability and experience of Maker's personnel and introducing and enhancing
30
Business
<PAGE>
products. Although Maker continues to implement protective measures and intends
to defend vigorously its intellectual property rights, there can be no
assurance that these measures will be successful.
Many participants in the semiconductor and communications systems industry
have a significant number of patents and have frequently demonstrated a
readiness to commence litigation based on allegations of patent and other
intellectual property infringement. From time to time, third parties, including
competitors of Maker, may assert patent, copyright and other intellectual
property rights to technologies that are important to Maker. There can be no
assurance that third parties will not assert infringement claims against Maker
in the future, that assertions by third parties will not result in costly
litigation or that Maker would prevail in any such litigation or be able to
license any valid and infringed patents from third parties on commercially
reasonable terms, if at all. Litigation, regardless of the outcome, is likely
to result in substantial cost and diversion of resources of Maker. Any
infringement claim or other litigation against or by Maker could materially
adversely affect Maker's business, financial condition and results of
operations.
In addition, there can be no assurance that competitors of Maker, many of
which have substantially greater resources than Maker and have made substantial
investments in competing technologies, do not have, or will not seek to apply
for and obtain, patents that will prevent, limit or interfere with Maker's
ability to make, use or sell its products either in the United States or in
international markets. Furthermore, there can be no assurance that Maker will
not in the future become subject to patent infringement claims and litigation
or interference proceedings to determine the priority of inventions. The
defense and prosecution of intellectual property suits, interference
proceedings and related legal and administrative proceedings are both costly
and time consuming. Any such suit or proceeding involving Maker could have a
material adverse effect on Maker's business, financial condition and results of
operations. See "Risk Factors--We Depend on Intellectual Property."
Employees
As of March 1, 1999, Maker had 55 full-time employees and three contract
employees. Of the total number of employees, 33 were in research and
development, 16 were in sales, marketing and technical support and nine were in
operations and administration. Maker's employees do not have any collective
bargaining agreement, and Maker has never experienced a work stoppage. Maker
believes its employee relations are good. See "Risk Factors--We Depend on Key
Personnel and the Hiring of Additional Personnel."
Facilities
Maker's main executive, administrative and technical offices occupy
approximately 18,498 square feet in Framingham, Massachusetts, under a lease
that expires on June 30, 2000. Maker also leases a sales office in Santa Clara,
California.
Legal Proceedings
Maker is not currently involved in any material legal proceedings.
31
Business
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of Maker and their respective ages
and positions are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William N. Giudice .......... 44 President, Chief Executive Officer and Director
Michael Rubino .............. 41 Vice President, Finance and Operations, Chief Financial
Officer and Treasurer
Paul Bergantino ............. 35 Vice President and Chief Technology Architect
Walter Jones ................ 51 Vice President, Engineering
Thomas J. Medrek ............ 42 Vice President, Marketing
Jon Sherburne ............... 48 Vice President, Sales
Roger Evans ................. 53 Director
Rob Soni .................... 30 Director
Louis Tomasetta ............. 50 Director
</TABLE>
William N. Giudice. Mr. Giudice has been President, Chief Executive
Officer and a director of Maker since its inception in 1994. Prior to
co-founding Maker, Mr. Giudice spent nine years at LSI Logic in a variety of
sales and sales management positions, including Director of Sales from 1991
until his departure in 1994.
Michael Rubino. Mr. Rubino has been Vice President, Finance and
Operations, and Chief Financial Officer of Maker since February 1998. From 1994
to 1998, Mr. Rubino held several senior finance positions at Agile Networks,
Inc., most recently as Vice President and Chief Financial Officer. Agile
Networks was acquired by Lucent Technologies in 1996. From November 1991 to
March 1994, Mr. Rubino was Vice President, Finance and Administration at
Process Software Corporation.
Paul Bergantino. Mr. Bergantino has been Vice President and Chief
Technology Architect of Maker since its inception in 1994. Prior to co-founding
Maker, Mr. Bergantino spent seven years at LSI Logic where he served as a
Product Marketing Manager in the networking products division from June 1993 to
August 1994.
Walter Jones. Mr. Jones has been Vice President, Engineering of Maker
since June 1998. Mr. Jones served as Vice President of Engineering at
Videoserver Corporation from October 1996 to June 1998. From January 1994 to
September 1996, Mr. Jones was the Director of Development at ISIS Distributed
Systems, a division of Stratus, Inc.
Thomas J. Medrek. Mr. Medrek has been Vice President, Marketing of Maker
since July 1997. From 1989 to 1997, Mr. Medrek held a number of senior level
marketing and product planning positions at 3Com Corporation and Synernetics,
Inc., which 3Com acquired in 1994. Mr. Medrek served as Director of Product
Planning from 1996 to 1997, and as Director of Marketing from 1993 to 1995.
Jon Sherburne. Mr. Sherburne has been Vice President, Sales of Maker since
October 1997. Mr. Sherburne held several senior management positions at VLSI
Technology, Inc. He served as Vice President of Western U.S. Sales and
Technology from July 1996 to September 1997 and Vice President of North
American Computer and Government Sales and Technology Centers from 1994 to July
1996. He also served as Director of Apple Worldwide Sales from January 1992 to
July 1995.
Roger Evans. Mr. Evans has been a director of Maker since 1996. Mr. Evans
is a General Partner of Greylock, a venture capital firm. Mr. Evans is also a
Director of Ascend Communications, Inc. and several privately held companies.
32
Management
<PAGE>
Rob Soni. Mr. Soni has been a director of Maker since 1996. Mr. Soni is a
partner with Bessemer Venture Partners, which he joined in 1994. Prior to that
time, Mr. Soni worked for The Boston Consulting Group.
Louis Tomasetta. Louis Tomasetta, Ph.D., has been a director of Maker
since 1997. Dr. Tomasetta is co-founder of Vitesse Semiconductor Corporation
and has served as its President, Chief Executive Officer and Director since it
was founded in 1987.
Board Committees
The Compensation Committee of the Board of Directors of Maker is comprised
of Rob Soni, Roger Evans and Louis Tomasetta.
The Audit Committee of the Board of Directors of Maker is comprised of Rob
Soni and Louis Tomasetta.
Election of Directors
After Maker files an amended and restated Certificate of Incorporation,
Maker's Certificate of Incorporation will provide for a classified board of
directors divided into two classes. Class I will expire at the annual meeting
of stockholders to be held in 2000 and Class II will expire at the annual
meeting of stockholders to be held in 2001. At each annual meeting of
stockholders, beginning with the 2000 annual meeting, the successors to
directors whose terms will then expire will be elected to serve from the time
of election and qualification until the second annual meeting following
election and until their successors have been duly elected and qualified, or
until their earlier resignation or removal, if any. To the extent there is an
increase or reduction in the number of directors, the increase or decrease in
directorships resulting therefrom will be distributed among the classes so
that, as nearly as possible, each class will consist of an equal number of
directors.
Compensation of Directors
The current directors of Maker receive no cash compensation for serving as
directors, however they are reimbursed for the expenses they incur in attending
meetings of the board or board committees. Non-employee directors are eligible
to receive options to purchase common stock awarded under Maker's equity
compensation plans. See "--Benefit Plans".
Compensation Committee Interlocks and Insider Participation
Upon completion of this offering, the compensation committee will make all
compensation decisions. No interlocking relationship exists between the board
of directors or compensation committee and the board of directors or
compensation committee of any other company. Roger Evans is a General Partner
of Equity GP Limited Partnership, the General Partner of Greylock Equity
Limited Partnership, which will beneficially own % of Maker's common stock
after the offering. Robi Soni is a Partner of Bessemer Venture Partners, which
will own % of Maker's common stock after the offering.
Prior to March 11, 1999, William Giudice, President and Chief Executive
Officer of Maker, served as a member of its compensation committee.
33
Management
<PAGE>
Executive Compensation
The following table sets forth the compensation earned by Maker's Chief
Executive Officer and each of Maker's four other most highly compensated
executive officers (collectively, the "Named Executive Officers") during the
year ended December 31, 1998:
Summary Annual Compensation Table
<TABLE>
<CAPTION>
Securities
Other Underlying
Annual Options/
Name and Principal Position Year Salary Bonus Compensation SARs
- ----------------------------------------------- ------ ----------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
William N. Giudice ............................ 1996 $102,500 -- -- --
President, Chief Executive Officer 1997 120,000 -- -- --
and Director 1998 142,500 -- -- 510,000
Michael Rubino (1) ............................ 1998 $115,321 $25,000 -- 180,000
Vice President, Finance and Operations,
Chief Financial Officer and Treasurer
Paul Bergantino ............................... 1996 $102,500 -- -- --
Vice President and Chief Technology Architect 1997 120,000 -- -- --
1998 127,500 -- -- 260,000
Thomas J. Medrek (2) .......................... 1997 $ 54,057 $25,000 -- 337,000
Vice President, Marketing 1998 125,000 25,000 -- --
Jon Sherburne (3) ............................. 1997 $ 27,484 $25,000 -- 168,000
Vice President, Sales 1998 125,000 56,403 -- --
</TABLE>
- ------------
(1) Mr. Rubino commenced employment with Maker in February 1998.
(2) Mr. Medrek commenced employment with Maker in July 1997.
(3) Mr. Sherburne commenced employment with Maker in October 1997.
The following table sets forth certain information regarding the option
grants made during 1998 to each of the Named Executive Officers. Maker issued
no stock appreciation rights ("SARs") in 1998.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable
Value
at Assumed
Annual
Rates of
Stock
Price
Percent of Total Appreciati
Number of Securities Option/SARs Market for Option
Underlying Granted to Exercise or Value on Term (1)
Option/SARs Employees in Base Price Date of Grant Expiration ----------
Name Granted Fiscal Year (per share) (per share) Date 5% 10%
- ---------------------------- ---------------------- ----------------- ------------- --------------- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
William N. Giudice ......... 510,000 28.9% $ 2.75 $ 2.75 9/17/08
Michael Rubino ............. 180,000 10.2% $ 0.30 $ 0.30 3/12/08
Paul Bergantino ............ 260,000 14.7% $ 2.75 $ 2.75 9/17/08
Thomas J. Medrek ........... -- -- -- -- --
Jon Sherburne .............. -- -- -- -- --
</TABLE>
- ------------
(1) In accordance with the rules of the SEC, shown are the gains or "option
spreads" that would exist for the respective options granted. These gains
are based on the assumed rates of annual compound stock price appreciation
of 5% and 10% from the date the option was granted over the full option
term. These assumed annual compound rates of stock price appreciation are
mandated by the rules of the SEC and do not represent Maker's estimate or
projection of future common stock prices.
34
Management
<PAGE>
The following table sets forth information regarding exercise of options
and the number and value of options held at December 31, 1998, by each of the
Named Executive Officers:
Aggregate Option Exercises in 1998 and
Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Shares Fiscal Year End Fiscal Year-End (1)
Acquired Value --------------------------------- ---------------------------------
Name on Exercise Realized Exercisable Unexercisable (2) Exercisable Unexercisable (2)
- ---------------------------- ---------------- ---------- ------------- ------------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
William N. Giudice ......... -- -- 510,000 --
Michael Rubino ............. -- -- 180,000 --
Paul Bergantino ............ -- -- 260,000 --
Thomas J. Medrek ........... 206,400 (3) 130,600 --
Jon Sherburne .............. 67,200 (4) 100,800 --
</TABLE>
- ------------
(1) Value is based on the difference between the option exercise price and the
initial public offering price of the common stock multiplied by the number
of shares of common stock underlying the option. No market existed for the
common stock prior to this offering. Assumed offering price of $ ;
exercise price is $ .
(2) Options granted under the 1996 Stock Option Plan are generally immediately
exercisable, but subject to a right of repurchase pursuant to the vesting
schedule of each such grant. Accordingly, the table reflects those options
that are exercisable and not vested.
(3) Includes 114,275 shares which are subject to repurchase by Maker pursuant
to stock repurchase agreements.
(4) Includes 33,600 shares which are subject to repurchase by Maker pursuant to
stock repurchase agreements.
Benefit Plans
1996 Stock Option Plan
The 1996 Stock Option Plan (1996 Plan) provides for the granting of
incentive stock options and non-qualified options defined in Section 422 of the
Internal Revenue Code to Maker's employees. The 1996 Plan is administered by
Maker's Board of Directors. The Board (a) interprets and applies the 1996 Plan,
(b) determines the eligibility of an individual to participate in the 1996
Plan, (c) approves the assignment of options immediately prior to the
registration of Maker's stock pursuant to the Securities Exchange Act of 1934,
as amended, if such assignment would increase the number of common stockholders
and (d) determines and allocates the cancellation or exchange of outstanding
options in the case of a recapitalization, acquisition, merger or change in
control. No options may be granted to an employee who, at the time of the
grant, owns more than 10% of the voting power or greater than 10% of each class
of Maker's outstanding stock, unless the purchase price of the stock is not
less than 110% of the stock's fair market value on the date of the grant and
the option, by its terms, shall not be exercisable more than five years from
the date it is granted.
Maker has authorized the issuance of options for up to 3,876,000 shares of
common stock. Vested options may be exercised in full at one time or in part
from time to time and the payment of the exercise price may be made by delivery
of (a) cash or a check payable to the order of Maker in an amount equal to the
exercise price of such options, (b) shares of Maker's common stock owned by the
optionee having a fair market value equal in amount to the exercise price of
the options being exercised, (c) the cancellation of shares covered by this
option which are then vested and exercisable having a fair market value equal
in amount to the purchase price of the shares being purchased, (d) any
combination of (a), (b), (c) and (d); provided, however, that payment of the
exercise price by delivery of shares of common stock owned by such optionee or
cancellation of shares covered by the option may be made only with the consent
of the Board if such payment results in a charge to earnings for financial
accounting purposes as determined by the Board. Maker may delay the issuance of
shares covered by the exercise of an option until (a) the shares for which such
option has been exercised have been registered or qualified under the
applicable federal or state securities laws or (b) counsel for Maker has opined
that such shares are exempt from the registration requirements of such federal
or state securities laws.
35
Management
<PAGE>
Under the 1996, Plan, at the option of the board of directors, certain
options granted may be immediately exercisable but subject to a right
repurchase pursuant to the vesting schedule of each such grant.
The term of any option granted under the Plan shall be limited to ten
years. Upon the termination of an optionholder's employment with Maker, such
options shall terminate between 30 and 180 days after that optionholder leaves
the employ of Maker.
As of December 31, 1998, 2,618,250 options were outstanding under the
Plan. Options granted vest over a term established by the board of directors at
the date of grant. In addition, upon a change in control of Maker, the
exercisability of options due to vest during the following twelve month period
are automatically accelerated. The outstanding options have an exercise price
ranging from $0.05 to $3.75 per share.
1999 Director Option Plan
The 1999 Director Option Plan (Director Plan) provides for the grant of
nonstatutory stock options to non-employee directors. The director plan has a
term of ten years, unless terminated sooner by the board of directors. A total
of 85,000 shares of common stock have been reserved for issuance under the
Director Plan, plus annual increases equal to (a) the number of shares of stock
underlying options granted under the director plan in the immediately preceding
year, or (b) a lesser amount determined by the board of directors.
The Director Plan provides that each non-employee director will
automatically be granted an option to purchase 20,000 shares of common stock on
the date which such person first becomes a non-employee director, unless
immediately prior to becoming a non-employee director, such person was an
employee director of Maker. In addition to this option, each non-employee
director will automatically be granted an option to purchase 15,000 shares on
the date two days after Maker announces its fiscal year-end earnings of each
year, if on such date he or she will have served on the board of directors for
at least the preceding six months. The term of each option shall not exceed ten
years and such shares will vest as determined by the board at the time of
grant. In addition, upon a change in control of Maker, all unvested options
shall immediately vest.
The exercise price of each option is 100% of the fair market value per
share of the common stock, generally determined with reference to the closing
price of the common stock as reported on the Nasdaq National Market on the last
trading day prior to the date of grant. In the event of a merger of Maker or
the sale of substantially all of its assets, each outstanding option may be
assumed or an equivalent option substituted for by the successor corporation.
Options granted under the director plan must be exercised within three months
of the end of the optionee's tenure as a director of Maker, or within 12 months
after such director's termination by death or disability, but in no event later
than the expiration of the option's term. No option granted under the director
plan is transferable by the optionee other than by will or the laws of descent
and distribution, and each option is exercisable, during the lifetime of the
optionee, only by such optionee.
1999 Incentive Stock Plan
Maker's 1999 Incentive Stock Plan (1999 Incentive Plan) permits the grant
of stock options, which may be either incentive stock or nonqualified options
and stock awards. The maximum number of shares of Maker's common stock
available for stock options and stock awards granted under the 1999 Incentive
Plan is subject to adjustment for capital changes.
At the discretion of Maker's Board of Directors, the 1999 Incentive Plan
is administered either by the full Board of Directors of Maker or by a
committee consisting of two or more members of Maker's Board of Directors. The
committee has the authority to adopt, amend and rescind such rules and
regulations as, in its opinion, may be advisable in the administration of the
1999 Incentive Plan.
Options designated as incentive stock options may be granted only to
employees of Maker or any subsidiary. Non-qualified options may be granted to
any officer, employee, consultant or director of Maker or any of its
subsidiaries. No option designated as an incentive stock option shall be
granted to any employee of Maker or any subsidiary if such employee owns,
immediately prior to the grant of an option, stock representing more than 10%
of the combined voting power of all classes of stock of Maker or a parent or a
subsidiary, unless the purchase price for the stock under such option is at
least 110% of
36
Management
<PAGE>
its fair market value at the time the option is granted and the option, by its
terms is not exercisable more than five years from the date it is granted.
The maximum number of shares of Maker's common stock with respect to which
an option or options may be granted to any employee in any calendar year shall
not exceed 250,000 shares, taking into account shares subject to options
granted and terminated, or repriced, during such calendar year. Options granted
under the 1999 Incentive Plan will vest as determined by the Board of Directors
or the Committee. Upon a change in control of Maker, the exercisability of
options due to vest during the twelve month period are automatically
accelerated.
The right of any optionee to exercise an option granted to him or her
shall not be assignable or transferable by the optionee other than by will or
the laws of descent and distribution, except that an optionee may transfer
options that are not incentive stock options to the optionee's spouse or
children or to a trust for the benefit of the optionee or the optionee's spouse
or children. Incentive stock options are exercisable during the lifetime of the
optionee only by the optionee.
An option granted to any employee optionee who ceases to be an employee of
Maker or one of its subsidiaries shall terminate on the last day of the month
in which such optionee ceases to be an employee of Maker or one of its
subsidiaries. If such termination of employment is because of dismissal for
cause or because the employee is in breach of any employment agreement, such an
option will terminate immediately on the date the optionee ceases to be an
employee of Maker or one of its subsidiaries. If such termination of employment
is because the optionee has become permanently disabled, the option shall
terminate on the last day of the twelfth month from the date such optionee
ceases to be an employee. In the event of the death of the optionee, the option
shall terminate on the last day of the twelfth month from the date of death. In
no event shall an option be exercisable after the date upon which it expires by
its terms.
An option granted to an employee optionee who ceases to be an employee of
Maker or one of its subsidiaries shall be exercisable only to the extent that
the right to purchase shares under such option has accrued and is in effect on
the date such optionee ceases to be an employee of Maker or one of its
subsidiaries. In the event of the death of any optionee, the option granted to
such optionee may be exercised by the estate of such optionee, or by any person
or persons who acquired the right to exercise such option by bequest or
inheritance or by reason of the death of such optionee.
The Committee may grant, subject to the limitation on the number of shares
of common stock available under the plan, stock awards to employees of and
other key individuals engaged to provide services to Maker and its
subsidiaries. A stock award may be made in stock or denominated in stock
subject to final settlement in cash or stock. Each stock award granted will be
subject to such terms and conditions as the Committee, in its sole discretion,
shall determine and establish.
1999 Employee Stock Purchase Plan
The Maker 1999 Employee Stock Purchase Plan (the "Stock Purchase Plan") is
intended to provide a means whereby eligible employees may purchase common
stock of Maker through payroll deductions. shares of the
common stock of Maker may be issued pursuant to the Stock Purchase Plan.
All persons employed by Maker and any subsidiaries are eligible to
participate in the Stock Purchase Plan, except (a) persons whose customary
employment is less than twenty hours per week or five months or less per year;
and (b) persons who have been employed by Maker for less than three months on
the first day of the purchase period, with the exception of persons previously
eligible. In addition, persons who are deemed for purposes of Section 423(b)(3)
of the Code, to own stock possessing 5% or more of the total combined voting
power or value of all classes of stock of Maker or a subsidiary are ineligible
to participate in the Stock Purchase Plan. Employment will be treated as
continuing intact while a participating employee is on military leave or other
bona fide leave of absence, for up to 90 days or for so long as such employee's
right to re-employment is guaranteed by statute or contract, if longer than 90
days.
The Stock Purchase Plan shall be administered by the Board of Directors or
the Committee appointed from time to time by the Board of Directors. Committee
members shall be ineligible to participate under the Stock Purchase Plan. All
members of the Committee shall serve at the discretion of the Board. The Board
of Directors or the Committee, if one has been appointed, is vested with full
37
Management
<PAGE>
authority to make, administer and interpret such equitable rules and
regulations regarding the Stock Purchase Plan as it may deem advisable.
Determinations by the Board of Directors, or the Committee, as to the
interpretation and operation of the Stock Purchase Plan shall be final and
conclusive.
There shall be four purchase periods within each full calendar year, with
each commencing on the first day of each calendar quarter and continuing
through the final day of such calendar quarter, the initial purchase period
shall begin on such date as is determined by Maker's board of directors. The
participating employee authorizes regular payroll deductions amounting to a
full percentage of the participant's regular compensation as the participant
shall designate. Such payroll deductions cannot amount to less than one percent
(1%) nor more than ten percent (10%) of the participant's regular compensation
and cannot exceed $25,000 per year.
All sums deducted from the regular compensation of participants will be
credited to a stock purchase account established for each participant on the
books of Maker, but prior to use of such funds for the purchase of shares of
Maker's common stock in accordance with the Stock Purchase Plan, Maker may use
such funds for any valid corporate purpose. Maker is under no obligation to pay
interest on funds credited to a participant's stock purchase account in any
event.
The purchase price of shares of Maker common stock under the Stock
Purchase Plan is the lower of (i) eighty-five percent (85%) of the fair market
value of a share of common stock for the first business day of the relevant
purchase period, or (ii) eighty-five percent (85%) of such value for the
relevant exercise date. The fair market value on a given day is the mean
between the high and low sales prices of a share of common stock of the Company
on the Nasdaq National Market. Each participating employee receives an option,
effective on the first day of the purchase period, to purchase shares of common
stock on the exercise date, which is the last business day of the purchase
period. The number of shares which a participant may purchase under the option
is the quotient of the aggregate payroll deductions in the purchase period
authorized by the participant, divided by the purchase price. No employee can
be granted an option under the Stock Purchase Plan to purchase shares of
Maker's common stock having a fair market value (as of the date the option to
purchase is granted) in any one calendar year of in excess of $25,000. No
employee can be granted an option in one purchase period for more than 1,000
shares, or such other number of shares as determined from time to time by the
Board or the Committee, as the case may be.
Upon dissolution or liquidation of Maker or a merger or consolidation in
which Maker is not the surviving entity, every option outstanding under the
Stock Purchase Plan shall terminate, and each participant shall be refunded the
sums then in his account.
Upon the participant's death or other termination of employment, his
participation in the Stock Purchase Plan shall cease and the entire balance
credited to his account under the Stock Purchase Plan shall be automatically
refunded to him, or (in the event of death) to the participant's designated
beneficiary, if any, under a group insurance plan of Maker covering him, or
otherwise to his estate. The right to purchase shares of common stock under the
Stock Purchase Plan is exercisable only by the participant during his lifetime
and is not transferable by him. The grant of an option under the Stock Purchase
Plan does not imply any right to continued employment with Maker for any
participant.
Limitation of Liability; Indemnification of Directors and Officers
As permitted by the Delaware General Corporation Law, Maker has included
in its Certificate of Incorporation a provision to eliminate the personal
liability of its directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors, subject to certain exceptions. In
addition, the bylaws of Maker provide that Maker is required to indemnify its
officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary, and
Maker is required to advance expenses to its officers and directors as incurred
in connection with proceedings against them for which they may be indemnified.
Maker has also agreed to indemnify its directors to the maximum extent
permitted by Delaware law pursuant to agreements with such directors and
officers. At present, Maker is not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or agent of
Maker in which indemnification would be required or permitted. Maker believes
that its charter provisions and indemnification agreements are necessary to
attract and retain qualified persons as directors and officers.
38
Management
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of Maker's common stock as of March 1, 1999, and as adjusted to
reflect the sale of the common stock offered hereby by: (a) each person who is
known by Maker to own beneficially more than 5% of the outstanding shares of
common stock; (b) each of Maker's directors; (c) each Named Executive Officer
and (d) all directors and executive officers as a group. Except as otherwise
specified below, the persons named in the table below have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
Amount and Nature of Shares Beneficially Owned
as of March 1, 1999
- ----------------------------------------------------------------------------------------------
Percent of Total
Outstanding Shares
Shares of Beneficially Owned (1)
Common Stock ----------------------------
Beneficially Before the After the
Name Owned (1) Offering Offering
- ------------------------------------------------- -------------- ------------ ----------
<S> <C> <C> <C>
William N. Giudice (2) .......................... 1,753,112 12.2%
Paul Bergantino (3) ............................. 1,382,619 9.8
Michael Rubino (4) .............................. 180,000 1.3
Thomas J. Medrek (5) ............................ 337,000 2.4
Jon Sherburne (6) ............................... 168,000 1.2
Louis Tomasetta (7) ............................. 112,531 *
Greylock Equity Limited Partnership ............. 2,643,378 19.1
Roger Evans (8) ................................. 2,666,878 19.2
Bessemer Venture Partners (9) ................... 2,643,379 19.1
Rob Soni (10) ................................... 2,666,879 19.2
Technologies for Information and
Entertainment (11) ............................. 662,124 4.8
Level One Communications (12) ................... 1,209,103 8.7
Norwest Venture Partners VI (13) ................ 1,471,140 10.6
Weiss, Peck & Greer (14) ........................ 1,471,140 10.6
All directors and officers as a group (9 persons)
(2) (3) (4) (5) (6) (7) (8) (10) (15) .......... 9,517,019 62.4%
</TABLE>
- ------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes general voting power or
investment power with respect to securities. Shares of common stock subject
to options and warrants currently exercisable or exercisable within sixty
(60) days of March 1, 1999 are deemed outstanding for computing the
percentage of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person. Except as
otherwise specified below, the persons named in the table above have sole
voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. Unless otherwise indicated, the
address of each of the beneficial owners identified is 73 Mount Wayte
Avenue, Framingham, MA 01702.
(2) Includes 510,000 shares of common stock issuable upon exercise of
immediately exercisable options which are subject to repurchase by Maker.
Also includes 197,234 shares owned by Tecumseh Limited Partnership-I of
which Mr. Giudice is the general partner.
(3) Includes 260,000 shares of common stock issuable upon exercise of
immediately exercisable options which are subject to repurchase by Maker.
(4) Includes 20,000 shares exercised by Mr. Rubino which are subject to
repurchase by Maker and 160,000 shares of common stock issuable upon
exercise of immediately exercisable options which are subject to repurchase
by Maker.
(5) Includes 271,700 shares exercised by Mr. Medrek, of which 146,925 shares
are subject to repurchase by Maker. Also includes 65,300 shares of common
stock issuable upon exercise of immediately exercisable options which are
subject to repurchase by Maker.
(6) Includes 67,200 shares exercised by Mr. Sherburne, of which 16,800 shares
are subject to repurchase by Maker. Also includes 100,800 shares of common
stock issuable upon exercise of immediately exercisable options which are
subject to repurchase by Maker.
(7) Includes 14,500 shares exercised by Dr. Tomasetta, of which 11,750 shares
are subject to repurchase by Maker. Also includes 20,000 shares of common
stock issuable upon exercise of immediately exercisable options.
39
Principal Shareholders
<PAGE>
(8) Includes shares owned by Greylock Equity Limited Partnership as indicated
above. Also includes 3,500 shares of common stock issuable to Mr. Evans
upon exercise of immediately exercisable options which are subject to
repurchase by Maker. Also includes 20,000 shares of common stock issuable
to Mr. Evans upon exercise of immediately exercisable options. Mr. Evans, a
general partner of Greylock Equity GP Limited Partnership, the General
Partner of Greylock Equity Limited Partnership, is a director of Maker. Mr.
Evans, together with the other general partners of Greylock Equity Limited
Partnership, shares voting and investment power with respect to the shares
owned by Greylock Equity Limited Partnership. Mr. Evans disclaims any
beneficial ownership of the shares held by Greylock Equity Limited
Partnership except as to his proportionate partnership interest therein.
The address for Mr. Evans and Greylock Equity Limited Partnership is
Greylock Management Corporation, 755 Page Hill Road, Suite A-100, Palo
Alto, CA 94304.
(9) Shares attributed to Bessemer Venture Partners include holdings of three
major partnerships--Bessemer Venture Partners IV L.P. (1,078,470 shares),
Bessec Ventures IV L.P. (1,078,472 shares), and BVP IV Special Situations
L.P. (98,542 shares), whose general partner is Deer IV & Co. LLC. The sole
limited partner of Bessemer Venture Partners IV L.P. and Bessec Ventures IV
L.P. is Bessemer Securities, LLC, or its subsidiaries; the limited partners
of BVP IV Special Situations are non-employee directors of Bessemer
Securities Corporation. Also reflected in the Bessemer Venture Partner
shares are 340,398 shares owned by members of Deer IV and employees or
former employees of Deer II & Co. LLC, a general partner of a predecessor
fund similar to BVP IV. Also reflected in the Bessemer Venture Partner
Shares are 47,497 shares owned by senior employees, former employees, or
family partnerships of such persons, of Bessemer Securities Corporation.
Under certain circumstances, Bessemer Venture Partners IV L.P. can direct
their voting on corporate matters. The address for Bessemer Venture
Partners is 1400 Old Country Road, Suite 407, Westbury, NY 11590.
(10) Includes 3,500 shares of common stock issuable to Mr. Soni upon exercise of
immediately exercisable options which are subject to repurchase by Maker.
Also includes 20,000 shares of common stock issuable to Mr. Soni upon
exercise of immediately exercisable options. Also includes 2,643,379 shares
attributed to Bessemer Venture Partners above. Of these 2,643,379 shares,
10,352 shares are owned by Mr. Soni individually. Mr. Soni is a director of
Maker and a member of Deer IV, the general partner of Bessemer Venture
Partners IV L.P., Bessec Ventures IV L.P, and BVP IV Special Situations
L.P. Mr. Soni disclaims beneficial ownership of the shares held by the
three partnerships, except to the extent of his proportionate partnership
interests therein. The address for Mr. Soni is Bessemer Venture Partners,
83 Walnut Street, Wellesley Hills, MA 02181.
(11) The address for Technologies for Information and Entertainment is c/o
Applied Technologies, One Cranberry Hill, Lexington, MA 02173.
(12) The address for Level One Communications is 9750 Goethe Road, Sacramento,
CA 95827.
(13) The address for Norwest Venture Partners VI is 40 William Street, Suite
305, Wellesley, MA 02181.
(14) Includes shares held by WPG Enterprise Fund III, L.L.C. (638,598 shares),
Weiss, Peck & Greer Venture Associates IV, L.L.C. (711,101 shares), WPG
Information Sciences Entrepreneur Fund, L.P. (29,285 shares) and Weiss Peck
and Greer Venture Associates IV Cayman, L.P. (92,156 shares). WPG VC Fund
Adviser, L.L.C. is the Fund Investment Advisory Member of WPG Enterprise
Fund III, L.L.C. and Weiss, Peck & Greer Venture Associates IV, L.L.C., and
the General Partner of WPG Information Sciences Entrepreneur Fund, L.P. The
Managing Members of WPG VC Fund Adviser L.L.C. have shared voting power
over the funds named herein. Barry Eggers is a Managing Member of WPG VC
Fund Adviser, L.L.C., the Fund Investment Advisory Member of WPG Enterprise
Fund III, L.L.C. and Weiss, Peck & Greer Venture Associates IV, L.L.C., and
the General Partner of WPG Information Sciences Entrepreneur Fund, L.P. Mr.
Eggers disclaims any beneficial ownership of the shares held by the above
mentioned funds except to the extent of his proportionate interests
therein. The address for Weiss, Peck and Greer is 555 California Street,
Suite 3130, San Francisco, CA 94194.
(15) Includes 250,000 shares of common stock issuable to an additional executive
officer upon exercise of immediately exercisable options which are subject
to repurchase by Maker.
40
Principal Shareholders
<PAGE>
CERTAIN TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS
AND PRINCIPAL SHAREHOLDERS
Registration Rights Agreement
The registration rights agreement among certain of the existing
stockholders of Maker provides that such stockholders may require Maker to
effect the registration of shares of common stock held by such stockholders for
sale to the public on three occasions on the earlier of December 31, 1999 or
six months following an initial public offering of Maker's common stock,
subject to certain limitations. In addition, under the terms of the
registration rights agreement, if Maker proposes to register any of its shares
under the Securities Act, whether for its own account or otherwise, any holders
of Maker's registrable shares party to the registration rights agreement are
entitled to notice of such registration and are entitled to include their
shares therein, subject to certain conditions and limitations. The holders of
registrable shares have waived their right to include their shares in this
prospectus. All fees, costs, and expenses (other than underwriting discounts
and commissions transfer taxes and attorneys' fees) of any registration
effected pursuant to the registration rights agreement will be paid by Maker.
Issuance of Preferred Stock
During the years 1997 through 1999, Maker issued shares of its Class B
Convertible Preferred Stock and Class C Convertible Preferred Stock to certain
investors. These investors included Maker's directors, officers and significant
existing stockholders. Such persons received no extra or shared benefit not
shared on a pro rata basis with the other shareholders.
Severance Agreement with Michael Rubino
Maker has entered into a letter agreement with Mr. Rubino which provides
that in the event that his employment is terminated following a change of
control for any reason other than for cause, he will be entitled to receive six
months notice, or six months salary in lieu of such notice. Additionally, upon
a change of control, all unvested options held by Mr. Rubino will vest
immediately.
Other Transactions with Management
Compensation and Benefits
Maker's executive officers receive compensation, bonuses and other
benefits under various employee benefit plan arrangements maintained by Maker
and its subsidiaries. The executive officers participate in such benefit plans
under the same terms generally made available to other similarly situated
employees of Maker or its subsidiaries with similar responsibilities and levels
of compensation.
Indemnification Agreements
Maker has entered into Indemnification Agreements with each of its
directors. See "Management--
Limitation of Liability; Indemnification of Directors and Officers".
41
Certain Transactions With
Executive Officers, Directors and Principal Shareholders
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the offering, the authorized capital stock of Maker
will consist of shares of common stock, $.01 par value per share, of
which shares will be outstanding, and 1,000,000 shares of preferred
stock, $.01 par value per share, none of which will be outstanding. The
following description of the capital stock of Maker and certain provisions of
Maker's Amended and Restated Certificate of Incorporation and Bylaws is a
summary and is qualified in its entirety by the provisions of the Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws which
will be adopted by Maker prior to the consummation of the offering, copies of
which have been filed as exhibits to Maker's Registration Statement of which
this prospectus is a part. The following summary assumes the filing of Maker's
Amended and Restated Certificate of Incorporation.
Common Stock
Holders of common stock are entitled to one vote for each share held on
all matters submitted to a vote of the stockholders, including the election of
directors. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The Certificate of Incorporation
does not provide for cumulative voting for the election of directors. Holders
of common stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the board of directors out of funds legally
available therefor, and shall be entitled to receive, pro rata, all assets of
Maker available for distribution to such holders upon liquidation. Holders of
common stock have no preemptive, subscription or redemption rights.
Preferred Stock
Maker is authorized to issue "blank check" preferred stock, which may be
issued from time to time in one or more series upon authorization by Maker's
board of directors. The board of directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
and any other rights, preferences, privileges and restrictions applicable to
each series of the preferred stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things, adversely affect the voting power
of the holders of common stock and, under certain circumstances, make it more
difficult for a third party to gain control of Maker, discourage bids for
Maker's common stock at a premium or otherwise adversely affect the market
price of the common stock. Maker currently has no plans to issue any preferred
stock.
Certain Certificate of Incorporation, Bylaw and Statutory Anti-Takeover
Provisions Affecting Stockholders
Classified Board
Maker's board of directors is divided into two classes, each of which,
after a transitional period, will serve for two years, with one class being
elected each year. Removal of a member of the board of directors with or
without cause requires a majority vote of the board of directors or of the
stockholders. A majority of the remaining directors then in office, though less
than a quorum, or the stockholders, are empowered to fill any vacancy on the
board of directors. A majority vote of the stockholders is required to alter,
amend or repeal the foregoing provisions.
Section 203 of Delaware General Corporation Law
Maker is subject to the "business combination" statute of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in various "business combination"
transactions with any "interested shareholder" for a period of three years
after the date of the transaction in which the person became an "interested
shareholder," unless (a) the transaction is approved by the board of directors
prior to the date the interested shareholder obtained such status, (b) upon
consummation of the transaction which resulted in the shareholder becoming an
"interested shareholder," the "interested shareholder" owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining
42
Description of Capital Stock
<PAGE>
the number of shares outstanding those shares owned by persons who are
directors and also officers and employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or (c)
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 by the affirmative vote of at least 662/3% of the outstanding
voting stock which is not owned by the "interested shareholder." A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to a shareholder. An "interested shareholder" is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of a corporation's voting stock. By virtue of Maker's decision
not to elect out of the statute's provisions, the statute applies to Maker. No
current stockholders of Maker are "interested stockholders" because their
acquisition of shares was approved by Maker's board of directors. The statute
could prohibit or delay the accomplishment of mergers or other takeover or
change in control attempts with respect to Maker and, accordingly, may
discourage attempts to acquire Maker.
Director Liability
The Certificate of Incorporation provides that no director shall be
personally liable to Maker or its stockholders for monetary damages for breach
of fiduciary duty as a director notwithstanding any provision of law imposing
such liability, provided that, to the extent provided by applicable law, the
Certificate of Incorporation shall not eliminate the liability of a director
for (a) any breach of the director's duty of loyalty to Maker or its
stockholders; (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (c) acts or omissions in
respect of certain unlawful dividend payments or stock redemptions or
repurchases; or (d) any transaction from which such director derives improper
personal benefit. The effect of this provision is to eliminate the rights of
Maker and its stockholders (through stockholders' derivative suits on behalf of
Maker) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (a) through (d) above. The limitations summarized above, however, do
not affect the ability of Maker or its stockholders to seek non-monetary based
remedies, such as an injunction or rescission, against a director for breach of
his fiduciary duty nor would such limitations limit liability under the Federal
securities laws. Maker's Bylaws provide that Maker shall, to the extent
permitted by Delaware General Corporation Law, as amended from time to time,
indemnify and advance expenses to the currently acting and former directors,
officers, employees and agents of Maker or of another corporation, partnership,
joint venture, trust or other enterprise if serving at the request of Maker
arising in connection with their acting in such capacities.
Certain provisions described above may also have the effect of delaying
stockholder actions with respect to certain business combinations and the
election of new members to the board of directors. As such, the provisions
could have the effect of discouraging open market purchases of Maker's common
stock.
Registration Rights of Certain Holders
Under the terms of the registration rights agreement, if Maker proposes to
register any of its securities under the Securities Act following this
offering, whether for its own account or otherwise, holders of approximately
million shares of common stock are entitled to notice of such registration
and are entitled to include their shares therein, subject to certain conditions
and limitations. The holders of registrable shares also may require Maker to
effect the registration of their "registrable shares" for sale to the public,
subject to certain conditions and limitations. See "Certain
Transactions--Registration Rights Agreement."
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is , of
43
Description of Capital Stock
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Maker will have outstanding
shares of common stock, assuming no exercise of options after December 31,
1998. Of these shares, the shares offered hereby ( shares if the
underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of Maker as that term is defined in Rule 144
described below. The remaining shares of common stock outstanding upon
closing of the offering are "restricted securities" as that term is defined in
Rule 144. Of the remaining shares, shares are subject to lock-up
agreements (described below).
Beginning 90 days after commencement of the offering, approximately
shares will become eligible for sale pursuant to Rule 144 or Rule 701
under the Securities Act ("Rule 701"). Upon expiration of restricted periods
set forth in the lock-up agreements, an aggregate of shares will become
immediately eligible for sale subject to the timing, volume, and manner of sale
restrictions of Rule 144. Commencing , 1999, all outstanding shares not
owned by affiliates of Maker (currently shares) will be freely eligible
for sale pursuant to Rule 144(k). In addition, additional shares of
common stock subject to outstanding vested stock options and shares that
may be issued upon conversion of a convertible note could also be sold, subject
in some cases to compliance with certain volume and other limitations as
described below.
In general, under Rule 144, as amended, a person (or persons whose shares
are aggregated) who has beneficially owned shares for at least one year
(including the holding period of any prior owner except an affiliate from whom
such shares were purchased) is entitled to sell in "brokers' transactions" or
to market makers, within any three-month period commencing 90 days after the
date of this prospectus, a number of shares that does not exceed the greater of
(a) one percent of the number of shares of common stock then outstanding
(approximately shares immediately after the completion of the offering)
or (b) generally, the average weekly trading volume in the common stock during
the four calendar weeks preceding the required filing of a Form 144 with
respect to such sale. Sales under Rule 144 are generally subject to the
availability of current public information about Maker. Under Rule 144(k), a
person who is not deemed to have been an affiliate of Maker at any time during
the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of any
prior owner other than an affiliate from whom such shares were purchased), is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144. Under
Rule 701, persons who purchase shares upon exercise of options granted prior to
the effective date of the offering are entitled to sell such shares 90 days
after the effective date of the offering in reliance on Rule 144, without
having to comply with the holding period requirements of Rule 144 and, in the
case of non-affiliates, without having to comply with the public information,
volume limitation or notice provisions of Rule 144.
Pursuant to the lock-up agreements, all of Maker's officers and directors
and certain stockholders owning upon completion of the offering, in the
aggregate, approximately shares of common stock, have executed
agreements pursuant to which each has agreed that they will not, directly or
indirectly, offer, pledge, sell or otherwise transfer or dispose of any shares
of common stock or any securities convertible into, or exercisable or
exchangeable for, any shares of common stock or enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any common stock without the prior written
consent of Lehman Brothers Inc. for a period of 150 days subsequent to the date
of this prospectus. Two thirds of such shares shall remain subject to this
lock-up for a period of 180 days subsequent to the date of this prospectus and
one third of such shares shall be subject to this lock-up for a period of 210
days subsequent to the date of this prospectus. Further, holders of outstanding
vested stock options for, in the aggregate, an additional shares of
common stock are subject to these lock-up agreements . Maker has agreed
that it will not, for a period of 180 days from the date of this prospectus,
directly or indirectly, offer, 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, any shares of
common stock, or enter into any swap or other arrangement that transfers all or
a portion of the
44
Shares Eligible for Future Sale
<PAGE>
economic consequences without the prior written consent of Lehman Brothers
Inc., except that such agreement does not prevent Maker from granting
additional options under Maker's existing stock option plans or from issuing
shares pursuant to its stock option and purchase plans. Lehman Brothers may in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements.
The holders of an aggregate of shares of common stock or their
transferees are entitled to certain rights with respect to the registration of
such shares under the Securities Act. See "Description of Capital
Stock-Registration Rights of Certain Holders" and "Certain
Transactions--Registration Rights Agreement."
Prior to this offering, there has not been any public market for the
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the prevailing market prices and impair Maker's
ability to raise capital through the sale of equity securities. See "Risk
Factors--Our Common Stock Has Never Been Publicly Traded."
45
Shares Eligible for Future Sale
<PAGE>
UNDERWRITING
Each underwriter named below has agreed to purchase from Maker the number
of shares of common stock set forth opposite its name.
<TABLE>
<CAPTION>
Underwriters Number of Shares
- ----------------------------------------------- -----------------
<S> <C>
Lehman Brothers Inc. ..........................
BT Alex. Brown Incorporated ...................
NationsBanc Montgomery Securities LLC .........
-----------------
Total ........................................
=================
</TABLE>
The underwriters will purchase the shares pursuant to an underwriting
agreement with Maker. The underwriters will pay Maker the public offering price
less the underwriting discount specified on the cover page of this prospectus.
Maker estimates that its expenses for this offering will be $ . Certain
conditions contained in the underwriting agreement must be satisfied before the
underwriters are required to purchase the shares. The underwriters will
purchase either all of the shares or none of them.
The underwriters have advised Maker that they will offer the shares
directly to the public initially at the public offering price and to certain
selected dealers, who may include underwriters, at the public offering price
less a selling concession not to exceed $ per share. The underwriters may
allow, and these dealers may reallow, a concession not to exceed $ per share
to certain brokers and dealers. After the initial offering of the shares, the
underwriters may change the public offering price and other selling terms.
The underwriters will offer the shares subject to prior sale, withdrawal,
cancellation or modification of the offer of the shares without notice, and to
their receipt and acceptance of the shares. The underwriters may reject any
order to purchase shares.
Maker has granted the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to additional
shares at the public offering price less the underwriting discount specified on
the cover page of this prospectus. To the extent that the underwriters exercise
this option, each of the underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by it shown in the above table bears to
shares, and Maker will be obligated to sell such shares to the
underwriters. The underwriters may exercise such option only to cover
over-allotments. If the underwriters exercise their option in full, the total
public offering price will be $ , the total underwriting discount will be
$ , and the total proceeds to Maker will be $ , before expenses.
Maker, each of the officers and directors of Maker, and certain
shareholders of Maker, have agreed, subject to certain exceptions, not to
offer, sell or otherwise dispose of any shares of common stock, directly or
indirectly, or engage in certain hedging transactions with respect to the
common stock, for a period of (a) 210 days with respect to one-third of the
shares, (b) 180 days with respect to two-thirds of the shares and (c) 150 days
with respect to all shares, in each case after the date of this prospectus,
without the prior written consent of Lehman Brothers Inc. Stockholders who have
agreed to this lock-up arrangement hold an aggregate of shares of
common stock and options to purchase an aggregate of shares of common
stock. Lehman Brothers Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the shares subject to such lock-up
agreements. See "Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated by the
underwriters and Maker. The underwriters will consider, among other things and
in addition to prevailing market conditions, Maker's historical performance and
capital structure, estimates of business potential and earning prospects, an
overall assessment of Maker's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
46
Underwriting
<PAGE>
Application has been made to have the common stock approved for quotation
on the Nasdaq National Market under the symbol "MAKR."
Maker has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute,
under certain circumstances, to payments that the underwriters may be required
to make in respect thereof.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and certain selling group members to bid for and purchase shares of common
stock. As an exception to these rules, the underwriters are permitted to engage
in certain transactions that stabilize the price of the common stock. Such
transactions may consist of bids or purchases for the purposes of pegging,
fixing or maintaining the price of the common stock.
If the underwriters create a short position in the common stock in
connection with this offering (i.e., they sell more shares than are set forth
on the cover page of this prospectus), the representatives may reduce that
short position by purchasing common stock in the open market. The underwriters
also may elect to reduce any short position by exercising all or part of their
over-allotment option.
The underwriters also may impose a penalty bid on certain underwriters and
selling group members. This means that if the underwriters purchase shares of
common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither Maker nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
Maker nor any of the underwriters makes any representation that the
underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Any offers in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
such sale is made.
Purchasers of the shares of common stock offered by this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the public offering price.
The underwriters have informed Maker that they do not intend to confirm
sales of shares of common stock to any accounts over which they exercise
discretionary authority in excess of 5% of the shares offered by them.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Maker by Hutchins, Wheeler & Dittmar, A Professional Corporation,
Boston, Massachusetts. Richard M. Stein and Robert P. Sherman, each a
Stockholder of Hutchins, Wheeler & Dittmar, own an aggregate of 15,132 shares
of common stock of Maker. Richard M. Stein is also the Assistant Secretary of
Maker. Certain legal matters in connection with the offering will be passed
upon for the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The consolidated financial statements of Maker Communications, Inc. as of
December 31, 1997 and 1998 and for each of the three years in the period ending
December 31, 1998 included in this Prospectus and Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
47
Underwriting/Legal Matters/Experts
<PAGE>
ADDITIONAL INFORMATION
Maker has filed with the SEC 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 Maker and the common stock, reference is hereby
made to the Registration Statement and to 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 may be inspected by anyone without charge at the SEC's principal
office in Washington, D.C., and copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of certain fees
prescribed by the SEC. The SEC maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the website
is http://www.sec.gov.
Upon completion of the offering, Maker will be subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended, and,
in accordance therewith, will file reports, proxy statements and other
information with the SEC.
Maker intends to furnish its stockholders with annual reports containing
financial statements audited by Maker's independent public accountants and
quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited interim financial information.
48
Additional Information
<PAGE>
MAKER COMMUNICATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Public Accountants .................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 ................ F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998 ........................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended
December 31, 1996, 1997 and 1998 ........................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 ........................................... F-6
Notes to Consolidated Financial Statements .................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Maker Communications, Inc. and subsidiary:
We have audited the accompanying consolidated balance sheets of Maker
Communications, Inc. (a Delaware corporation) and subsidiary as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of Maker Communications Inc.'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 financial position of Maker
Communications, Inc. and subsidiary as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN, LLP
ARTHUR ANDERSEN, LLP
Boston, Massachusetts
February 10, 1999
F-2
<PAGE>
Maker Communications, Inc. and Subsidiary
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998
Pro forma
1997 1998 (Note 2)
---------- ------------ ---------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ....................................... $ 10,865 $ 13,615 $ 14,065
Accounts receivable, net of reserve of $90,000 at December 31,
1998 and pro forma December 31, 1998 ........................... 330 932 932
Inventory ....................................................... 150 296 296
Prepaid expenses and other current assets ....................... 250 106 106
-------- --------- ------------
Total current assets ........................................... 11,595 14,949 15,399
Property and equipment, less accumulated depreciation
and amortization ................................................. 703 952 952
-------- --------- ------------
Other assets ...................................................... 99 56 56
-------- --------- ------------
Total assets ................................................... $ 12,397 $ 15,957 $ 16,407
======== ========= ============
Liabilities, Redeemable Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of note payable to a bank ....................... $ 145 $ 308 $ 308
Accounts payable ................................................ 203 412 412
Accrued expenses ................................................ 544 1,820 1,820
Deferred revenue ................................................ 54 181 181
-------- --------- ------------
Total current liabilities ...................................... 946 2,721 2,721
-------- --------- ------------
Note payable to a bank, less current portion ...................... 290 642 642
-------- --------- ------------
Convertible note payable (Note 6) ................................. -- 500 500
-------- --------- ------------
Commitments and contingencies (Note 9)
Redeemable preferred stock, at redemption value (Note 7) .......... 18,795 23,440 8,635
-------- --------- ------------
Stockholders' equity (deficit) (Note 8):
Junior convertible preferred stock, $.01 par value--
Authorized--3,154,000 shares at December 31, 1997 and 1998;
no shares pro forma
Issued and outstanding--3,154,000 shares at December 31, 1997
and 1998; no shares pro forma .................................. 32 32 --
Common stock, $.01 par value--
Authorized--15,195,710, 17,174,670 and 17,174,670 shares at
December 31, 1997 and 1998 and pro forma December 31,
1998, respectively
Issued and outstanding--5,402,400, 5,882,490 and 13,590,923
shares at December 31, 1997 and 1998 and pro forma
December 31, 1998, respectively ................................ 54 59 136
Additional paid-in capital ...................................... 1 68 15,278
Accumulated deficit ............................................. (7,721) (11,505) (11,505)
-------- --------- ------------
Total stockholders' equity (deficit) ........................... (7,634) (11,346) 3,909
-------- --------- ------------
Total liabilities, redeemable preferred stock and stockholders'
equity (deficit) ............................................ $ 12,397 $ 15,957 $ 16,407
======== ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
Maker Communications, Inc. and Subsidiary
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Revenue ............................................... $ 342 $ 1,774 $ 7,694
Cost of revenue ....................................... 329 1,031 3,238
---------- ---------- ----------
Gross profit .......................................... 13 743 4,456
---------- ---------- ----------
Operating expenses:
Research and development ............................ 1,198 2,727 4,171
Selling and marketing ............................... 332 883 2,078
General and administrative .......................... 373 751 1,299
Litigation .......................................... -- 462 1,118
---------- ---------- ----------
Total operating expenses ........................... 1,903 4,823 8,666
---------- ---------- ----------
Loss from operations .................................. (1,890) (4,080) (4,210)
Interest income ....................................... 51 212 538
Interest expense ...................................... (132) (33) (82)
---------- ---------- ----------
Net loss ........................................... $ (1,971) $ (3,901) $ (3,754)
========== ========== ==========
Net loss per share (Note 2(d)):
Basic and diluted
net loss per share ................................. $ (1.30) $ (0.72) $ (0.66)
Basic and diluted
weighted average common shares outstanding ......... 1,515,998 5,383,080 5,646,822
Pro forma net loss per share (Note 2(d)):
Pro forma basic and diluted
net loss per share ........................................................... $ (0.31)
Pro forma basic and diluted
weighted average common shares outstanding ................................... 12,229,795
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
Maker Communications, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity (Deficit)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Junior Convertible
Preferred Stock Common Stock
-------------------------- --------------------------
Number $.01 Par Number $.01 Par
of Shares Value of Shares Value
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 ............... -- $ -- -- $ --
Delaware reincorporation,
exchange of no par value
common stock for $.01 par value
common stock ......................... -- -- 4,019,654 40
Conversion of $.01 par value
common stock to junior
convertible preferred stock .......... 4,019,654 40 (4,019,654) (40)
Issuance of common stock .............. -- -- 5,359,134 54
Offering costs related to the
issuance of Class A redeemable
preferred stock ...................... -- -- -- --
Repurchase and retirement of
junior convertible preferred stock (865,654) (8) -- --
Exercise of employee stock option...... -- -- 19,040 --
Net loss .............................. -- -- -- --
--------- ------- ---------- -----
Balance, December 31, 1996 ............. 3,154,000 32 5,378,174 54
Offering costs related to the
issuance of Class B redeemable
convertible preferred stock .......... -- -- -- --
Conversion of note payable into
common stock ......................... -- -- 20,866 --
Exercise of employee stock options..... -- -- 3,360 --
Net loss .............................. -- -- -- --
--------- ------- ---------- -----
Balance, December 31, 1997 ............. 3,154,000 32 5,402,400 54
Offering costs related to the
issuance of Class C redeemable
convertible preferred stock .......... -- -- -- --
Exercise of employee stock options..... -- -- 480,090 5
Net loss .............................. -- -- -- --
--------- ------- ---------- -----
Balance, December 31, 1998 ............. 3,154,000 32 5,882,490 59
Conversion of Class B redeemable
convertible preferred stock into
common stock (unaudited) ............. -- -- 3,416,575 34
Conversion of Class C redeemable
convertible preferred stock into
common stock (unaudited) ............. -- -- 1,137,858 11
Conversion of junior convertible
preferred stock into common
stock (unaudited) .................... (3,154,000) (32) 3,154,000 32
---------- ------- ---------- -----
Pro forma balance, December 31,
1998 (unaudited) (Note 2(b)) .......... -- $ -- 13,590,923 $ 136
========== ======= ========== =====
<CAPTION>
Common Stock Total
-------------------- Additional Stockholders'
Number No Par Paid-In Accumulated Equity
of Shares Value Capital Deficit (Deficit)
----------- -------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 ............... 1,000 $ 1 $ -- $ (1,017) $(1,016)
Delaware reincorporation,
exchange of no par value
common stock for $.01 par value
common stock ......................... (1,000) (1) -- (39) --
Conversion of $.01 par value
common stock to junior
convertible preferred stock .......... -- -- -- -- --
Issuance of common stock .............. -- -- -- -- 54
Offering costs related to the
issuance of Class A redeemable
preferred stock ...................... -- -- -- (64) (64)
Repurchase and retirement of
junior convertible preferred stock -- -- -- (667) (675)
Exercise of employee stock option...... -- -- 1 -- 1
Net loss .............................. -- -- -- (1,971) (1,971)
------ ----- ------- -------- -------
Balance, December 31, 1996 ............. -- -- 1 (3,758) (3,671)
Offering costs related to the
issuance of Class B redeemable
convertible preferred stock .......... -- -- -- (62) (62)
Conversion of note payable into
common stock ......................... -- -- -- -- --
Exercise of employee stock options..... -- -- -- -- --
Net loss .............................. -- -- -- (3,901) (3,901)
------ ----- ------- -------- -------
Balance, December 31, 1997 ............. -- -- 1 (7,721) (7,634)
Offering costs related to the
issuance of Class C redeemable
convertible preferred stock .......... -- -- -- (30) (30)
Exercise of employee stock options..... -- -- 67 -- 72
Net loss .............................. -- -- -- (3,754) (3,754)
------ ----- ------- -------- -------
Balance, December 31, 1998 ............. -- -- 68 (11,505) (11,346)
Conversion of Class B redeemable
convertible preferred stock into
common stock (unaudited) ............. -- -- 10,215 -- 10,249
Conversion of Class C redeemable
convertible preferred stock into
common stock (unaudited) ............. -- -- 4,995 -- 5,006
Conversion of junior convertible
preferred stock into common
stock (unaudited) .................... -- -- -- -- --
------ ----- ------- -------- -------
Pro forma balance, December 31,
1998 (unaudited) (Note 2(b)) .......... -- $-- $15,278 $(11,505) $ 3,909
====== ===== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
Maker Communications, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1997 1998
------------ -------------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ............................................................. $ (1,971) $(3,901) $ (3,754)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization ........................................ 132 211 410
Issuance of convertible note payable in settlement of litigation ..... -- -- 500
Changes in operating assets and liabilities--
Accounts receivable ................................................. (205) (125) (602)
Inventory ........................................................... (54) (96) (146)
Prepaid expenses and other current assets ........................... (11) (229) 144
Accounts payable .................................................... 58 119 209
Accrued expenses .................................................... 5 445 1,276
Deferred revenue .................................................... 58 (4) 127
-------- ---------- --------
Net cash used in operating activities ............................... (1,988) (3,580) (1,836)
-------- --------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment ................................... (206) (587) (659)
(Increase) decrease in other assets .................................. -- (93) 43
-------- --------- --------
Net cash used in investing activities ............................... (206) (680) (616)
-------- --------- --------
Cash Flows from Financing Activities:
Borrowings under note payable to a bank .............................. -- 436 689
Payments on note payable to a bank ................................... -- -- (174)
Proceeds from note payable to stockholders ........................... 1,600 -- --
Payment of note payable to stockholders .............................. (2,825) -- --
Proceeds from issuance of common stock ............................... 54 -- --
Repurchase of junior convertible preferred stock ..................... (675) -- --
Net proceeds from issuance of Class A redeemable
preferred stock ..................................................... 8,537 -- --
Net proceeds from issuance of Class B redeemable convertible
preferred stock ..................................................... -- 10,098 89
Net proceeds from issuance of Class C redeemable convertible
preferred stock ..................................................... -- -- 4,526
Proceeds from exercise of stock options .............................. 1 -- 72
-------- --------- --------
Net cash provided by financing activities ............................ 6,692 10,534 5,202
-------- --------- --------
Net increase in cash and cash equivalents ............................ 4,498 6,274 2,750
Cash and cash equivalents, beginning of year ......................... 93 4,591 10,865
-------- --------- --------
Cash and cash equivalents, end of year ............................... $ 4,591 $10,865 $ 13,615
======== ========= ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest ............................... $ 176 $ 129 $ 65
======== ========= ========
Supplemental Disclosure of Noncash Financing Activity:
Conversion of note payable into common stock and Class A
redeemable preferred stock .......................................... $ -- $ 34 $ --
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
Maker Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(1) Nature of Operations
Maker Communications, Inc. (Maker), a Delaware corporation, was founded in
1994. Maker is a fabless semiconductor company that develops and markets
high-performance programmable communications processors, development tools and
application software for use in communications systems equipment. Maker sells
its products to telecommunications and data networking vendors based primarily
in North America.
In 1998, Maker established a wholly owned subsidiary, Maker Communications
Securities Corporation, which is a qualified Massachusetts securities
corporation.
(2) Significant Accounting Policies
The accompanying financial statements reflect the application of certain
significant accounting policies as described in this note and elsewhere in the
accompanying consolidated financial statements and notes.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Maker and its wholly owned subsidiary. All significant intercompany balances
have been eliminated in consolidation.
(b) Unaudited Pro Forma Presentation
The unaudited pro forma consolidated balance sheet as of December 31, 1998
and the pro forma net loss per share for the year ended December 31, 1998
reflects (i) the receipt of $450,000 from the additional issuance of 102,272
shares of Class C redeemable convertible preferred stock in January 1999 and
(ii) the automatic conversion of all outstanding shares of Class B and Class C
redeemable convertible preferred stock and junior convertible preferred stock
into 7,708,433 shares of common stock, which will occur upon the closing of
Maker's proposed initial public offering.
(c) Revenue Recognition
Revenue derived from the sale of processors is recognized upon shipment.
Provisions are made at that time for any applicable warranty costs expected to
be incurred. Revenue from software license agreements is recognized upon
execution of a license agreement and delivery of the software, provided that
the fee is fixed or determinable and deemed collectible by management. Revenue
from software maintenance agreements is recognized ratably over the term of the
maintenance period, which is typically one year. Amounts collected or billed
prior to satisfying the above revenue recognition criteria are reflected as
deferred revenue. Maker recognizes software revenue in accordance with the
provisions of Statement of Position (SOP) No. 97-2, Software Revenue
Recognition.
(d) Net Loss Per Share
Basic and diluted net loss per common share was determined by dividing net
loss by the weighted average common shares outstanding during the period. Basic
and diluted net loss per share are the same, as outstanding common stock
options, convertible preferred stock and the convertible note payable are
antidilutive as Maker has recorded a net loss for all periods presented.
Options to purchase a total of 71,585, 491,772 and 1,502,553 common shares have
been excluded from the computation of diluted weighted average shares
outstanding for the years ended December 31, 1996, 1997 and 1998, respectively.
Shares of common stock issuable upon the conversion of outstanding convertible
preferred stock and the convertible note payable have also been excluded for
all periods presented.
The calculation of pro forma net loss per common share assumes that all
Class B and Class C redeemable convertible preferred stock and junior
convertible preferred stock had been converted to common stock as of the
issuance date.
F-7
<PAGE>
(e) Cost of Revenue
Cost of revenue includes the cost of purchasing fully assembled, tested
and packaged communications processors from Maker's independent foundries,
production related expenses, warranty, and quality assurance for those
products, as well as costs of personnel and equipment associated with
supporting Maker's customers.
(f) Cash and Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments with
original maturity dates of ninety days or less. Cash equivalents are carried at
cost, which approximates their fair market value.
(g) Inventory
Inventory, which consists of finished goods, is stated at the lower of
cost (first-in, first-out) or market.
(h) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Maker provides for depreciation and amortization using the
straight-line method to allocate the cost of property and equipment over their
estimated useful lives as follows:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
- ----------------------------------- --------------
<S> <C>
Computer equipment ............. 3 years
Computer software .............. 3 years
Furniture and fixtures ......... 5 years
Leasehold improvements ......... Life of lease
</TABLE>
Property and equipment at December 31, 1997 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- ---------
(in thousands)
<S> <C> <C>
Computer equipment .................................... $ 634 $1,236
Computer software ..................................... 372 422
Furniture and fixtures ................................ 51 53
Leasehold improvements ................................ 43 48
------ ------
1,100 1,759
Less--accumulated depreciation and amortization ....... (397) (807)
------ ------
$ 703 $ 952
====== ======
</TABLE>
(i) Software Development Costs
In accordance with Statement of Financial Accounting Standards (SFAS) No.
86, Accounting for the Costs of Computer Software To Be Sold, Leased or
Otherwise Marketed, Maker has evaluated the establishment of technological
feasibility of its various products during the development phase. Due to the
dynamic changes in the market, Maker has concluded that it cannot determine
technological feasibility until the development phase of the project is nearly
complete. The time period during which costs could be capitalized from the
point of reaching technological feasibility until the time of general product
release is very short and, consequently, the amounts that could be capitalized
are not material
F-8
<PAGE>
to Maker's financial position or results of operations. Therefore, Maker
charges all research and development expenses to operations in the period
incurred.
(j) Income Taxes
Maker accounts for income taxes in accordance with the provisions of SFAS
No. 109, Accounting For Income Taxes. This statement requires Maker to
recognize a current tax asset or liability for current taxes payable or
refundable and to record a deferred tax asset or liability for the estimated
future tax effects of temporary differences and carry forwards to the extent
they are realizable. A deferred tax provision or benefit results from the net
change in deferred tax assets and liabilities during the year. A deferred tax
valuation allowance is required if it is more likely than not that all or a
portion of the recorded deferred tax assets will not be realized.
(k) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(l) Concentration of Credit Risk
Maker has no significant off-balance-sheet concentrations of credit risk
such as foreign exchange contracts, option contracts or other foreign hedging
arrangements. Financial instruments that potentially subject Maker to
concentrations of credit risk are principally cash equivalents, accounts
receivable, accounts payable, notes payable and redeemable preferred stock.
Concentration of credit risk with respect to accounts receivable is limited to
certain customers to whom Maker makes substantial sales. Maker performs
periodic credit evaluations of its customers and generally does not require
collateral. Maker has provided $90,000 in allowances for estimated losses
during 1998.
The following table summarizes the number of customers that individually
comprise greater than 10% of total accounts receivable and their aggregate
percentage of Maker's total accounts receivable.
<TABLE>
<CAPTION>
Percent of
Total
Number of Accounts
Customers Receivable
----------- -----------
<S> <C> <C>
December 31, 1997 ......... 5 77%
December 31, 1998 ......... 3 58%
</TABLE>
(m) Fair Value of Financial Instruments
Financial instruments consist principally of cash and cash equivalents,
accounts receivable, accounts payable, notes payable and redeemable preferred
stock. The estimated fair value of these instruments approximates their
carrying value.
(n) Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
measurement of the fair value of stock options or warrants to be included in
the statement of operations or disclosed in the notes to financial statements.
Maker has determined that it will account for stock-based compensation for
employees under the intrinsic value-based method of the Accounting Principles
Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and elect
the disclosure-only alternative under SFAS No. 123.
F-9
<PAGE>
(o) Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income. Maker does not have any components of
comprehensive income except its reported net loss.
(3) Accrued Expenses
Accrued expenses at December 31, 1997 and 1998 consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
------ ---------
(In thousands)
<S> <C> <C>
Payroll and related costs ......... $204 $ 520
Production costs .................. -- 231
Warranty .......................... 16 140
Other ............................. 324 929
---- ------
$544 $1,820
==== ======
</TABLE>
(4) Income Taxes
No provision for federal or state income taxes has been recorded, as Maker
incurred net operating losses for all periods presented. As of December 31,
1998, Maker has net operating loss carryforwards of approximately $8,710,000
available to reduce future federal and state income taxes, if any. Maker also
has available federal tax credits of approximately $330,000 expiring through
2010. If not utilized, these carryforwards expire at various dates through
2018. If substantial changes in Maker's ownership should occur, as defined by
Section 382 of the Internal Revenue Code (the Code), there could be annual
limitations on the amount of carryforwards which can be realized in future
periods. Maker has completed several financings since its inception and has
incurred an ownership change as defined under the Code. The Company does not
believe that this change in ownership will have a material impact on its
ability to utilize its net operating loss and tax credit carryforwards.
Net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
----------- -----------
(In thousands)
<S> <C> <C>
Net operating loss carryforwards ............ $ 2,002 $ 3,507
Nondeductible expenses and reserves ......... 300 550
-------- --------
2,302 4,058
Valuation allowance ......................... (2,302) (4,058)
-------- --------
$ -- $ --
======== ========
</TABLE>
Due to the uncertainty surrounding Maker's ability to utilize its net
operating loss carryforwards, Maker has provided a full valuation allowance
against its otherwise recognizable deferred tax asset at December 31, 1997 and
1998.
(5) Notes Payable to a Bank
(a) Working Capital Line of Credit
On February 18, 1997, Maker entered into a working capital line of credit
of $1,000,000 with a bank. On May 12, 1998 and on February 3, 1999, Maker
entered into loan modification agreements
F-10
<PAGE>
with the bank whereby the working capital line of credit was increased to
$2,000,000 and $2,500,000, respectively. Borrowings bear interest at the bank's
prime rate (7.75% at December 31, 1998) plus .25%. The line of credit is
collateralized by substantially all assets of Maker. The line of credit expires
in February 2000. Maker had no borrowings under the working capital line of
credit as of December 31, 1998.
(b) Capital Expenditure Line of Credit
Maker has borrowings under a modified equipment line of credit facility
with the same bank. Borrowings are payable over a 30 to 39 month period and
bear interest at the bank's prime rate (7.75% at December 31, 1998) plus .25%
to prime plus 1.0%. In 1999, Maker borrowed an additional $450,000 under its
existing equipment line of credit facility. On February 3, 1999, Maker entered
into a loan modification agreement with the bank that provided Maker with an
additional $1,000,000 of borrowing availability under its capital expenditure
line of credit. All borrowings under the equipment line of credit are
collateralized by substantially all assets of Maker. Under these agreements,
Maker is required to comply with certain restrictive covenants. As of December
31, 1998, Maker was in compliance with all such covenants.
The maturities under the capital expenditure lines of credit as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
(In thousands)
---------------
<S> <C>
1999 .......... $308
2000 .......... 317
2001 .......... 230
2002 .......... 95
----
$950
====
</TABLE>
(6) Convertible Note Payable
In July 1998, Maker issued a $500,000 convertible note payable to LSI
Logic Corporation (LSI) which accrues interest at an annual rate of 6.5%. All
principal and interest is due on June 30, 2001. Upon the occurrence of certain
events, LSI may convert the principal of the note into fully paid and
nonassessable shares of common stock of Maker at the lesser of $4.00 per share,
subject to certain dilutive events, as defined, or the subsequent sale price
per share of common stock issued by Maker in which the aggregate gross proceeds
received by Maker is at least $1,000,000.
(7) Redeemable Preferred Stock
(a) Class A Redeemable Preferred Stock
In September 1996, Maker authorized the issuance of up to 5,380,000 shares
of Class A redeemable preferred stock, $.01 par value and issued 5,359,134
shares at $1.605 per share resulting in net proceeds of approximately
$8,537,000. In October 1997, Maker issued an additional 20,866 shares of Class
A redeemable preferred stock at $1.605 per share in exchange for the conversion
of a note payable to a stockholder in the amount of approximately $34,000.
These shares are nonvoting, nonconvertible and have dividend rights superior to
junior convertible preferred stock, Class B redeemable convertible preferred
stock, Class C redeemable convertible preferred stock and common stock. The
Class A redeemable preferred stock has a liquidation preference of $1.605 per
share plus all declared but unpaid dividends. As of December 31, 1998, the
preference in liquidation and redemption value was approximately $8,635,000.
Class A redeemable preferred stock is redeemable according to the following
terms in order of occurrence: (i) upon the change in control of Maker, as
defined, (ii) 90 days following the completion of a qualified initial public
offering, as defined, or (iii) in three annual installments commencing on
September 30, 2002.
F-11
<PAGE>
(b) Class B Redeemable Convertible Preferred Stock
In October 1997, Maker authorized the issuance of up to 3,416,670 shares
of Class B redeemable convertible preferred stock, $.01 par value, and issued
3,386,675 shares at $3.00 per share resulting in net proceeds of approximately
$10,098,000. In July 1998, Maker issued an additional 29,900 shares resulting
in net proceeds of approximately $89,000. These shares are convertible into
common stock at the rate of one share of common stock for each share of
preferred stock, adjustable for certain dilutive events. Conversion is
automatic upon the closing of an initial public offering of common stock at a
per share price of at least $6.75 and resulting in aggregate proceeds to Maker
of at least $20,000,000. These shares have dividend rights superior to junior
convertible preferred stock and common stock and similar to the Class C
redeemable convertible preferred stock. The Class B redeemable convertible
preferred stock has a liquidation preference of $3.00 per share plus all
declared but unpaid dividends. As of December 31, 1998, the preference in
liquidation was approximately $10,249,000. Class B redeemable convertible
preferred stock is redeemable at the option of the holder according to the
following terms in order of occurrence: (i) upon the change in control of
Maker, as defined, or (ii) in three annual installments commencing on September
30, 2002.
(c) Class C Redeemable Convertible Preferred Stock
In December 1998, Maker authorized the issuance of up to 1,138,000 shares
of Class C redeemable convertible preferred stock and issued 1,035,586 shares
at $4.40 per share resulting in net proceeds of approximately $4,526,000. In
January 1999, Maker sold an additional 102,272 shares of Class C redeemable
convertible preferred stock at $4.40 per share, resulting in net proceeds to
Maker of approximately $450,000. These shares are convertible into common stock
at the rate of one share of common stock for each share of preferred stock,
adjustable for certain dilutive events. Conversion is automatic upon the
closing of an initial public offering of common stock at a per share price of
at least $6.75 and resulting in aggregate proceeds to Maker of at least
$20,000,000. These shares have dividend rights superior to junior convertible
preferred stock and common stock and similar to Class B redeemable convertible
preferred stock. The Class C redeemable convertible preferred stock has a
liquidation preference of $4.40 per share plus all declared but unpaid
dividends. As of December 31, 1998, the preference in liquidation was
approximately $4,556,000. Class C redeemable convertible preferred stock is
redeemable at the option of the holder according to the following terms in
order of occurrence: (i) upon the change in control of Maker, as defined, or
(ii) in three annual installments commencing on September 30, 2002.
F-12
<PAGE>
The following table summarizes the activity for the Class A, Class B and
Class C redeemable preferred stock (in thousands, except share amounts):
<TABLE>
<CAPTION>
Class B Redeemable Class C Redeemable
Class A Redeemable Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
------------------------ ------------------------ ------------------------ Total
Number of Redemption Number of Redemption Number of Redemption Redemption
Shares Value Shares Value Shares Value Value
----------- ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 ........... -- $ -- -- $ -- -- $ -- $ --
Issuance of Class A redeemable
preferred stock .................. 5,359,134 8,601 -- -- -- -- 8,601
--------- ------ -- ------- -- ------ -------
Balance, December 31, 1996 ......... 5,359,134 8,601 -- -- -- -- 8,601
Issuance of Class B redeemable
convertible preferred stock ...... -- -- 3,386,675 10,160 -- -- 10,160
Conversion of note payable into
Class A redeemable preferred
stock ............................ 20,866 34 -- -- -- -- 34
--------- ------ --------- ------- -- ------ -------
Balance, December 31, 1997 ......... 5,380,000 8,635 3,386,675 10,160 -- -- 18,795
Issuance of Class B redeemable
convertible preferred stock ...... -- -- 29,900 89 -- -- 89
Issuance of Class C redeemable
convertible preferred stock ...... -- -- -- -- 1,035,586 4,556 4,556
--------- ------ --------- ------- --------- ------ -------
Balance, December 31, 1998 ......... 5,380,000 $8,635 3,416,575 $10,249 1,035,586 $4,556 $23,440
========= ====== ========= ======= ========= ====== =======
</TABLE>
(8) Stockholders' Equity (Deficit)
(a) Common Stock
In 1998, Maker increased the authorized shares of common stock to
17,174,670. As of December 31, 1998, Maker has reserved 3,416,575, 1,035,586
and 3,154,000 shares of common stock for the conversion of Series B redeemable
convertible preferred stock, Series C redeemable convertible preferred stock
and junior convertible preferred stock, respectively.
(b) Junior Convertible Preferred Stock
In 1996, Maker authorized 4,019,654 shares of junior convertible preferred
stock $0.01 par value. In September 1996, each outstanding share of $.01 par
value common stock, totaling 4,019,654 shares, was exchanged for one share of
junior convertible preferred stock. In October 1996, Maker repurchased and
retired 865,654 shares of junior convertible preferred stock.
The junior convertible preferred stock is subordinate to Class A
redeemable preferred stock and Class B and Class C redeemable convertible
preferred stock and superior to common stock in regard to liquidation. Junior
convertible preferred stock is optionally redeemable by Maker at a price of
$0.005 per share subsequent to the redemption of the Class A redeemable
preferred stock. Each share of junior convertible preferred stock may, at the
option of the holder, be converted to one share of common stock, as adjusted
for certain events.
Conversion will occur automatically upon the completion of an initial
public offering at a per share price of at least $6.75 and resulting in
aggregate proceeds to Maker of at least $20,000,000. Voting rights are provided
to junior convertible preferred stock in proportion to the number of shares of
common stock that would be received upon conversion.
(c) Stock Option Plan
During 1996, the Board of Directors approved the 1996 Stock Option Plan
(the 1996 Plan). The Board of Directors has reserved 3,876,000 shares of common
stock for issuance under the 1996 Plan. Options
F-13
<PAGE>
issued under the 1996 Plan may be either incentive stock options or
nonqualified stock options at the discretion of the Board. Options may be
granted to key employees, officers, consultants and advisers of Maker. Options
expire up to 10 years from the date of grant or as determined by the Board of
Directors. Options vest over a term to be established by the Board of Directors
at the date of grant. In addition, upon a change in control of Maker, as
defined, the exercisability of options due to vest during the following 12
month period are automatically accelerated.
The following table summarizes option activity under the 1996 Plan:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price Exercise Price
------------- ---------------- -----------------
<S> <C> <C> <C>
Granted ................................ 831,990 $ .05-$.16 $ .08
Exercised .............................. (19,040) .05 .05
------- ---------- -------
Outstanding, December 31, 1996 ......... 812,950 $ .05-$.16 $ .08
Granted ................................ 1,163,100 .16- .30 .17
Exercised .............................. (3,360) .05 .05
Canceled ............................... (44,620) .05- .16 .09
--------- ---------- -------
Outstanding, December 31, 1997 ......... 1,928,070 $ .05-$.30 $ .13
Granted ................................ 1,782,250 .30-3.75 2.03
Exercised .............................. (480,090) .05-1.00 .15
Canceled ............................... (611,980) .05- .30 .16
--------- ---------- -------
Outstanding, December 31, 1998 ......... 2,618,250 $ .05-3.75 $ 1.42
========= ========== =======
Exercisable, December 31, 1998 ......... 263,530 $ .05-3.75 $ .16
========= ========== =======
</TABLE>
The following table summarizes information relating to currently
outstanding and exercisable options as of December 31, 1998.
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------------------- -------------------------
Weighted Average Weighted Weighted
Number of Remaining Average Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
- ----------------- ------------- ------------------ ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$ .05 393,150 7.79 $ .05 189,110 $ .05
.16 412,750 8.50 .16 54,900 .16
.30 445,100 9.19 .30 14,520 .30
.75 270,000 9.48 .75 -- --
2.00 - 2.75 818,000 9.71 2.74 -- --
3.75 279,250 9.79 3.75 5,000 3.75
------- -------
2,618,250 263,530
========= =======
</TABLE>
F-14
<PAGE>
For purposes of the pro forma disclosures required by SFAS No. 123, the
fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model. The assumptions used and the weighted
average information for the years ended December 31, 1996, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------- --------------- ---------------
<S> <C> <C> <C>
Risk-free interest rates ................................ 6.09% 5.89-6.46% 4.47-5.49%
Expected dividend yield ................................. -- -- --
Expected life ........................................... 4 years 4 years 4 years
Expected volatility ..................................... 60% 60% 60%
Weighted average fair value of options granted .......... $ .04 $ .09 $ 1.02
Weighted-average remaining contractual life of
options outstanding ................................... 9.81 years 9.27 years 9.13 years
</TABLE>
Had compensation expense from Maker's stock option plan been determined
consistent with SFAS No. 123, net loss and net loss per share would have been
approximately as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1997 1998
------------ ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net loss:
As reported ....................... $ (1,971) $ (3,901) $ (3,754)
Pro forma ......................... $ (1,974) $ (3,929) $ (3,967)
Basic and diluted net loss per share:
As reported ....................... $ (1.30) $ (0.72) $ (0.66)
Pro forma ......................... $ (1.30) $ (0.73) $ (0.70)
</TABLE>
(d) Director Option Plan
In January 1999, the Board of Directors adopted a Director Option Plan
(Director Plan) pursuant to which 85,000 shares of common stock have been
reserved for future issuance, plus annual increases equal to (i) the number of
shares of stock underlying options granted under the Director Plan in the
immediately preceding year, or (ii) a lesser amount determined by the Board of
Directors. The Director Plan provides that each non employee director will
automatically be granted an option to purchase 20,000 shares on the date which
such person first becomes a non employee director. In addition, each non
employee director will automatically be granted an option to purchase 15,000
shares on the date two days after Maker announces its fiscal year-end earnings
of each year, if on such date that director will have served on the board of
directors for at least the preceding six months. Each option will have a term
of up to 10 years and will vest over a term determined by the Board of
Directors at the time of grant. In addition, upon a change in control of Maker,
as defined, all unvested options shall vest immediately.
(9) Commitments and Contingencies
(a) Litigation
In February 1997, LSI filed a lawsuit against Maker. During July 1998,
Maker and LSI reached a settlement agreement under which Maker paid LSI a
lump-sum of $200,000 and issued a $500,000 convertible note as discussed in
Note 6. Maker has included in a separate line item in its consolidated
statement of operations the legal and settlement costs associated with the LSI
litigation. Maker is not currently involved in any litigation which, in
management's opinion, would have a material adverse effect on its business,
operating results or financial condition.
F-15
<PAGE>
(b) Leases
Maker has operating leases for various facilities and equipment expiring
at various dates through August 2001. Future minimum lease payments at December
31, 1998 are as follows:
<TABLE>
<CAPTION>
(In thousands)
---------------
<S> <C>
1999 .......... $359
2000 .......... 166
2001 .......... 5
----
$530
====
</TABLE>
Rent expense under operating leases totaled approximately $92,000,
$200,000 and $278,000 in 1996, 1997 and 1998, respectively.
(10) Employee Benefit Plan
Effective January 1, 1996, Maker adopted a 401(k) savings and
profit-sharing plan (the Plan). All employees are immediately eligible to
participate upon the attainment of age 21. The Plan is intended to qualify as a
defined contribution plan in accordance with Section 401(k) of the Internal
Revenue Code. Participants may defer up to 15% of their compensation under the
Plan. Maker may make discretionary profit-sharing contributions to the Plan.
Participants vest in Maker's contributions ratably over five years. No
discretionary contributions were made in 1996, 1997 or 1998.
(11) Segment, Significant Customer and Supplier Information
Maker operates in one industry segment, communications processors. During
1997 and 1998, Maker had a total of three customers whose revenue represented a
significant percentage of total revenue in certain or all years as follows:
<TABLE>
<CAPTION>
For the year
ended
December 31,
------------
1997 1998
------ -----
<S> <C> <C>
Customer A ............. 28% 28%
Customer B ............. 23 18
Customer C ............. -- 12
</TABLE>
Maker currently outsources substantially all manufacturing, assembly and
test of communications processors to one outside foundry.
F-16
<PAGE>
[Maker logo]
Shares
[Globe Background]
MAKER COMMUNICATIONS, INC.
Common Stock
-------------
PROSPECTUS
, 1999
-------------
LEHMAN BROTHERS
BT ALEX.BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses (other than the underwriting discount) payable in
connection with the sale of the common stock offered hereby are as follows, all
of which will be paid by Maker:
<TABLE>
<S> <C>
SEC registration fee ................................... $ 11,200
NASD filing fee ........................................ 4,525
Nasdaq National Market fee ............................. 95,000
Printing expenses ......................................
Legal fees and expenses ................................
Accounting fees and expenses ...........................
Transfer agent and registrar fees and expenses .........
Miscellaneous ..........................................
Total ................................................ $
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law, Maker's charter and by-laws and
indemnification agreements between Maker and its directors provide for
indemnification of its directors and officers for liabilities and expenses they
may incur in such capacities. In general, directors and officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, Maker's best interests, and with respect
to any criminal action or proceeding, actions that the indemnitee had no
reasonable cause to believe were unlawful. Reference is made to Maker's
certificate of incorporation and by-laws filed as Exhibits 3.1 and 3.2 hereto,
respectively.
The Underwriting Agreement provides that the underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of Maker against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of underwriting agreement filed
as Exhibit 1.1 hereto.
Maker maintains directors and officers liability insurance for the benefit
of its directors and certain of its officers and has entered into
indemnification agreements with its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, Maker has issued the following securities,
none of which have been registered under the Securities Act:
1. In 1996, Maker authorized 4,019,654 shares of Junior Convertible
Preferred Stock, $0.01 par value. In September 1996, each outstanding share of
$0.01 par value common stock, totaling 4,019,654 shares, was exchanged for one
share of Junior Convertible Preferred Stock.
2. On September 27, 1996 Maker issued and sold an aggregate of 5,077,398
shares of its Class A Redeemable Preferred Stock and an equal number of shares
of common stock of Maker, for an aggregate purchase price of approximately
$8,149,000, or $1.605 per share, to a total of 28 purchasers. On November 6,
1996 Maker issued and sold an aggregate of 281,736 shares of its Class A
Redeemable Preferred Stock and an equal number of shares of common stock of
Maker, for an aggregate purchase price of approximately $452,000, or $1.605 per
share, to a total of 17 purchasers. In October 1997, Maker issued an additional
20,866 shares of Class A Redeemable Preferred Stock at $1.605 per share in
exchange for the conversion of a note payable to a stockholder in the amount of
approximately $34,000.
3. On October 16, 1997 Maker issued and sold an aggregate of 3,000,002
shares of its Class B Convertible Preferred Stock, which is convertible into an
equal number of shares of common stock of Maker, for an aggregate purchase
price of approximately $9,000,000, or $3.00 per share, to a total of six
purchasers. On November 24, 1997 Maker issued and sold an aggregate of 386,673
shares of its Class B
II-1
<PAGE>
Convertible Preferred Stock, which is convertible into an equal number of
shares of common stock of Maker, for an aggregate purchase price of
approximately $1,160,000, or $3.00 per share, to a total of 41 purchasers. On
July 15, 1998 Maker issued and sold an aggregate of 29,900 shares of its Class
B Convertible Preferred Stock, which is convertible into an equal number of
shares of common stock of Maker, for an aggregate purchase price of
approximately $89,000, or $3.00 per share, to a total of four purchasers.
4. On December 22, 1998 Maker issued and sold an aggregate of 1,035,586
shares of its Class C Convertible Preferred Stock, which is convertible into an
equal number of shares of common stock of Maker, for an aggregate purchase
price of approximately $4,556,000, or $4.40 per share, to a total of 37
purchasers. On January 15, 1999 Maker issued and sold an aggregate of 102,272
shares of its Class C Convertible Preferred Stock, which is convertible into an
equal number of shares of common stock of Maker, for an aggregate purchase
price of approximately $450,000, or $4.40 per share, to a total of 21
purchasers.
5. From October 15, 1996 to February 28, 1999, Maker issued to its
employees, officers, directors and consultants options to purchase an aggregate
of 3,892,340 shares of its common stock, at exercise prices ranging from $.05
per share to $4.40 per share, pursuant to Maker's 1996 Stock Option Plan.
6. From October 22, 1996 to February 28, 1999, Maker issued an aggregate
of 630,280 shares of its common stock upon the exercise of options at exercise
prices ranging from $.05 per share to $3.75 per share.
The sales of securities set forth in paragraphs 1-4 above were deemed to
be exempt from the registration requirements of the Securities Act in reliance
on Section 4(2) thereof and Regulation D promulgated thereunder, as
transactions by an issuer not involving a public offering. The sale of
securities set forth in paragraph 5 above was deemed to be exempt from the
registration requirements of the Securities Act in reliance on Rule 701
promulgated under Section 3(b) of the Securities Act as transactions by an
issuer pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The granting of stock options
described in paragraph 6 above did not require registration under the
Securities Act, or an exemption therefrom, insofar as such grants did not
involve a "sale" of securities as such term is used in Section 2(3) of the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibits
No. Description of Documents
- --- ------------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Bylaws of the Registrant
*4.1 Form of Stock Certificate
*5.1 Form of Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation
10.1 Lease by and among Maker and Marriott Plaza Associates L.P., dated as of December 10,
1997
10.2 Lease by and among Maker and Perini Corporation, dated May 6, 1997, together with
amendments thereto
+10.3 Agreement for ASIC Design and Purchase of Products, dated as of September 2, 1998, by
and among Maker and International Business Machines Corporation.
+10.4 Technology License Agreement by and among Maker and Phoenix Technologies Ltd., dated
as of February 12, 1998
10.5 Loan and Security Agreement by and among Maker and Silicon Valley Bank, dated as of
February 18, 1997
10.6 Loan Modification Agreement by and among Maker and Silicon Valley Bank, dated as of
May 12, 1998
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibits
No. Description of Documents
- --- ------------------------
<S> <C>
10.7 Second Loan Modification Agreement by and among Maker and Silicon Valley Bank, dated
as of February 3, 1999
10.8 1996 Stock Option Plan
10.9 Amended and Restated Registration Rights Agreement, dated as of December 22, 1998
21.1 Subsidiary of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in Exhibit 5.1)
24.1 Power of Attorney (included on page II-4)
27.1. Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment
+ Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the Commission.
Certain Schedules and Exhibits have been omitted. Maker will furnish
supplementary to the SEC a copy of any omitted schedule or exhibit upon
request.
II-3
<PAGE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denomination and registered in such names as required by
the underwriters to permit proper delivery to each purchaser.
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; and (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 thereto.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<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 Framingham, Massachusetts, on March
11, 1999.
MAKER COMMUNICATIONS, INC.
By: /s/ William N. Giudice
---------------------------
William N. Giudice, President and
Chief Executive Officer
We, the undersigned officers and directors of Maker Communications, Inc.,
hereby severally constitute and appoint William N. Giudice and Michael Rubino
and each of them singly, to sign for us and in our names in the capacities
indicated below, the Registration Statement on Form S-1 filed herewith and any
and all pre-effective and post-effective amendments to said Registration
Statement, and, in connection with any registration of additional securities
pursuant to Rule 462(b) under the Securities Act of 1933, to sign any
abbreviated registration statement and any and all amendments thereto, and to
file the same, with all exhibits thereto and other documents in connection
therewith, in each case, with the Securities and Exchange Commission, and
generally to do all such things in our names and on our behalf in our
capacities consistent with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ------------------------------------- ---------------
<S> <C> <C>
/s/ William N. Guidice President, Chief Executive
- ------------------------- Officer and Director
William N. Giudice (principal executive officer) March 11, 1999
/s/ Michael Rubino Vice President, Finance and
- ------------------------- Operations, Chief Financial Officer,
Michael Rubino Treasurer and Secretary (principal
financial and accounting officer) March 11, 1999
/s/ Roger Evans
- -------------------------
Roger Evans Director March 11, 1999
/s/ Robi Soni
- -------------------------
Robi Soni Director March 11, 1999
/s/ Louis Tomasetta
- -------------------------
Louis Tomasetta Director March 11, 1999
</TABLE>
II-5
0,000,000 Shares
MAKER COMMUNICATIONS, INC.
Common Stock
FORM OF
UNDERWRITING AGREEMENT
----------------------
________ __, 1999
LEHMAN BROTHERS INC.
BT ALEX. BROWN INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC,
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Maker Communications, Inc., a Delaware corporation (the "Company"),
proposes to sell _________ shares (the "Firm Stock") of the Company's Common
Stock, par value $.01 per share (the "Common Stock"). In addition, the Company
proposes to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional _______ shares of the
Common Stock on the terms and for the purposes set forth in Section 2 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the agreement
concerning the purchase of the Stock from the Company by the Underwriters named
in Schedule 1 hereto (the "Underwriters").
1. Representations, Warranties and Agreements of the Company.
The Company represents, warrants and agrees that:
(a) A registration statement on Form S-1 and one or more
amendments thereto with respect to the Stock has (i) been prepared by
the Company in material conformity with the requirements of the United
States Securities Act of 1933 (the "Securities Act") and the rules and
regulations (the "Rule and Regulations") of the United States Securities
and Exchange Commission (the "Commission") thereunder, (ii) been filed
with the Commission under the Securities Act and (iii) become effective
under the Securities Act. Copies of such registration statement and the
amendments thereto have been delivered by the Company to you as the
representatives (the "Representatives") of the Underwriters. (If you are
the only Underwriters, all references herein to the Representatives
shall be deemed to be to the Underwriters.) As used in this Agreement,
"Effective Time" means the date and the time as of which such
registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission; "Effective
Date" means the date of the
<PAGE>
Effective Time; "Preliminary Prospectus" means each prospectus
included in such registration statement, or amendments thereof, before
it became effective under the Securities Act and any prospectus filed
with the Commission by the Company pursuant to Rule 424(a) of the
Rules and Regulations; "Registration Statement" means such
registration statement, as amended at the Effective Time, including
all information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations in
accordance with Section 5(a) hereof and deemed to be a part of the
registration statement as of the Effective Time pursuant to paragraph
(b) of Rule 430A of the Rules and Regulations; "Rule 462(b)
Registration Statement" means any registration statement filed
pursuant to Rule 462(b) of the Rules and Regulations, and after such
filing, the term "Registration Statement" shall include the Rule
462(b) Registration Statement; and "Prospectus" means such final
prospectus, as first filed with the Commission pursuant to paragraph
(1) or (4) of Rule 424(b) of the Rules and Regulations. The Commission
has not issued any order preventing or suspending the use of any
Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus and any Rule 462(b) Registration Statement will, when
they become effective or are filed with the Commission, as the case may
be, conform in all material respects to the requirements of the
Securities Act and the Rules and Regulations and do not and will not, as
of the applicable effective date (as to the Registration Statement and
any amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or
the Prospectus in reliance upon and in conformity with written
information furnished to the Company through the Representatives by or
on behalf of any Underwriter specifically for inclusion therein. To the
extent applicable, the copies of the Registration Statement and each
other document referred to in subparagraph (a) above that have been or
will be furnished to the Underwriters have been and will be identical to
the electronically transmitted copies thereof filed with the Commission
pursuant to the Commission's so called EDGAR system, except to the
extent permitted by Regulation S-T.
(c) The Company and each of its subsidiaries (as defined in
Section 15) have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, are duly qualified to do business and
are in good standing as foreign corporations in each jurisdiction in
which their respective ownership or lease of property or the conduct of
their respective businesses requires such qualification, except where
the failure to be so qualified or in good standing would not have a
material adverse effect on the business, financial condition,
shareholders' equity or results of operations of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect"), and have
all power and authority necessary to own or hold their respective
properties and to conduct the businesses in which they are engaged; and
none of the subsidiaries of the Company is a "significant subsidiary",
as such term is defined in Rule 405 of the Rules and Regulations.
2
<PAGE>
(d) The Company had an authorized and issued capitalization as
set forth in the Prospectus as of the date stated therein, and all of
the issued shares of capital stock of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable and
conform in all material respects to the description thereof contained in
the Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable and are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) The unissued shares of the Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and
non-assessable; and the Stock will conform, in all material respects, to
the description thereof contained in the Prospectus. Except as described
in the Prospectus, there are no pre-emptive or other rights to subscribe
for or to purchase, nor any restrictions upon the voting or transfer of
any shares of Common Stock pursuant to the Company's corporate charter
or by-laws or any agreement or other instrument to which the Company is
a party.
(f) This Agreement has been duly authorized, executed and
delivered by the Company.
(g) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby
and the issuance and delivery of the Stock will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions
create any security interest, lien, charge or encumbrance on any
property or assets of the Company or any of its subsidiaries, nor will
such actions result in any violation of the provisions of the charter or
by-laws of the Company or any of its subsidiaries or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any
of their properties or assets; and except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
the Exchange Act and applicable state securities laws or by the National
Association of Securities Dealers, Inc. in connection with the purchase
and distribution of the Stock by the Underwriters, no consent, approval,
authorization or order of, or filing or registration or qualification of
or with, any such court or governmental agency or body is required for
the execution, delivery and performance of this Agreement by the Company
and the consummation of the transactions contemplated hereby.
(h) There are no contracts, agreements or understandings between
the Company and any person granting such person the right (other than
rights which have been waived or satisfied) to require the Company to
file a registration statement under the Securities Act with respect to
any securities of the Company owned or to be owned by such person or to
3
<PAGE>
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Securities Act.
(i) Except as described in the Registration Statement, the
Company has not sold or issued any shares of Common Stock during the
six-month period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A under, or Regulations D or S of, the
Securities Act, other than shares issued pursuant to employee benefit
plans, qualified stock options plans or other employee compensation
plans or pursuant to outstanding options, rights or warrants.
(j) Neither the Company nor any of its subsidiaries has
sustained, since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus; and, since such date, there has not been any change in
the capital stock or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
business, management, financial condition, stockholders' equity or
results of operations of the Company and its subsidiaries taken as a
whole (any of which, a "Material Adverse Change"), otherwise than as set
forth in or contemplated by the Prospectus.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at
the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved.
(l) Arthur Andersen LLP, which has certified certain financial
statements of the Company, whose report appears in the Prospectus and
who have delivered the initial letter referred to in Section 7(f)
hereof, are independent public accountants as required by the Securities
Act and the Rules and Regulations.
(m) The Company and its subsidiaries own, or have valid rights to
use, all items of real and personal property which are material to the
business of the Company and its subsidiaries taken as a whole, free and
clear of all security interests, liens, claims and encumbrances.
(n) The Company and each of its subsidiaries own or possess
adequate licenses or other rights to use all intellectual property
rights, including patents, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights and
know-how necessary for the conduct of their respective businesses and
have no reason to believe that the conduct of their respective
businesses will conflict with, and have not received any notice of any
claim of conflict with, any intellectual property rights of others.
4
<PAGE>
(o) There are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any
property or assets of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, might have a Material Adverse Effect; and to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(p) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed as
exhibits to the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations.
(q) No relationship, direct or indirect, exists between or among
the Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, which is
required to be described in the Prospectus which is not so described.
(r) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or granted
any securities, (ii) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred
in the ordinary course of business, (iii) entered into any transaction
not in the ordinary course of business or (iv) declared or paid any
dividend on its capital stock.
(s) Neither the Company nor any of its subsidiaries (i) is in
violation of its corporate charter or by-laws, (ii) is in default in any
material respect, and no event has occurred which, with notice or lapse
of time or both, would constitute such a default, in the due performance
or observance of any term, covenant or condition contained in any
material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it is bound
or to which any of its properties or assets is subject or (iii) is in
violation in any material respect of any law, ordinance, governmental
rule, regulation or court decree to which it or its property or assets
may be subject or has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or permit
necessary to the ownership of its property or to the conduct of its
business.
(t) Neither the Company nor any subsidiary is an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission thereunder.
(u) Any certificate signed by an officer of the Company and
delivered to the Underwriters or their counsel pursuant to this
Agreement shall be deemed a representation and warranty hereunder by the
Company to each Underwriter as to the matters covered thereby.
5
<PAGE>
2. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell _______ shares of the
Firm Stock to the several Underwriters and each of the Underwriters, severally
and not jointly, agrees to purchase the number of shares of the Firm Stock set
opposite that Underwriter's name in Schedule 1 hereto. The respective purchase
obligations of the Underwriters with respect to the Firm Stock shall be rounded
among the Underwriters to avoid fractional shares, as the Representatives may
determine.
In addition, the Company grants to the Underwriters an option to
purchase up to _______ shares of Option Stock. Such option is granted for the
purpose of covering over-allotments in the sale of Firm Stock and is exercisable
as provided in Section 4 hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Stock shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase Option Stock other than in 100 share amounts. The
price of both the Firm Stock and any Option Stock shall be $_____ per share.
The Company shall not be obligated to deliver any of the Stock to
be delivered on any Delivery Date (as hereinafter defined), as the case may be,
except upon payment for all the Stock to be purchased on such Delivery Date as
provided herein.
3. Offering of Stock by the Underwriters.
Upon authorization by the Representatives of the release of the
Firm Stock, the several Underwriters propose to offer the Firm Stock for sale
upon the terms and conditions set forth in the Prospectus.
4. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the offices of Testa, Hurwitz & Thibeault,
LLP, Boston, Massachusetts, at 10:00 A.M., Eastern time, on the fourth full
business day following the date of this Agreement or at such other date or place
as shall be determined by agreement between the Representatives and the Company.
This date and time are sometimes referred to as the "First Delivery Date." On
the First Delivery Date, the Company shall deliver or cause to be delivered the
Firm Stock to the Representatives for the account of each Underwriter against
payment to or upon the order of the Company of the purchase price by wire
transfer in immediately available funds. The Company shall deliver the Firm
Shares to Lehman Brothers Inc. through the facilities of the Depository Trust
Company ("DTC") for the respective accounts of the several Underwriters. Time
shall be of the essence, and delivery at the time specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. The Company shall make the certificates representing the Firm Stock
available for inspection by the Representatives in New York, New York, not later
than 2:00 P.M., Eastern time, on the business day prior to the First Delivery
Date.
The option granted in Section 2 will expire 30 days after the
date of this Agreement and may be exercised in whole or in part from time to
time by written notice being given to the Company by the Representatives. Such
notice shall set forth the aggregate number of shares of Option Stock as to
which the option is being exercised and the date and time, as determined by the
6
<PAGE>
Representatives, when the shares of Option Stock are to be delivered; provided,
however, that this date and time shall not be earlier than the First Delivery
Date nor earlier than the second business day after the date on which the option
shall have been exercised nor later than the fifth business day after the date
on which the option shall have been exercised. The date and time the shares of
Option Stock are delivered are sometimes referred to as a "Subsequent Delivery
Date" and the First Delivery Date and any Subsequent Delivery Date are sometimes
each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 4
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., Eastern time, on such Subsequent
Delivery Date. On such Subsequent Delivery Date, the Company shall deliver or
cause to be delivered the Option Stock to the Representatives for the account of
each Underwriter against payment to or upon the order of the Company of the
purchase price by wire transfer in immediately available funds. The Company
shall deliver the Option Stock to Lehman Brothers Inc. through the facilities of
DTC for the respective accounts of the several Underwriters. Time shall be of
the essence, and delivery at the time specified pursuant to this Agreement is a
further condition of the obligation of each Underwriter hereunder. The Company
shall make the certificates representing the Option Stock available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., Eastern time, on the business day prior to such Subsequent Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of
business on the second business day following the execution and delivery
of this Agreement or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement or to the
Prospectus except as permitted herein; to advise the Representatives,
promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement or any Rule 462(b) Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof; to advise the Representatives,
promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus, of the
suspension of the qualification of the Stock for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration
Statement, including any Rule 462(b)
7
<PAGE>
Registration Statement, as originally filed with the Commission, and
each amendment thereto filed with the Commission, including all
consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement, including any Rule
462(b) Registration Statement, as originally filed with the Commission
and each amendment thereto (in each case excluding exhibits other than
this Agreement and any computation of per share earnings); and (ii) each
Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus; and, if the delivery of a prospectus is required at any time
after the Effective Time in connection with the offering or sale of the
Stock or any other securities relating thereto and if at such time any
events shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary to amend or supplement the Prospectus
in order to comply with the Securities Act, to notify the
Representatives and, upon their request, to prepare and furnish without
charge to each Underwriter and to any dealer in securities as many
copies as the Representatives may from time to time reasonably request
of an amended or supplemented Prospectus which will correct such
statement or omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement, including any filing required under Rule 462(b),
or the Prospectus or any supplement to the Prospectus that may, in the
judgment of the Company or the Representatives, be required by the
Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish a copy
thereof to the Representatives and counsel for the Underwriters and
obtain the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's security holders and to deliver to
the Representatives an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a) of
the Securities Act and the Rules and Regulations (including, at the
option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the
Company to its shareholders generally and all public reports and all
reports and financial statements furnished by the Company to the
principal national securities exchange upon which the Common Stock may
be listed pursuant to requirements of or agreements with such exchange
or to the Commission pursuant to the Exchange Act or any rule or
regulation of the Commission thereunder;
8
<PAGE>
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Stock;
provided that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(i) For a period of 180 days from the date of the Prospectus, not
to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any
person at any time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock (other than
the Stock and shares issued pursuant to stock option and purchase plans
or other employee compensation plans existing on the date hereof or
pursuant to currently outstanding options, warrants or rights), or sell
or grant options, rights or warrants with respect to any shares of
Common Stock or securities convertible into or exchangeable for Common
Stock (other than the grant of options pursuant to stock option and
purchase plans or other employee compensation plans existing on the date
hereof ), or (2) enter into any swap or other derivatives transaction
that transfers to another, in whole or in part, any of the economic
benefits or risks of ownership of such shares of Common Stock, whether
any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or other securities, in cash or
otherwise, in each case without the prior written consent of Lehman
Brothers Inc.; and to cause each officer and director of the Company and
each stockholder of the Company previously specified to the Company by
Lehman Brothers Inc. to furnish to the Representatives, prior to the
First Delivery Date, a letter or letters, in form and substance
satisfactory to counsel for the Underwriters, pursuant to which each
such person shall agree not to, directly or indirectly, (1) offer for
sale, sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the future of)
any shares of Common Stock or securities convertible into or
exchangeable for Common Stock or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of such shares of
Common Stock, whether any such transaction described in clause (1) or
(2) above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, in each case for a period of 180 days
from the date of the Prospectus, without the prior written consent of
Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the inclusion of
the Stock on the Nasdaq National Market System and to use its best
efforts to complete that listing, subject only to official notice of
issuance, prior to the First Delivery Date;
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the Underwriters and receive and consider its
comments thereon, and to deliver promptly to the Representatives a
signed copy of each report on Form SR filed by it with the Commission;
9
<PAGE>
(l) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus; and
(m) To take such steps as shall be necessary to ensure that
neither the Company nor any subsidiary shall become an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) the costs of producing and distributing
this Agreement and any other related documents in connection with the offering,
purchase, sale and delivery of the Stock; (e) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of sale of the Stock; (f) any applicable listing or other
fees; (g) the fees and expenses of qualifying the Stock under the securities
laws of the several jurisdictions as provided in Section 5(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters); and (h) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement; provided that, except as provided in this Section 6 and in Section 11
the Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, any transfer taxes on the Stock which they may sell
and the expenses of advertising any offering of the Stock made by the
Underwriters.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
contained herein, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a); no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of Testa,
Hurwitz & Thibeault, LLP, counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel, is material
and is required to be stated therein or is necessary to make the
statements therein not misleading.
10
<PAGE>
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Stock, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby
shall be reasonably satisfactory in all material respects to counsel for
the Underwriters, and the Company shall have furnished to such counsel
all documents and information that they may reasonably request to enable
them to pass upon such matters.
(d) Hutchins, Wheeler & Dittmar shall have furnished to the
Representatives its written opinion, as counsel to the Company,
addressed to the Underwriters and dated such Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to the effect
that:
(i) The Company and each of its subsidiaries have been
duly incorporated and are validly existing as
corporations in good standing under the laws of their
respective jurisdictions of incorporation, are duly
qualified to do business and are in good standing as
foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct
of their respective businesses requires such
qualification and have all power and authority necessary
to own, lease or operate their respective properties and
conduct the businesses in which they are engaged;
(ii) The Company has an authorized and issued
capitalization as set forth in the Prospectus, and all
of the issued shares of capital stock of the Company
(including the shares of Stock being delivered on such
Delivery Date) have been duly and validly authorized and
issued, are fully paid and non-assessable and conform,
in all material respects, to the description thereof
contained in the Prospectus; all of the issued shares of
capital stock of each subsidiary of the Company have
been duly and validly authorized and issued and are
fully paid, non-assessable and are owned directly or
indirectly by the Company, free and clear of all
security interests, liens, encumbrances, equities or
claims; and, to the best of such counsel's knowledge,
except as described in the Prospectus, there are no
outstanding option, warrants or other rights to acquire
from the Company any shares of capital stock of the
Company;
(iii) There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon
the voting or transfer of, any shares of the Stock
pursuant to the Company's corporate charter or by-laws
or any agreement or other instrument known to such
counsel;
(iv) To the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company
or any of its subsidiaries is a party or of which any
property or assets of the Company or any of its
subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries,
might have a Material Adverse Effect; and, to the best
of such counsel's
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knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened
by others;
(v) The Registration Statement was declared effective
under the Securities Act as of the date and time
specified in such opinion, the Prospectus was filed with
the Commission pursuant to the subparagraph of Rule
424(b) of the Rules and Regulations specified in such
opinion on the date specified therein and no stop order
suspending the effectiveness of the Registration
Statement has been issued and, to the knowledge of such
counsel, no proceeding for that purpose is pending or
threatened by the Commission;
(vi) The Registration Statement, including any Rule
462(b) Registration Statement, and the Prospectus and
any further amendments or supplements thereto made by
the Company prior to such Delivery Date (other than the
financial statements and related schedules therein, as
to which such counsel need express no opinion) comply as
to form in all material respects with the requirements
of the Securities Act and the Rules and Regulations;
(vii) To the best of such counsel's knowledge, there are
no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the
Rules and Regulations which have not been described or
filed as exhibits to the Registration Statement;
(viii) This Agreement has been duly authorized, executed
and delivered by the Company;
(ix) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the
compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in
a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or
to which any of the property or assets of the Company or
any of its subsidiaries is subject, nor will such
actions result in any violation of the provisions of the
charter or by-laws of the Company or any of its
subsidiaries or any statute or any order, rule or
regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their
properties or assets; and, except for the registration
of the Stock under the Securities Act and such consents,
approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act
and applicable state securities laws or by the National
Association of Securities Dealers, Inc., no consent,
approval, authorization or order of, or filing or
registration with, any such court or governmental agency
or body is required for the
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<PAGE>
execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions
contemplated hereby;
(x) The statements contained in the Prospectus under the
captions "Description of Capital Stock" and "Shares
Eligible for Future Sale" are accurate and complete in
all material respects; and
(xi) To the best of such counsel's knowledge, there are
no contracts, agreements or understandings between the
Company and any person granting such person the right
(other than rights which have been waived or satisfied)
to require the Company to file a registration statement
under the Securities Act with respect to any securities
of the Company owned or to be owned by such person or to
require the Company to include such securities in the
securities registered pursuant to the Registration
Statement or in any securities being registered pursuant
to any other registration statement filed by the Company
under the Securities Act.
In rendering such opinion, such counsel may state that
its opinion is limited to matters governed by the Federal laws of
the United States of America, the laws of the Commonwealth of
Massachusetts and the General Corporation Law of the State of
Delaware and that such counsel is not admitted in the State of
Delaware. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that (x) such
counsel has acted as counsel to the Company on a regular basis,
and has acted as counsel to the Company in connection with the
preparation of the Registration Statement, and (y) based on the
foregoing, no facts have come to the attention of such counsel
which lead it to believe that the Registration Statement, as of
the Effective Date, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, or that the Prospectus contains any untrue statement
of a material fact or omits to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading when they were filed with the Commission
contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The foregoing opinion and statement may be
qualified by a statement to the effect that such counsel does not
assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration
Statement or the Prospectus, except as set forth in subparagraph
(x) above.
(e) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, such opinion or opinions,
dated such Delivery Date, with respect to the issuance and sale of the
Stock, the Registration Statement, the Prospectus and other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
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<PAGE>
(f) At the time of execution of this Agreement, the
Representatives shall have received from Arthur Andersen LLP a letter,
in form and substance satisfactory to the Representatives, addressed to
the Underwriters and dated the date hereof (i) confirming that they are
independent public accountants within the meaning of the Securities Act
and are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates as
of which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date hereof), the
conclusions and findings of such firm with respect to the financial
information and other matters ordinarily covered by accountants'
"comfort letters" to underwriters in connection with registered public
offerings.
(g) With respect to the letter of Arthur Andersen LLP referred to
in the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial
letter"), the Company shall have furnished to the Representatives a
letter (the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities Act
and are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letter (or,
with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in
the Prospectus, as of a date not more than five days prior to the date
of the bring-down letter), the conclusions and findings of such firm
with respect to the financial information and other matters covered by
the initial letter and (iii) confirming in all material respects the
conclusions and findings set forth in the initial letter.
(h) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating
that:
(i) The representations, warranties and agreements of
the Company in Section 1 are true and correct as of such
Delivery Date; the Company has complied with all its
agreements contained herein; and the conditions set
forth in Sections 7(a) and 7(i) have been fulfilled; and
(ii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion (A)
as of the Effective Date, the Registration Statement and
Prospectus did not include any untrue statement of a
material fact and did not omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and (B) since the
Effective Date no event has occurred which should have
been set forth in a supplement or amendment to the
Registration Statement or the Prospectus.
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<PAGE>
(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus or (ii) since such date there shall not have been any change
in the capital stock or long-term debt of the Company or any of its
subsidiaries or any Material Adverse Change, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Stock being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus.
(j) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental authority
having jurisdiction, (ii) a banking moratorium shall have been declared
by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a
declaration of a national emergency or war by the United States or (iv)
there shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States
shall be such) as to make it, in the judgment of a majority in interest
of the several Underwriters, impracticable or inadvisable to proceed
with the public offering or delivery of the Stock being delivered on
such Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(k) The Nasdaq National Market System shall have approved the
Stock for inclusion, subject only to official notice of issuance.
All opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who
controls any Underwriter within the meaning of the Securities Act, from
and against any loss, claim, damage or liability, joint or several, or
any action in respect thereof (including, but not limited to, any loss,
claim, damage, liability or action relating to purchases and sales of
Stock), to which that Underwriter, officer, employee or controlling
person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of,
or is based upon, (i) any untrue statement or alleged untrue statement
of a material fact
15
<PAGE>
contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto, (ii) the
omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact
required to be stated therein or necessary to make the statements
therein not misleading or (iii) any act or failure to act or any alleged
act or failure to act by any Underwriter in connection with, or relating
in any manner to, the Stock or the offering contemplated hereby, and
which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon matters covered by
clause (i) or (ii) above (provided that the Company shall not be liable
under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its
gross negligence or willful misconduct), and shall reimburse each
Underwriter and each such officer, employee or controlling person
promptly upon demand for any legal or other expenses reasonably incurred
by that Underwriter, officer, employee or controlling person in
connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, in reliance upon and
in conformity with written information concerning such Underwriter
furnished to the Company through the Representatives by or on behalf of
any Underwriter specifically for inclusion therein, which information
consists solely of the information specified in Section 8(e); and
provided, further, that the Company shall not be liable to any
Underwriter under the indemnity agreement in this subsection with
respect to any Preliminary Prospectus to the extent that any such loss,
claim, damage, liability or any action in respect thereof of such
Underwriter results from the fact that such Underwriter sold Stock to a
person as to whom it shall be established that there was not sent or
given, at or prior to the written confirmation of such sale, a copy of
the Prospectus or of the Prospectus as then amended or supplemented in
any case where such delivery is required by the Securities Act if the
Company has previously furnished copies thereof in sufficient quantity
to such Underwriter and the loss, claim, damage or liability of such
Underwriter results from an untrue statement or omission of a material
fact contained in the Preliminary Prospectus which was (i) identified to
such Underwriter at or prior to the earlier of the filing with the
Commission or the furnishing to such Underwriter of the Prospectus and
(ii) corrected in the Prospectus or in the Prospectus as then amended or
supplemented. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Underwriter or to
any officer, employee or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Company, its officers and employees, each of its
directors (including any person who, with his or her consent, is named
in the Registration Statement as about to become a director of the
Company), and each person, if any, who controls the Company within the
meaning of the Securities Act, from and against any loss, claim, damage
or liability, joint or several, or any action in respect thereof, to
which the Company or any such
16
<PAGE>
director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained (A)
in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or (B) in any Blue
Sky Application or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or
in any amendment or supplement thereto, or in any Blue Sky Application
any material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent
that the untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with
written information concerning such Underwriter furnished to the Company
through the Representatives by or on behalf of that Underwriter
specifically for inclusion therein, and shall reimburse the Company and
any such director, officer or controlling person for any legal or other
expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage,
liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company or any such director,
officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under
this Section 8 except to the extent it has been materially prejudiced by
such failure and, provided further, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may
have to an indemnified party otherwise than under this Section 8. If any
such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof
other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ counsel to represent
jointly the Representatives and those other Underwriters and their
respective officers, employees and controlling persons who may be
subject to liability arising out of any claim in respect of which
indemnity may be sought by the Underwriters against the Company under
this Section 8 if, in the reasonable judgment of the Representatives, it
is advisable for the Representatives and those Underwriters, officers,
employees and controlling persons to be jointly represented by separate
counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Company. No indemnifying party shall (i)
without the prior written consent of the indemnified parties (which
consent shall not be unreasonably withheld), settle or compromise or
consent to the entry of any judgment with respect to any
17
<PAGE>
pending or threatened claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether
or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise, consent or judgment
(A) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding, and (B)
does not include a statement as to or an admission of fault, culpability
or failure to act by or on behalf of any indemnified party, or (ii) be
liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but
if settled with the consent of the indemnifying party or if there be a
final judgment for the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from
and against any loss or liability by reason of such settlement or
judgment.
(d) If the indemnification provided for in this Section 8 shall
for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability,
or action in respect thereof, (i) in such proportion as shall be
appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other hand from the offering of
the Stock or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Company on the one hand and the
Underwriters on the other hand with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or
action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other hand with respect to such
offering shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Stock purchased under this Agreement
(before deducting expenses) received by the Company, on the one hand,
and the total underwriting discounts and commissions received by the
Underwriters with respect to the shares of the Stock purchased under
this Agreement, on the other hand, bear to the total gross proceeds from
the offering of the shares of the Stock under this Agreement, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other hand, the
intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 8 were to
be determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party
as a result of the loss, claim, damage or liability, or action in
respect thereof, referred to above in this Section 8 shall be deemed to
include, for purposes of this Section 8(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), no Underwriter shall be required to
contribute any amount in excess of the amount by which
18
<PAGE>
the total price at which the Stock underwritten by it and distributed to
the public was offered to the public exceeds the amount of any damages
which such Underwriter has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 8(d) are several in proportion to their
respective underwriting obligations and not joint.
(e) The Underwriters severally confirm that the following
statements are correct and constitute the only information concerning
such Underwriters furnished in writing to the Company by or on behalf of
the Underwriters specifically for inclusion in the Registration
Statement and the Prospectus: (i) the statements with respect to the
public offering of the Stock by the Underwriters set forth on the cover
page of the Prospectus and (ii) the statements concerning concessions,
allowances and reallowances and stabilization and over-allotment set
forth under the caption "Underwriting" in the Prospectus.
9. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total number
of shares of the Stock which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total number of shares
of the Stock to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of the Stock which it agreed to purchase on such Delivery
Date pursuant to the terms of Section 2. If the foregoing maximums are exceeded,
the remaining non-defaulting Underwriters, or those other underwriters
satisfactory to the Representatives who so agree, shall have the right, but
shall not be obligated, to purchase, in such proportion as may be agreed upon
among them, all the Stock to be purchased on such Delivery Date. If the
remaining Underwriters or other underwriters satisfactory to the Representatives
do not elect to purchase the shares which the defaulting Underwriter or
Underwriters agreed but failed to purchase on such Delivery Date, this Agreement
(or, with respect to the Subsequent Delivery Date, the obligation of the
Underwriters to purchase, and of the Company to sell, the Option Stock) shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company, except that the Company will continue to be liable for the payment of
expenses to the extent set forth in Sections 6 and 11. As used in this
Agreement, the term "Underwriter" includes, for all purposes of this Agreement
unless the context requires otherwise, any party not listed in Schedule 1 hereto
who, pursuant to this Section 9, purchases Firm Stock which a defaulting
Underwriter agreed but failed to purchase.
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<PAGE>
Nothing contained herein shall relieve a defaulting Underwriter
of any liability it may have to the Company for damages caused by its default.
If other underwriters are obligated or agree to purchase the Stock of a
defaulting or withdrawing Underwriter, either the Representatives or the Company
may postpone the Delivery Date for up to seven full business days in order to
effect any changes that in the opinion of counsel for the Company or counsel for
the Underwriters may be necessary in the Registration Statement, the Prospectus
or in any other document or arrangement.
10. Termination. The obligations of the Underwriters hereunder
may be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Sections 7(i) or 7(j) shall have occurred
or if the Underwriters shall decline to purchase the Stock for any reason
permitted under this Agreement.
11. Reimbursement of Underwriters' Expenses. If (a) the Company
shall fail to tender the Stock for delivery to the Underwriters by reason of any
failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled by the Company is
not fulfilled, the Company will reimburse the Underwriters for all reasonable
out-of-pocket expenses (including fees and disbursements of counsel) incurred by
the Underwriters in connection with this Agreement and the proposed purchase of
the Stock, and upon demand the Company shall pay the full amount thereof to the
Representatives. If this Agreement is terminated pursuant to Section 9 by reason
of the default of one or more Underwriters, the Company shall not be obligated
to reimburse any defaulting Underwriter on account of those expenses.
12. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by
mail, telex or fax to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department
(Fax: 212-526-6588), with a copy, in the case of any notice
pursuant to Section 8(c), to the Director of Litigation, Office
of the General Counsel, Lehman Brothers Inc., 3 World Financial
Center, 10th Floor, New York, NY 10285; and
(b) if to the Company, shall be delivered or sent by
mail, telex or fax to the address of the Company set forth in the
Registration Statement, Attention: Chief Financial Officer
(Fax: 508-270-2644);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or fax to such Underwriter at its
address set forth in its acceptance telex to the Representatives, which address
will be supplied to any other party hereto by the Representatives upon request.
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof. The Company shall be entitled to act and rely upon any
request, consent, notice or agreement given or made on behalf of the
Underwriters by Lehman Brothers Inc. on behalf of the Representatives.
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13. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the Company,
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 8(b) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 13, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the Underwriters contained in this
Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
15. Definition of the Terms "Business Day" and "subsidiary". For
purposes of this Agreement, (a) "business day" means each Monday, Tuesday,
Wednesday, Thursday or Friday which is not a day on which banking institutions
in New York are generally authorized or obligated by law or executive order to
close and (b) "subsidiary" has the meaning set forth in Rule 405 of the Rules
and Regulations.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York.
17. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
[Remainder of page intentionally left blank]
21
<PAGE>
If the foregoing correctly sets forth the agreement between the
Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
MAKER COMMUNICATIONS, INC.
By
--------------------------------
[Title]
Accepted:
LEHMAN BROTHERS INC.
BT ALEX. BROWN INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
-----------------------------------
Authorized Representative
22
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Number of Shares of
Firm Stock To Be
Underwriter Purchased
----------- -------------------
<S> <C>
Lehman Brothers Inc.
BT Alex. Brown Incorporated
NationsBanc Montgomery Securities LLC
---------
Total 0,000,000
=========
</TABLE>
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MAKER COMMUNICATIONS, INC.
Maker Communications, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY
as follows:
The date of filing of its original Certificate of Incorporation with
the Secretary of State of the State of Delaware was September 19, 1996.
The Board of Directors of the Corporation, at a meeting of the Board
of Directors of the Corporation held on ______, 1999, duly adopted resolutions
setting forth the Amended and Restated Certificate of Incorporation herein
contained, declaring its advisability and directing that such Amended and
Restated Certificate of Incorporation be submitted to the holders of the issued
and outstanding capital stock for approval in accordance with the applicable
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware and the Corporation's Certificate of Incorporation, as previously
amended.
The Amended and Restated Certificate of Incorporation was duly
adopted, after having been declared advisable by the Board of Directors of the
Corporation by the stockholders of the Corporation by written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware, and prompt written notice of the taking of the action without a
meeting by less than unanimous written consent has been given in accordance with
section 228(d) to the stockholders who did not consent in writing.
The text of the Amended and Restated Certificate of Incorporation of
the Corporation, as restated and amended (herein called the "Restated
Certificate of Incorporation") shall read in its entirety as follows:
FIRST: The name of the Corporation shall be:
MAKER COMMUNICATIONS, INC.
SECOND: The registered office of the Corporation in the State of
Delaware is located at 1209 Orange Street, in the City of Wilmington, County of
New Castle, 19801, and its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose or purposes of the Corporation shall be to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
<PAGE>
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is _________ shares, which shares shall be divided
into two classes consisting of: (i) ________ shares of Common Stock (with $.01
par value per share) ("Common Stock") and (ii) ______ shares of Preferred Stock
(with $.01 par value per share) ("Blank Check Preferred Stock").
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the Common Stock and the
Preferred Stock shall be as follows:
A. COMMON STOCK
------------
1. Voting Rights. Except as otherwise required by law or this Amended
and Restated Certificate of Incorporation, each holder of Common Stock shall
have one vote in respect of each share of Common Stock held by him of record on
the books of the Corporation for the election of directors and on all matters
submitted to a vote of stockholders of the Corporation.
2. Dividends. The holders of shares of Common Stock shall be entitled
to receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property or in shares of capital stock, subject, however, to the
limitations contained in Part B below.
3. Dissolution, Liquidation or Winding Up. After distribution in full
of the preferential amount, if any, to be distributed to the holders of series
of the Blank Check Preferred Stock (in accordance with the relative preferences
among such series) in the event of involuntary liquidation, distribution,
dissolution or winding-up, of the Corporation, the holders of the Common Stock
shall be entitled to receive all of the remaining assets of the Corporation,
tangible and intangible, or whatever kind available for distribution to
stockholders, ratably in proportion to the number of shares of Common Stock held
by them respectively.
B. BLANK CHECK PREFERRED STOCK
---------------------------
1. Issuance. Shares of Blank Check Preferred Stock may be issued from
time to time in one or more series as may from time to time be determined by the
Board of Directors, each of said series to be distinctly designated. All shares
of any one series of the Blank Check Preferred Stock shall be alike in every
particular, except that there may be different dates from which dividends, if
any, thereon shall be cumulative, if made cumulative. The voting powers, if any,
and the designations, relative preferences, participating, optional or other
special rights or privileges of each such series, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding.
-2-
<PAGE>
2. Authority of the Board of Directors. The Board of Directors is
authorized, subject to limitations prescribed by law and the provisions of this
Article FOURTH, to provide for the issuance of the shares of the Blank Check
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix in the
resolution or resolutions providing for the issue of such stock adopted by the
Board of Directors of the Corporation the voting powers, if any, and the
designations, relative preferences, participating, optional or other special
rights or privileges, and the qualifications, limitations or restrictions of
such series, including, but without limiting the generality of the foregoing,
the following:
(a) The distinctive designation of, and the number of
shares of the Blank Check Preferred Stock which shall
constitute such series. The designation of a series of
preferred stock need not include the words "preferred" or
"preference" and may be designated "special" or other
distinctive term. Unless otherwise provided in the
resolution issuing such series, the number of shares of any
series of the Blank Check Preferred Stock may be increased
or decreased (but not below the number of shares thereof
then outstanding) by the Board of Directors in the manner
prescribed by law;
(b) The rate and times at which, and the terms and
conditions upon which, dividends, if any, on the Blank
Check Preferred Stock of such series shall be paid, the
extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or
classes, or series of the same or other classes of stock
and whether such dividends shall be cumulative or
non-cumulative and, if cumulative, the date from which such
dividends shall be cumulative;
(c) Whether the series shall be convertible into, or
exchangeable for, at the option of the holders of the Blank
Check Preferred Stock of such series or the Corporation or
upon the happening of a specified event, 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, and
the terms and conditions of such conversion or exchange,
including provisions for the adjustment of any such
conversion rate in such events as the Board of Directors
shall determine;
(d) Whether or not the Blank Check Preferred Stock of such
series shall be subject to redemption at the option of the
Corporation or the holders of such series or upon the
happening of a specified event, and the redemption price or
prices and the time or times at which, and the terms and
conditions upon which, the Blank Check Preferred Stock of
such series may be redeemed;
-3-
<PAGE>
(e) The rights, if any, of the holders of the Blank Check
Preferred Stock of such series upon the voluntary or
involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding-up,
of the Corporation;
(f) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Blank Check
Preferred Stock of such series; and
(g) Subject to subparagraph 5 of Paragraph C hereof,
whether such series of the Blank Check Preferred Stock
shall have full, limited or no voting powers including,
without limiting the generality of the foregoing, whether
such series shall have the right, voting as a series by
itself or together with other series of the Blank Check
Preferred Stock or all series of the Blank Check Preferred
Stock as a class, to elect one or more directors of the
Corporation if there shall have been a default in the
payment of dividends on any one or more series of the Blank
Check Preferred Stock or under such other circumstances and
on such conditions as the Board of Directors may determine.
C. OTHER PROVISIONS.
-----------------
1. No holder of any of the shares of any class or series of stock or
of options, warrants or other rights to purchase shares of any class or series
of stock or of other securities of the Corporation shall have any preemptive
right to purchase or subscribe for any unissued stock of any class or series or
any additional shares of any class or series to be issued by reason of any
increase of the authorized capital stock of the Corporation of any class or
series, or bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation of any class or
series, or carrying any right to purchase stock of any class or series, but any
such unissued stock, additional authorized issue of shares of any class or
series of stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of pursuant to
resolution of the Board of Directors to such persons, firms, corporations or
associations (including such holders or others) and upon such terms as may be
deemed advisable by the Board of Directors in the exercise of its sole
discretion.
2. The relative powers, preferences and rights of each series of the
Blank Check Preferred Stock in relation to the powers, preferences and rights of
each other series of the Blank Check Preferred Stock shall, in each case, be as
fixed from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in Paragraph B hereof. The
consent, by class or series vote or otherwise, of the holders of such of the
series of the Blank Check Preferred Stock as are from time to time outstanding
shall not be required for the issuance by the Board of Directors of any other
series of the Blank Check Preferred Stock whether or not the powers, preferences
and rights of such other series shall be fixed by the Board of Directors as
senior to, or on a parity with, the powers, preferences and rights of
-4-
<PAGE>
such outstanding series, or any of them; provided, however, that the Board of
Directors may provide in the resolution or resolutions as to any series of the
Blank Check Preferred Stock adopted pursuant to Paragraph B hereof, the
conditions, if any, under which the consent of the holders of a majority (or
such greater proportion as shall be fixed therein) of the outstanding shares of
such series shall be required for the issuance of any or all other series of the
Blank Check Preferred Stock.
3. Subject to the provisions of subparagraph 2 of this Paragraph C,
shares of any series of the Blank Check Preferred Stock may be issued from time
to time as the Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of Directors.
4. Shares of authorized Common Stock may be issued from time to time
as the Board of Directors of the Corporation shall determine and on such terms
and for such consideration as shall be fixed by the Board of Directors.
5. The number of authorized shares of Common Stock and of the Blank
Check Preferred Stock, without a class or series vote, may be increased or
decreased from time to time (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the Corporation entitled to vote thereon.
FIFTH:
A. Number, Election and Terms of Directors. The number of directors
shall be fixed from time to time exclusively by the Board of Directors pursuant
to a resolution adopted by the Board of Directors. The Directors of the
Corporation shall be divided into two classes: Class I and Class II. Each class
shall consist, as nearly as may be possible, of one-half of the whole number of
the Board of Directors. If the Board of Directors is not evenly divisible by
two, the Board of Directors shall determine the number of Directors to be
elected to each class. The initial members of Class I shall be _______ and
_________ and they shall hold office for a term to expire at the Annual Meeting
of the Stockholders to be held in 2000; the initial members of Class II shall be
_______ and ______ and they shall hold office for a term to expire at the Annual
Meeting of the Stockholders to be held in 2000, and in the case of each class,
until their respective successors are duly elected and qualified. At each annual
election held commencing with the annual election in 2000, the Directors elected
to succeed those whose terms expire shall be identified as being of the same
class as the Directors they succeed and shall be elected to hold office for a
term to expire at the third Annual Meeting of the Stockholders after their
election, and until their respective successors are duly elected and qualified.
If the number of Directors changes, any increase or decrease in Directors shall
be apportioned among the classes so as to maintain all classes as equal in
number as possible, and any additional Director elected to any class shall hold
office for a term which shall coincide with the terms of the other Directors in
such class and until his successor is duly elected and qualified.
-5-
<PAGE>
B. Removal. 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, or a majority vote of the Board of
Directors.
C. Amendment, Repeal or Alteration. Notwithstanding any other
provisions of the Restated Certificate of Incorporation or the Restated By-Laws
of the Corporation or the fact that a lesser percentage may be specified by law,
the affirmative vote of the holders of greater than fifty percent (50%) of the
combined voting power of the outstanding stock of the Corporation entitled to
vote generally in the election of Directors, voting together as a single class,
shall be required to amend, alter, adopt any provision inconsistent with or to
repeal this Article FIFTH.
SIXTH: The Corporation hereby affirmatively elects in this Restated
Certificate of Incorporation to be governed by Section 203 of the General
Corporation Law of Delaware.
SEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
EIGHTH: No director shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a director
notwithstanding any provision of law imposing such liability; provided that, to
the extent provided by applicable law, this provision shall not eliminate the
liability of a director (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 General Corporation Law of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any
-6-
<PAGE>
director for or with respect to any acts or omissions of such director occurring
prior to such amendment or repeal.
NINTH: In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware.
A. The Board of Directors of the Corporation is expressly authorized
to adopt, amend, or repeal the By-laws of the Corporation.
B. Elections of directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.
C. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.
TENTH: Except as otherwise stated elsewhere in this Restated
Certificate of Incorporation, the Corporation reserves the right to amend or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
a stockholder herein are granted subject to this reservation.
ELEVENTH: The Corporation is to have perpetual existence.
[Remainder of Page Intentionally Left Blank]
-7-
<PAGE>
IN WITNESS WHEREOF, Maker Communications, Inc. has caused its
corporate seal to be hereunto affixed and this Restated Certificate of
Incorporation to be signed by William Giudice, its President, who hereby
acknowledges under penalties of perjury that the facts herein stated are true
and that this Restated Certificate of Incorporation is his act and deed, and
attested by Michael Rubino, its Secretary, as of the day of _________, 1999.
MAKER COMMUNICATIONS, INC.
By:
-----------------------
Name: William Giudice
Title: President
ATTEST:
By:
--------------------
Name: Michael Rubino
Title: Secretary
[SEAL]
-8-
Effective Date: ____________
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
MAKER COMMUNICATIONS, INC.
(A Delaware Corporation)
<TABLE>
<S> <C>
ARTICLE 1
CERTIFICATE OF INCORPORATION.......................................................... 1
Section 1.1 Contents................................................................. 1
Section 1.2 Certificate in Effect.................................................... 1
ARTICLE 2
MEETINGS OF STOCKHOLDERS.............................................................. 1
Section 2.1 Place.................................................................... 1
Section 2.2 Annual Meeting........................................................... 2
Section 2.3 Notice of Stockholder Business........................................... 2
Section 2.4 Special Meetings......................................................... 3
Section 2.5 Notice of Meetings....................................................... 3
Section 2.6 Affidavit of Notice...................................................... 4
Section 2.7 Quorum................................................................... 4
Section 2.8 Voting Requirements...................................................... 4
Section 2.9 Proxies and Voting....................................................... 5
Section 2.10 Action Without Meeting.................................................. 5
Section 2.11 Stockholder List........................................................ 6
Section 2.12 Record Date............................................................. 6
ARTICLE 3
DIRECTORS............................................................................. 7
Section 3.1 Number; Election and Term of Office...................................... 7
Section 3.2 Duties................................................................... 8
Section 3.3 Compensation............................................................. 8
Section 3.4 Reliance on Books........................................................ 9
<PAGE>
ARTICLE 4
MEETINGS OF THE BOARD OF DIRECTORS................................................... 9
Section 4.1 Place................................................................... 9
Section 4.2 Annual Meeting.......................................................... 9
Section 4.3 Regular Meetings........................................................ 9
Section 4.4 Special Meetings........................................................ 9
Section 4.5 Quorum.................................................................. 10
Section 4.6 Action Without Meeting.................................................. 10
Section 4.7 Telephone Meetings...................................................... 10
ARTICLE 5
COMMITTEES OF DIRECTORS.............................................................. 11
Section 5.1 Designation............................................................. 11
Section 5.2 Records of Meetings..................................................... 12
ARTICLE 6
NOTICES.............................................................................. 12
Section 6.1 Method of Giving Notice................................................. 12
Section 6.2 Waiver.................................................................. 12
ARTICLE 7
OFFICERS............................................................................. 13
Section 7.1 In General.............................................................. 13
Section 7.2 Election of President, Secretary and Treasurer.......................... 13
Section 7.3 Election of Other Officers.............................................. 13
Section 7.4 Salaries................................................................ 13
Section 7.5 Term of Office.......................................................... 13
Section 7.6 Duties of President and Chairman of the Board........................... 13
Section 7.7 Duties of Vice President................................................ 14
Section 7.8 Duties of Secretary..................................................... 14
Section 7.9 Duties of Assistant Secretary........................................... 15
Section 7.10 Duties of Treasurer.................................................... 15
Section 7.11 Duties of Assistant Treasurer.......................................... 16
ARTICLE 8
RESIGNATIONS, REMOVALS AND VACANCIES................................................. 16
Section 8.1 Directors............................................................... 16
Section 8.2 Officers................................................................ 17
ARTICLE 9
CERTIFICATE OF STOCK................................................................. 17
Section 9.1 Issuance of Stock....................................................... 18
Section 9.2 Right to Certificate; Form.............................................. 18
Section 9.3 Facsimile Signature..................................................... 18
Section 9.4 Lost Certificates....................................................... 18
<PAGE>
Section 9.5 Transfer of Stock....................................................... 19
Section 9.6 Registered Stockholders................................................. 19
ARTICLE 10
INDEMNIFICATION...................................................................... 19
Section 10.1 Third Party Actions.................................................... 20
Section 10.2 Derivative Actions..................................................... 20
Section 10.3 Expenses............................................................... 21
Section 10.4 Authorization.......................................................... 21
Section 10.5 Advance Payment of Expenses............................................ 22
Section 10.6 Non-Exclusiveness...................................................... 22
Section 10.7 Insurance.............................................................. 22
Section 10.8 Constituent Corporations............................................... 23
Section 10.9 Additional Indemnification............................................. 23
ARTICLE 11
EXECUTION OF PAPERS.................................................................. 23
ARTICLE 12
FISCAL YEAR.......................................................................... 24
ARTICLE 13
SEAL................................................................................. 24
ARTICLE 14
OFFICES.............................................................................. 24
ARTICLE 15
AMENDMENTS........................................................................... 24
</TABLE>
<PAGE>
MAKER COMMUNICATIONS, INC.
AMENDED AND RESTATED BY-LAWS
----------------------------
ARTICLE 1
---------
CERTIFICATE OF INCORPORATION
----------------------------
Section 1.1 Contents. The name, location of principal office and
purposes of the Corporation shall be as set forth in its Certificate of
Incorporation. These By-Laws, the powers of the Corporation and of its Directors
and stockholders, and all matters concerning the conduct and regulation of the
business of the Corporation shall be subject to such provisions in regard
thereto, if any, as are set forth in said Certificate of Incorporation. The
Certificate of Incorporation is hereby made a part of these By-Laws.
Section 1.2 Certificate in Effect. All references in these By-Laws to
the Certificate of Incorporation shall be construed to mean the Certificate of
Incorporation of the Corporation as from time to time amended, including (unless
the context shall otherwise require) all certificates and any agreement of
consolidation or merger filed pursuant to the Delaware General Corporation Law,
as amended.
ARTICLE 2
---------
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.1 Place. All meetings of the stockholders may be held at such
place either within or without the State of Delaware as shall be designated from
time to time by the Board of Directors, the Chairman of the Board of Directors
or the President and stated in the notice of the meeting or in any duly executed
waiver of notice thereof.
1
<PAGE>
Section 2.2 Annual Meeting. Annual meetings of stock holders, shall be
held on the 2nd Tuesday of April in each year, if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 10:00 A.M., or at such
other date and time as shall be designated from time to time by the Board of
Directors, the Chairman of the Board of Directors or the President and stated in
the notice of the meeting. If such annual meeting has not been held on the day
herein provided therefor, a special meeting of the stockholders in lieu of the
annual meeting may be held, and any business transacted or elections held at
such special meeting shall have the same effect as if transacted or held at the
annual meeting, and in such case all references in these By-Laws, except in this
Section 2.2, to the annual meeting of the stockholders shall be deemed to refer
to such special meeting.
Section 2.3 Notice of Stockholder Business. To be properly brought
before the meeting, business must be of a nature that is appropriate for
consideration at an Annual Meeting and must be (i) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, or (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly brought before
the meeting by a stockholder. In addition to any other applicable requirements,
for business to be properly brought before the Annual Meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, each such notice must be given
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Corporation not later than (1) with respect to a matter to be
brought before an Annual Meeting of Stockholders or a Special Meeting in Lieu of
an Annual Meeting, sixty (60) days prior to the date set forth in the By-Laws
for the Annual Meeting and (2) with respect to a matter
2
<PAGE>
to be brought before a Special Meeting of the Stockholders not in lieu of an
Annual Meeting, the close of business on the tenth day following the date on
which notice of such meeting is first given to stockholders. The notice shall
set forth (i) information concerning the stockholder, including his or her name
and address, (ii) a representation that the stockholder is entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
present the matter specified in the notice, and (iii) such other information as
would be required to be included in a proxy statement soliciting proxies for the
presentation of such matter to the meeting.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be transacted at the Annual Meeting except in accordance with the
procedures set forth in this section; provided, however, that nothing in this
section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the Annual Meeting in accordance with these
By-Laws.
Section 2.4 Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President, the Chairman of
the Board, or by the Board of Directors and shall be called by the President or
Secretary at the request in writing of a majority of the Directors then in
office. Such request shall state the purpose or purposes of the proposed
meeting, which need not be the exclusive purposes for which the meeting is
called. The stockholder shall not have the right, in their capacity as
stockholders, to call a special meeting of the stockholders.
Section 2.5 Notice of Meetings. A written notice of all meetings of
stockholders stating the place, date and hour of the meeting and, in the case of
a special meeting, the purpose or
3
<PAGE>
purposes for which the special meeting is called, shall be given to each
stockholder entitled to vote at such meeting. Except as otherwise provided by
law, such notice shall be given not less than ten nor more than sixty days
before the date of the meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 2.6 Affidavit of Notice. An affidavit of the Secretary or an
Assistant Secretary or the transfer agent of the Corporation that notice of a
stockholders meeting has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
Section 2.7 Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented by proxy at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, except as hereinafter provided, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the original meeting. If the adjournment is for more than
thirty 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.
Section 2.8 Voting Requirements. 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
4
<PAGE>
which by express provision of any applicable statute or of the Certificate of
Incorporation, a different vote is required in which case such express provision
shall govern and control the decision of such question.
Section 2.9 Proxies and Voting. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and persons whose stock is pledged shall be entitled
to vote the pledged shares, unless in the transfer by the pledgor on the books
of the Corporation he shall have expressly empowered the Pledgee to vote said
shares, in which case only the pledgee, or his proxy, may represent and vote
such shares. Shares of the capital stock of the Corporation owned by the
Corporation shall not be voted, directly or indirectly.
Section 2.10 Action Without Meeting. Unless otherwise provided in the
Certificate of Incorporation, until the closing of an underwritten public
offering of the Corporation's Common Stock (a "Public Offering") any action
referred or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without
vote, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote on such action were present and voted. Prompt
notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
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Effective upon the closing of a Public Offering, any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without vote, only if all
stockholders entitled to vote on the matter consent to the action in writing and
written consents are filed with the records of the meetings of the stockholders.
Such consents shall be treated for all purposes as a vote at a meeting.
Section 2.11 Stockholder List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten 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 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. The original or duplicate stock ledger shall be the only evidence as to
who are the stockholders entitled to examine such list, the stock ledger or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 2.12 Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
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in respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
If no record date is fixed by the Board of Directors:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(b) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed.
(c) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
ARTICLE 3
---------
DIRECTORS
---------
Section 3.1 Number; Election and Term of Office. There shall be a Board
of Directors of the Corporation consisting of not less than one member, the
number of members to be determined by resolution of the Board of Directors,
unless the Certificate of Incorporation fixes
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the number of Directors, in which case a change in the number of Directors shall
be made only by amendment of the Certificate. The Board of Directors shall be
divided into such classes for such terms as are provided for in the Certificate
of Incorporation. Subject to any limitation which may be contained within the
Certificate of Incorporation, the number of the Board of Directors may be
increased at any time by vote of a majority of the Directors then in office. The
Directors shall be elected at the annual meeting of the stockholders at which
the term of office of the class to which they have been elected expires, except
as provided in paragraph (c) of Section 8.1, and each Director elected shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal. Directors need not be stockholders.
Section 3.2 Duties. The business of the Corporation shall be managed by
or under the direction of its Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these By-Laws directed or
required to be exercised or done by the stockholders.
Section 3.3 Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, the Board of Directors shall have
the authority to fix the compensation of Directors. The Directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as Directors. No such payment shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
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Section 3.4 Reliance on Books. A member of the Board of Directors or a
member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an appraiser selected with
reasonable care by the Board of Directors or by any committee, or in relying in
good faith upon other records of the Corporation.
ARTICLE 4
---------
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
Section 4.1 Place. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 4.2 Annual Meeting. The first meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders or any special meeting held in lieu thereof, and no notice of such
meeting shall be necessary to the newly elected Directors in order legally to
constitute the meeting.
Section 4.3 Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
Section 4.4 Special Meetings. Special meetings of the Board may be
called by the President on two days' notice to each Director either personally
or by mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of two
Directors unless the Board consists of only one Director, in which case
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special meetings shall be called by the President or Secretary in like manner
and on like notice on the written request of the sole Director.
Section 4.5 Quorum. At all meetings of the Board a majority of the
Directors then in office shall constitute a quorum for the transaction of
business and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be Present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 4.6 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 4.7 Telephone Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
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ARTICLE 5
---------
COMMITTEES OF DIRECTORS
-----------------------
Section 5.1 Designation.
(a) The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
(b) In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(c) Any such committee, to the extent provided in the
resolution of the Board of Directors designating the committee, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws of the Corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or
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authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Section 5.2 Records of Meetings. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required.
ARTICLE 6
---------
NOTICES
-------
Section 6.1 Method of Giving Notice. Whenever, under any provision of
the law or of the Certificate of Incorporation or of these By-Laws, notice is
required to be given to any Director or stockholder, such notice shall be given
in writing by the Secretary or the person or persons calling the meeting by
leaving such notice with such Director or stockholder at his residence or usual
place of business or by mailing it addressed to such Director or stockholder, at
his address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Notice to Directors may
also be given by telegram.
Section 6.2 Waiver. Whenever any notice is required to be given under
any provision of law or of the Certificate of Incorporation or of these By-Laws,
a waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the 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.
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ARTICLE 7
---------
OFFICERS
--------
Section 7.1 In General. The officers of the Corporation shall be chosen
by the Board of Directors and shall include a President, a Secretary and a
Treasurer. The Board of Directors may also choose a Chairman of the Board, one
or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any
number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-Laws otherwise provide.
Section 7.2 Election of President, Secretary and Treasurer. The Board
of Directors at its first meeting after each annual meeting of stockholders
shall choose a President, a Secretary and a Treasurer.
Section 7.3 Election of Other Officers. The Board of Directors may
appoint such other officers and agents as it shall deem appropriate who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board.
Section 7.4 Salaries. The salaries of all officers and agents of the
Corporation may be fixed by the Board of Directors.
Section 7.5 Term of Office. The officers of the Corporation shall hold
office until their successors are chosen and qualify or until their earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time in the manner specified in Section 8.2.
Section 7.6 Duties of President and Chairman of the Board. The
President shall be the chief executive officer of the Corporation, shall preside
at all meetings of the stockholders and, if
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he is a Director, at all meetings of the Board of Directors if there shall be no
Chairman of the Board or in the absence of the Chairman of the Board, shall have
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect. The President shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation. The Chairman of the
Board, if any, shall make his counsel available to the other officers of the
Corporation, shall be authorized to sign stock certificates on behalf of the
Corporation, shall preside at all meetings of the Directors at which he is
present, and, in the absence of the President at all meetings of the
stockholders, and shall have such other duties and powers as may from time to
time be conferred upon him by the Directors.
Section 7.7 Duties of Vice President. In the absence of the President
or in the event of his inability or refusal to act, the Vice President (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated by the Directors, or in the absence of any designation, then in
the order of their election) shall perform the duties of the President not
otherwise conferred upon the Chairman of the Board, if any, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
Section 7.8 Duties of Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of
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the Corporation and of the Board of Directors in a book to be kept for that
purpose and shall perform like duties for the standing committees when required.
He shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the Board of Directors, except as otherwise provided in
these By-Laws, and shall perform such other duties as may be prescribed by the
Board of Directors or President, under whose supervision he shall be. He shall
have charge of the stock ledger (which may, however, be kept by any transfer
agent or agents of the Corporation under his direction) and of the corporate
seal of the Corporation.
Section 7.9 Duties of Assistant Secretary. The Assistant Secretary, or
if there be 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
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.
Section 7.10 Duties of Treasurer. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all of his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, he shall give the
Corporation a bond in such
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sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of this office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 7.11 Duties of Assistant Treasurer. The Assistant Treasurer, or
if there shall be more than one, the Assistant Treasurers 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 Treasurer or in
the event of his inability or refusal to act, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
ARTICLE 8
---------
RESIGNATIONS, REMOVALS AND VACANCIES
------------------------------------
Section 8.1 Directors.
-----------------------
(a) Resignations. Any Director may resign at any time by
giving written notice to the Board of Directors or the President or the
Secretary. Such resignation shall take effect at the time specified therein; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
(b) Removals. Subject to any provisions of the Certificate of
Incorporation, any Director or the entire Board of Directors may be removed with
or without cause, at any meeting called for the purpose, by vote of the holders
of a majority of the shares entitled to vote for the election of Directors, or a
majority vote of the Board of Directors. This Section 8.1(b) may not
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be altered, amended or repealed except by the holders of a majority of the
shares of stock issued and outstanding and entitled to vote for the election of
the Directors.
(c) Vacancies. Vacancies occurring in the office of Director
and newly created Directorships resulting from any increase in the authorized
number of Directors shall be filled by a majority of the Directors then in
office, though less than a quorum, unless previously filled by the stockholders
entitled to vote for the election of Directors, and the Directors so chosen
shall hold office subject to the By-Laws until the next annual meeting of
Stockholders at which the term of office of the class to which they have been
elected expires and until their successors are duly elected and qualify or until
their earlier resignation or removal. If there are no Directors in office, then
an election of Directors may be held in the manner provided by statute.
Section 8.2 Officers. Any officer may resign at any time by giving
written notice to the Board of Directors or the President or the Secretary. Such
resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. The Board of Directors may, at any meeting
called for the purpose, by vote of a majority of their entire number, remove
from office any officer of the Corporation or any member of a committee, with or
without cause. Any vacancy occurring in the office of President, Secretary or
Treasurer shall be filled by the Board of Directors and the officers so chosen
shall hold office subject to the By-Laws for the unexpired term in respect of
which the vacancy occurred and until their successors shall be elected and
qualify or until their earlier resignation or removal.
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ARTICLE 9
---------
CERTIFICATE OF STOCK
--------------------
Section 9.1 Issuance of Stock. The Directors may, at any time and from
time to time, if all of the shares of capital stock which the Corporation is
authorized by its Certificate of Incorporation to issue have not been issued,
subscribed for, or otherwise committed to be issued, issue or take subscriptions
for additional shares of its capital stock up to the amount authorized in its
Certificate of Incorporation. Such stock shall be issued and the consideration
paid therefor in the manner prescribed by law.
Section 9.2 Right to Certificate; Form. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board, the President or a Vice
President and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation; provided that the Directors may provide by one or more
resolutions that some or all of any or all classes or series of the
Corporation's stock shall be uncertified shares. Certificates may be issued for
partly paid shares and in such case upon the face or back of the certificates
issued to represent any such partly paid shares, the total amount of the
consideration to be paid therefor, and the amount paid thereon shall be
specified.
Section 9.3 Facsimile Signature. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 9.4 Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the
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Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 9.5 Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 9.6 Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
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ARTICLE 10
----------
INDEMNIFICATION
---------------
Section 10.1 Third Party Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a Director,
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
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 10.2 Derivative Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a Director, officer, 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 expenses (including attorneys' fees)
20
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actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 10.3 Expenses. To the extent that a Director, officer, employee
or agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 10.1 and 10.2,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 10.4 Authorization. Any indemnification under Sections 10.1 and
10.2 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 10.1 and 10.2.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of Directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested Directors so directs, by independent legal
counsel in a written opinion, or (c) by the stockholders.
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Section 10.5 Advance Payment of Expenses. Expenses incurred by an
officer or Director in defending a civil or criminal action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of such officer or
Director to repay such amount unless it shall ultimately be determined that he
is entitled to be indemnified by the Corporation as authorized in this Article
10. Such expenses incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the Board of Directors deems appropriate.
Section 10.6 Non-Exclusiveness. The indemnification provided by this
Article 10 shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 10.7 Insurance. The Corporation shall have power to 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 and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article 10.
22
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Section 10.8 Constituent Corporations. The Corporation shall have power
to indemnify any person who is or was a director, officer, employee or agent of
a constituent corporation absorbed in a consolidation or merger with this
Corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in the same manner as hereinabove
provided for 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.
Section 10.9 Additional Indemnification. In addition to the foregoing
provisions of this Article 10, the Corporation shall have the power, to the full
extent provided by law, to indemnify any person for any act or omission of such
person against all loss, cost, damage and expense (including attorney's fees) if
such person is determined (in the manner prescribed in Section 10.4 hereof) to
have acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interest of the Corporation.
ARTICLE 11
----------
EXECUTION OF PAPERS
-------------------
Except as otherwise provided in these By-Laws or as the Board of
Directors may generally or in particular cases otherwise determine, all deeds,
leases, transfers, contracts, bonds, notes, checks, drafts and other instruments
authorized to be executed on behalf of the Corporation shall be executed by the
President or the Treasurer.
23
<PAGE>
ARTICLE 12
----------
FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
ARTICLE 13
----------
SEAL
----
The Corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the word "Delaware". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE 14
----------
OFFICES
-------
In addition to its principal office, the Corporation may have offices
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE 15
----------
AMENDMENTS
----------
Except as otherwise provided herein, these By-Laws may be altered,
amended or repealed or new By-Laws may be adopted by the stockholders or by the
Board of Directors, when such power is conferred upon the Board of Directors by
the Certificate of Incorporation, at any regular meeting of the stockholders or
of the Board of Directors, or at any special meeting of the stockholders or of
the Board of Directors if notice of such alteration, amendment, repeal or
adoption of new By-Laws is contained in the notice of such special meeting, or
by the written consent of a majority in interest of the outstanding voting stock
of the Corporation or by the unanimous written consent of the Directors. If the
power to adopt, amend or repeal by-laws is
24
<PAGE>
conferred upon the Board of Directors by the Certificate of Incorporation, it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal by-laws.
25
OFFICE LEASE
By And Between
MARRIOTT PLAZA ASSOCIATES LP., A CALIFORNIA LIMITED PARTNERSHIP
("LANDLORD")
And
MAKER COMMUNICATIONS, A DELAWARE CORPORATION
("TENANT")
2901 TASMAN DRIVE, SUITE 204
SANTA CLARA, CALIFORNIA 95054
<PAGE>
OFFICE LEASE
BASIC LEASE INFORMATION
Date: December 10, 1997
Landlord: Marriott Plaza Associates L.P., a California
limited partnership
Tenant: Maker Communications, a Delaware corporation
Premises: Suite 204, located on the Second floor of the
building located at 2901 Tasman Drive, Santa
Clara, California
Base Year: 1998
Rentable Area of Premises: 1316 square feet
Tenants Percentage Share: l.2%
Term: Two (2) years, beginning on the Term
Commencement Date and expiring on the Term
Expiration Date unless properly extended or
renewed pursuant to any right granted in the
Lease or any Addendum to the Lease.
Term Commencement Date: January 15, 1998, or as determined in accordance
with Exhibit F.
Term Expiration Date: January 15, 2000, or as determined in accordance
with Exhibit F.
Base Rent: $2,895.20/per month (months 1-12)
$2,987.32/per month (months 13-24)
Security Deposit: $5,974.64
Tenants Required
Liability Coverage: $2,000.000
Tenants Address 2901 Tasman Drive, Suite 204
for Notices: Santa Clara, CA 95054
Landlord's Address MARRIOTT PLAZA ASSOCIATES L.P.
for Notices: 525 University Avenue, #100
Palo Alto, CA 94301
with a copy to: Menlo Equities Management Company LLC
2901 Tasman Drive, #220
Santa Clara, CA 95054
Tenant's/Procuring Broker: BT Commercial
1995 North First Street, Suite 200
San Jose, California 95112
Attn: Derik Benson
Parking: Five (5) non-exclusive spaces onsite
Exhibits and Addenda: Exhibit A - Legal Description of the Project
Exhibit B - Floor Plan of Suite
Exhibit C - Rules and Regulations
Exhibit D - Tenant Improvements
Exhibit E - Form of Estoppel
Exhibit F - Commencement Date Certificate
Each reference in the Lease to particular Basic Lease Information shall
incorporate the applicable Basic Lease Information. In the event of any conflict
between any Basic Lease Information and the Lease, the latter shall control.
LANDLORD:
MARRIOTT PLAZA ASSOCIATES L.P.
A California Limited Partnership
By: Menlo Equities Associates IV LLC, a California Limited Liability
Company. Its General Partner
By: Menlo Equities LLC, a California Limited Liability Company. Its
Manager
By:_________________________________________
Its: Member
Date:_______________________________________
2.
<PAGE>
TENANT:
MAKER COMMUNICATIONS, a Delaware corporation
Signature: /s/ MITCHELL MACKOFF
------------------------------------
By: MITCHELL MACKOFF
------------------------------------
Its: VICE PRESIDENT & CFO
------------------------------------
Date: 12/31/97
------------------------------------
3.
<PAGE>
OFFICE LEASE
THIS LEASE, dated December 10, 1997, for purposes of reference only, is
made and entered into by and between MARRIOTT PLAZA ASSOCIATES L.P., a
California Limited Partnership ("Landlord") and MAKER COMMUNICATIONS, a Delaware
corporation ("Tenant").
WITNESSETH
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
the Premises described in paragraph 1(b) below for the term and subject to the
terms covenants, agreements and conditions hereinafter set forth, to each and
all of which Landlord and Tenant hereby mutually agree.
1. DEFINITIONS
Unless the context otherwise specifies or requires the following terms
shall have the meanings herein specified:
(a) The term property shall mean the parcel of real property the
street address of which is 2901 Tasman Drive, Santa Clara, California, and
which is more particularly described in Exhibit A attached hereto and made
a part hereof, the building, sidewalks, landscaping and parking facilities
constructed or to be constructed thereon, and all other improvements on or
appurtenances to the parcel, subject to all easements, rights of way and
encumbrances (collectively, the "Building".)
(b) The term Premises shall mean the portion of the Building located
on the floor(s) specified in the Basic Lease. Information which is outlined
on the floor plan(s) attached hereto as Exhibit B, and which is improved or
to be improved with the improvements described on Exhibit D attached hereto
and made a part hereof.
(c) The term "Base Year" shall mean the calendar year specified in the
Basic Lease Information as the Base Year.
(d) The term "Operating Expenses" shall mean:
(i) All costs of management, operation, repair and maintenance of
the Property, including, without limitation: wages, salaries and
payroll of employees: property management fees, janitorial repairs and
maintenance, guard parking and other services: rent or rental value of
offices used in connection with the management of the Property; power,
water, waste disposal and other utilities and services: materials and
supplies: maintenance and repairs: costs for licenses, permits and
inspections; insurance premiums and the deductible portion of any loss
insured under Landlord's liability insurance: costs for accounting,
legal and other professional services incurred in connection with the
operation of the Property and the calculation of Operating Expenses
and Property Taxes: the reasonable cost of contesting the validity or
applicability of any governmental enactments that may affect the
Property: a reasonable allowance for depreciation on machinery and
equipment used to maintain the Property and on other personal property
used by Landlord in the Building: and any other expense or charge,
whether or not included herein, which in accordance with general
accounting and management practices would be considered an expense of
managing, operating, maintaining and repairing the Property.
(ii) The cost of any capital improvements made to the Property by
Landlord during or after the Base Year, such cost or allocable portion
thereof to be amortized over such reasonable period as Landlord shall
determine in accordance with generally accepted accounting principles
together with interest on the unamortized balance at the rate of
interest equal to the greater of (a) 12% or (b) the sum of that rate
quoted by Wells Fargo Bank, N.T. & S.A. from time to time as its prime
rate (the "Prime Rate"), plus two percent (2%) or such higher rate as
may have been paid by Landlord on funds borrowed for the purpose of
constructing such capital improvements or performing any capital
repairs and/or replacements but not to exceed the maximum rate
permitted by law.
(iii) If less than 95% of the total rentable area of the Building
is occupied during the Base Year or any calendar year during the term
of this Lease, then Operating Expenses shall be adjusted to equal
Landlord's reasonable estimate of Operating Expenses had such
percentage of the total rentable area of the Building been occupied.
(e) The term "Base Operating Expenses" shall mean the Operating
Expenses defined in Section 1(d) above that are paid or incurred by
Landlord in the Base Year.
(f) The term "Property Taxes" shall each mean (i) all taxes,
assessments, levies and other charges of any kind or nature whatsoever,
general and special, foreseen and unforeseen (including all instruments of
principal and interest required to pay any general or special assessments
for public improvements and any increases resulting from reassessments
caused by any change in ownership or new construction), 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 for whatever reason against the Property or
any portion thereof, or Landlords interest herein, or the fixtures,
equipment and other property of Landlord that is an integral part of the
Property and located thereon, or Landlord's business of owning, leasing or
managing the Property or the gross receipts, income or rentals from the
Property, (ii) all charges, levies or fees imposed by any governmental
authority against Landlord by reason of or based upon the use of or number
of parking spaces within the Property, the amount of public services or
public utilities used or consumed (e.g. water, gas, electricity, sewage or
waste water disposal) at the Property, the number of person employed by
tenants of the Property, the size (whether measured in area, volume, number
of tenants or whatever) or the value of the Property, or the type of use or
uses conducted within the Property, and all costs and fees (including
attorneys fees) reasonably incurred by Landlord in contesting any Property
Tax and to negotiating with public authorities as to any Property Tax. If,
at any time during the Lease Term, the taxation or assessment of the
Property prevailing as of the Term Commencement Date shall be altered so
that in lieu of or in addition to any the Property Tax described above
there shall be levied, awarded 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, substitute, or additional use or charge (i)
on the value, size, use or occupancy of the Property or Landlord's interest
therein or (ii) on or measured by the gross receipts, income or rentals
from the Property, or on Landlord's business of owning, leasing or managing
the Property or (iii) computed in any manner with respect to the operation
of the Property, then any such tax or charge, however designated, shall be
included within the meaning of the terms "Property Tax" or "Property Taxes"
for purposes of this Lease. If any Property Tax is partly based upon
property or rents unrelated to the Property, then only that part of such
Property Tax that is fairly allocable to the Property shall be included
within the meaning of the terms "Property Tax" or "Property Taxes".
Notwithstanding the foregoing, the terms "Property Tax" or "Property Taxes"
shall not include estate, inheritance, transfer, gift or franchise taxes of
Landlord or the federal or state income tax imposed on Landlord's income
from all sources.
(g) The term "Base Property Taxes" shall mean the amount of Property
Taxes paid or accruing during the Base Year.
(h) The term "Rentable Area" shall mean the net rentable area
specified in the Basic Lease Information.
(i) The term "Common Areas" shall mean all areas in the Building and
the Property (as defined herein) not reserved for the exclusive use of
Landlord. Tenant or any other tenant, including without limitation, plazas,
walkways, private roadways, loading docks, parking areas, landscaped areas,
and the areas devoted to corridors, fire vestibules, stairways, elevator
foyers, lobbies, electric and telephone closets, rest rooms, mechanical
rooms and other similar facilities for the benefit of all tenants (or
invitees) or servicing the Buildings as a whole. Landlord reserves the
right to make changes to the Common Area as it deems necessary, provided
Landlord shall not reduce the number of parking spaces provided to Tern
pursuant to this Lease.
4.
<PAGE>
(j) The term "Tenant's Percentage Share" shall mean the percentage figure
specified in the Basic Lease Information. Landlord and Tenant acknowledge that
Tenant's percentage share has been obtained by dividing the Rentable Area of the
Premises, as specified in the Basic Lease Information, by the total Rentable
Area of the Building, which Landlord and Tenant agree is 100.114 square feet,
and multiplying such quotient by 100. In the event the Rentable Area of the
Premises is increased or decreased. Tenant's Percentage Share shall be
appropriately adjusted, and as to the calendar year in which such change occurs,
for the purposes of paragraph 3 below Tenant's Percentage Share shall be
determined on the basis of the number of days during such calendar year at each
such Percentage Share.
(k) The term "Private Restrictions" shall mean (as they may exist from time
to time) any and all covenants, conditions and restrictions, private agreements,
easements, and any other recorded documents or instruments affecting the use of
the Property, the Building, the Leased Premises, or the Common Areas.
(l) The term "Law" shall mean any judicial decisions and any statute,
constitution, ordinance, resolution, regulation, rule, administrative order, or
other requirements of any municipal, county, state, federal, or other
governmental agency or authority having jurisdiction over the parties to this
Lease, the Premises, the Building or the Property, or any of them, in effect
either at the Term Commencement Date or at any time during the Lease Term,
including, without limitation, any regulation, order, or policy of any
quasi-official entity or body (e.g. aboard of fire examiners or a public utility
or special district).
2. TERM.
The term of this Lease shall commence and, unless sooner terminated as
hereinafter provided, shall end on the dates respectively specified in the Basic
Lease Information. If Landlord, for any reason whatsoever beyond Landlords
reasonable control, cannot deliver possession of the Premises to Tenant at the
commencement of the term, this Lease shall not be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting therefrom, but in
that event, rental shall be waived for the period between the commencement of
the term and the time when Landlord can deliver possession.
3. RENTAL.
(a) Tenant shall pay to Landlord throughout the term of this Lease as
rental for the Premises the sum specified in the Basic Lease Information as the
Base Rent, provided that the rental payable during each calendar year shall be
the Base Rent, increased by Tenants Percentage Share of the total dollar amount
above or increase in, if any, Operating Expenses paid or incurred by Landlord in
such year over the Base Operating Expenses, and also increased by Tenants
Percentage Share of the total dollar amount above or increase in, if any.
Property Taxes paid by Landlord in such year over the Base Property Taxes. The
increased rental due pursuant to this paragraph 3(a) is hereinafter referred to
as "Escalation Rent."
(b) Rental shall be paid to Landlord on or before the first day of the term
hereof and on or before the first day of each and every successive calendar
month thereafter during the term hereof. In the event the term of this Lease
commences on a day other than the first day of a calendar month or ends on a day
other than the last day of a calendar month, the monthly rental for the first
and last fractional months of the term hereof shall be appropriately prorated.
(c) All sums of money due to Landlord hereunder not specifically
characterized as rental shall constitute additional rent, and if any such sum is
not paid at the time provided in this Lease, it shall nonetheless be collectible
as additional rent at any time thereafter, including, without limitation on the
date on which the next installment of rental is due. Nothing contained herein
shall be deemed to suspend or delay the payment of any sum of money at the time
it becomes due and payable hereunder, or to limit any other remedy of Landlord.
(d) Tenant hereby acknowledges that late payment by Tenant to Landlord of
rent and other sums due hereunder will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be difficult to
ascertain. Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
trust deed covering the Premises. Accordingly, if any installment of rent or any
other sums due from Tenant shall not be received by Landlord when due or in the
time period provided herein. Tenant shall pay to Landlord a late charge equal to
5% of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. Acceptance of such late charge by Landlord
shall in no event constitute a waiver of Tenant's default with respect to such
overdue amount, nor prevent Landlord from exercising any of the other rights and
remedies granted hereunder.
(e) Any amount due to Landlord, if not paid when due, shall bear interest
from the date due until paid at the lower of (i) the rate of the Prime Rate plus
2% per annum, and (ii) the highest rate legally permitted, provided that
interest shall not be payable on late charges incurred by Tenant nor on any
amounts upon which late charges are paid by Tenant to the extent such interest
would cause the total interest to be in excess of that legally permitted.
Payment of interest shall not excuse or cure any default hereunder by Tenant.
(f) All payments due from Tenant to Landlord shall be paid to Landlord,
without deduction or offset, in lawful money of the United States of America at
Landlord's address for notices hereunder, or to such other person or at such
other place as Landlord may from time to time designate by notice to Tenant.
4. ESCALATION RENT PAYMENTS.
Escalation Rent shall be paid monthly on an estimated basis, with
subsequent annual; reconciliation, in accordance with the following procedures:
(a) During December of the Base Year and December of each subsequent
calendar year, or as soon as practicable. Landlord shall give Tenant notice
of its estimate of any Escalation Rent due wider paragraph 3(a) above for
the calendar year. On or before the first day of each month during the
calendar year. Tenant shall pay to Landlord 1/12th of such estimated
Escalation Rent, provided that if such notice is not given in December
Tenant shall continue to pay on the basis of the prior year's estimate
until the month after such notice is given. If at any time or times it
appears to Landlord that the Escalation Rent for the current calendar year
will vary from its estimate by more than 5%. Landlord may, in its sole
discretion, by notice to Tenant, revise its estimate for such year, and
subsequent payments by Tenant for such year shall be based upon such
revised estimate.
(b) Unless Tenant shall dispute landlord's statement of Operating
Expenses and Property Taxes in accordance with its rights under Paragraph
4(d) below, within 90 days after the close of each calendar year or as soon
after such 90-day period as practicable, Landlord shall deliver to Tenant a
statement of the actural Escalation Rent for such calendar year,
accompanied by a statement showing the Operating Expenses and Property
Taxes on the basis of which the actual Escalation Rent was determined. The
statement shall be final and binding upon Landlord and Tenant as the amount
of the Operating Expenses and Property Taxes. If Landlord's statement
discloses that Tenant owes an amount that is less than the estimated
payments for such calendar year previously made by Tenant, Landlord shall
credit such excess against the next payment of rental due from Tenant
hereunder. If Landlord's statement discloses that Tenant owes an amount
that is more than the estimated payments for such calendar year previously
made by Tenant, Tenant shall pay the deficiency to Landlord within 30 days
after delivery of the statement
5.
<PAGE>
(c) The amount of Escalation Rent for any fractional year in the term
hereof shall be appropriately prorated. The termination of this Lease shall
not affect the obligations of Landlord and Tenant pursuant to paragraph
4(b) above to be performed after such termination.
(d) Tenant shall have the right to dispute Landlord's Statement of
Operating Expenses and Property Taxes by so notifying Landlord no later
than 30 days after receipt of same. If Tenant disputes such statement.
Landlord shall provide Tenant with reasonable verification of the figures
shown on the statement and the parties shall negotiate in good faith to
resolve any disputes. If Landlord and Tenant cannot agree. Tenant shall
have the right to have a certified public accountant approved by Landlord
audit, at Tenant's expense, at Landlord's offices, Landlord's accounts and
records relating to Operating Expenses and Property taxes. If such audit
reveals that landlord has overcharged Tenant, the amount overcharged shall,
at Landlord's option, be paid to Tenant within 20 days after the audit is
concluded or be deducted from Tenant's next payment's) of rent. In
addition, if the statement overstates actual Operating Expenses and Real
Property Taxes by more than 10%, the cost of the audit shall be paid by
Landlord. Any objection by Tenant to Landlord's statement and resolution of
any dispute shall not postpone the time for payment of any amounts due
Landlord based on Landlords statement or due under the Lease.
5. SECURITY DEPOSIT.
Tenant has deposited with Landlord the amount set forth in the Basic Lease
Information as the "Security Deposit" as security for the performance by Tenant
of the terms of this Lease to be performed by Tenant, and not as prepayment of
rent. Landlord may apply such portion or portions of the Security Deposit as are
reasonably necessary for the following purposes: (i) to remedy any default by
Tenant in the payment of Base Rent or Escalation Rent or a late charge or
interest on defaulted rent, or any other monetary payment obligation of Tenant
under this Lease: (ii) to repair damage to the Premises, the Building or the
Common Areas caused or permitted to occur by Tenant: (iii) to clean and restore
and repair the Premises, the Building or the Common Areas following their
surrender to Landlord if not surrendered in the condition required pursuant to
the provisions of Paragraph 7, and (iv) to remedy any other default of Tenant to
the extent permitted by Law including, without limitation, paying in full on
Tenant's behalf any sums claimed by materialmen or contractors of Tenant to be
owing to them by Tenant for work done or improvements made at Tenant's request
to the Premises. In this regard, Tenant hereby waives any restriction on the
uses to which the Security Deposit may be applied as contained an Section
1950.7(c) of the California Civil Code and/or any successor statute. In the
event the Security Deposit or any portion thereof is so used. Tenant shall pay
to Landlord, promptly upon demand, an amount in cash sufficient to restore the
Security Deposit to the full original sum. If Tenant fails to promptly restore
the Security deposit and if Tenant shall have paid to Landlord any sums as "Last
Month's Prepaid Rent." Landlord may, in addition to any other remedy Landlord
may have under this Lease, reduce the amount of Tenant's Last Months Prepaid
Rent by transferring all or portions of such Last Month's Prepaid Rent to
Tenant's Security Deposit until such Security Deposit is restored to the amount
set forth in Article 1. Landlord shall not be deemed a trustee of the Security
Deposit. Landlord may use the Security Deposit in Landlord's ordinary business
and Shall not be required to segregate it from Landlord's general accounts.
Tenant shall not be entitled to any interest on the Security Deposit. If
Landlord transfers the Building or the Property during the Lease Term. Landlord
may pay the Security Deposit to any subsequent owner in conformity with the
provisions of Section 1950.7 of the California Civil Code and/or any successor
statute, in which event the transferring landlord shall be released from all
liability for the return of the Security Deposit. Tenant specifically grants to
Landlord (and Tenant hereby waives the provisions of California Civil Code
Section 1950.7 to the contrary) a period of ninety days following a surrender of
the Premises by Tenant to Landlord within which to inspect the Premises, make
required restorations and repairs, receive and verify workmen's billings
therefor, and prepare a final accounting with respect to the Security Deposit.
In no event shall the Security Deposit or any portion thereof, be considered
prepaid rent.
6. Use.
Tenant shall be entitled to use the Premises solely for office/research and
development, sales, marketing and other related uses and (or no other use
whatsoever. Tenant shall continuously and without interruption use the Premises
for such purpose for the entire Lease Term. Any discontinuance of such use for a
period of sixty consecutive calendar days shall be, at Landlord's election, a
default by Tenant under the terms of this Lease. Tenant shall have the right to
use the Common Areas in conjunction with its Permitted Use of the Premises
solely for the purposes for which they were designed and intended aid for no
other purposes whatsoever. Tenant shall not do or permit anything to be done in
or about the Premises, the Building, the Common Areas or the Property which does
or could (i) jeopardize the structural integrity of the Building or (ii) cause
damage to any part of the Premises, the Building, the Common Areas or the
Property. Tenant shall not operate any equipment within the Premises which does
or could (i) injure, vibrate or shake the Premises or the Building, (ii) damage,
overload or impair the efficient operation of any electrical, plumbing, heating,
ventilating or air conditioning system within or servicing the Premises or the
Building, or (iii) damage or impair the efficient operation of the sprinkler
system (if any) within or servicing the Premises or the Building. Tenant shall
nor install any equipment or antennas on or make any penetrations of the
exterior walls or roof of the Building. Tenant shall not affix any equipment to
or make any penetrations or cuts in the floor, ceiling, walls or roof of the
Premises' Tenant shall not place any loads upon the floors, walls, ceiling or
roof systems which could endanger the structural integrity of the Building or
damage its floors, foundations or supporting structural components. Tenant shall
not place any explosive, flammable or harmful fluids or other waste materials in
the drainage systems of the Premises, the Building, the Common Areas or the
Property. Tenant shall not drain or discharge any fluids in the landscaped areas
or across the paved areas of the Property. Tenant shall not use any of the
Common Areas for the storage of its materials, supplies, inventory or equipment
and all such materials, supplies, inventory or equipment shall at all times be
stored within the Premises. Tenant shall not commit nor permit to be committed
any waste in or about the Premises, the Building, the Common Areas or the
Property.
7. SURRENDER OR POSSESSION. Immediately prior to the expiration or upon the
sooner termination of this Lease. Tenant shall remove all of Tenant's signs from
the exterior of the Building and shall remove all of Tenant's equipment, trade
fixtures, furniture, supplies, wall decorations and other personal property from
within the Leased Premises, the Building and the Common Areas, and shall vacate
and surrender the Leased Premises, the Building, the Outside Area and the
Property to Landlord in the same condition, broom clean, as existed at the Term
Commencement Date, reasonable wear and tear excepted. Tenant shall repair all
damage to the Leased Premises, the exterior of the Building and the Common Areas
caused by Tenant's removal of Tenant's property. Tenant shall patch and
refinish, to Landlord's reasonable satisfaction, all penetrations made by Tenant
or its employees to the floor, walls or ceiling of the Leased Premises, whether
such penetrations were made with Landlord's approval or not. Tenant shall repair
or replace all stained or damaged ceiling tiles, wall coverings and floor
coverings to the reasonable satisfaction of Landlord. Tenant shall repair all
damage caused by Tenant to the exterior surface of the Building and the paved
surfaces of the Common Areas and, where necessary, replace or resurface same.
Additionally, to the extent that Landlord shall have notified Tenant in writing
at the time the improvements were completed that it desired to have certain
improvements removed at the expiration or sooner termination of the Lease.
Tenant shall, upon the expiration or sooner termination of the Lease, remove any
such improvements constructed or installed by Landlord or Tenant and repair all
damage caused by such removal. If the Leased Premises, the Building, the Common
Areas and the Property are not surrendered to Landlord in the condition required
by this paragraph at the expiration or sooner termination of this Lease,
Landlord may, at Tenant's expense, so remove Tenant's signs, property and/or
improvements not so removed and make such repairs and replacements not so made
or hire, at Tenant's expense, independent contractors to perform such work.
Tenant shall be liable to Landlord for all costs incurred by Landlord in
returning the Leased Premises, the Building and the Common Areas to the required
condition, together with interest on all costs so incurred from the date paid by
Landlord at the then maximum rate of interest not prohibited or made usurious by
law until paid. Tenant shall pay to Landlord the amount of all costs so incurred
plus such interest thereon, within ten (10) days of Landlord's billing Tenant
for same. Tenant shall indemnify Landlord against loss or liability resulting
from delay by Tenant in surrendering the Leased Premises, including, without
limitation, any claims made by any succeeding Tenant or any losses to Landlord
with respect to lost opportunities to lease to succeeding tenants.
8. COMPLIANCE WITH LEGAL REQUIREMENTS.
Tenant shall abide by and shall promptly observe and comply with, at its
sole cost and expense, all Laws and Private Restrictions respecting the use and
occupancy of the Premises, the Building, the Common Areas, or the Property, and
shall defend with competent
6.
<PAGE>
counsel, indemnify and hold Landlord harmless from any claims, damages or
liability resulting from Tenant's failure to so abide, observe, or comply. The
indemnity provision of this paragraph shall survive the expiration or sooner
termination of this Lease.
9. ENVIRONMENTAL REGULATIONS.
(a) As used herein, the term "Hazardous Materials" shall mean any toxic or
hazardous substance, material or waste or any pollutant or infectious or
radioactive material, including but not limited to those substances, materials
or wastes regulated now or in the future under any of the following statutes or
regulations and any and all of those substances included within the definitions
of "hazardous substances," "hazardous materials," "hazardous waste, hazardous
chemical substance or mixture," "imminently hazardous chemical substance or
mixture," "toxic substance," "hazardous air pollutant, "toxic pollutant," or
"solid waste" in the (a) Comprehensive Environmental Response, Compensation and
Liability Act of 1990 ("CERCLA" or "Superfund"), as amended by the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C. ss. 9601 et seq.,
(b) Resource Conservation arid Recovery Act of 1976 ("RCRA"). 42 U.S.C. ss. 6901
et seq., (c) Federal Water Pollution Control Act ("FSPCA"). 33 U.S.C. 51251 et
seq., (d) Clean Air Act ("CAA"), 42 U.S.C. ss. 7401 et seq., (e) Toxic
Substances Control Act ("TSCA"). 14 U.S.C. ss. 2601 et seq., (f) Hazardous
Materials Transportation Act, 49 U.S.C. ss. 1801. et seq., (g)
Carpenter-Presley-Tanner Hazardous Substance Account Act ("California
Superfund"), Cal. Health & Safety Code ss. 25300 et seq., (h) California
Hazardous Waste Control Act. Cal. Health & Safety code ss. 25100 et seq., (i)
Porter-Cologne Water Quality Control Act ("Porter-Cologne Act"). Cal. Water Code
ss. 13000 et seq., (j) Hazardous Waste Disposal Land Use Law, Cal. Health &
Safety codes ss. 25220 et seq., (k) Safe Drinking Water and Toxic Enforcement
Act of 1986 ("Proposition 65"). Cal. Health & Safety code ss. 25249.5 et seq.,
(l) Hazardous Substances Underground Storage Tank Law. Cal. Health & Safety code
ss. 25280 et seq., (m) Air Resources Law. Cal. Health & Safety Code ss. 39000
et seq., and (n) regulations promulgated pursuant to said laws or any
replacement thereof, or as similar terms are defined in the federal, state and
local laws, statutes, regulations, orders or roles, Hazardous Materials shall
also mean any and all other biohazardous wastes and substances, materials and
wastes which are, or in the future become, regulated under applicable Laws for
the protection of health or the environment, or which are classified as
hazardous or toxic substances, materials or wastes, pollutants or contaminants,
as defined, listed or regulated by any federal, state or local law, regulation
or order or by common law decision, including, without limitation. (i)
trichloroethylene, tetrachloroethylene, perchloroethylene and other chlorinated
solvents, (ii) any petroleum products or fractions thereof, (iii) asbestos, (iv)
polychlorinted biphenyls, (v) flammable explosives, (vi) urea formaldehyde,
(vii) radioactive materials and waste, and (viii) materials and wastes that are
harmful to or may threaten human health, ecology or the environment.
(b) Notwithstanding anything to the contrary in this Lease, Tenant, at its
sole cost, shall comply with all Laws relating to the storage, use and disposal
of Hazardous Materials in, on, or under the Property; provided however, that
Tenant shall not be responsible for contamination of the Premises by Hazardous
Materials existing as of the date the Premises are delivered to Tenant (whether
before or after the Term Commencement Date) unless caused by Tenant. Except for
small quantities of standard household or office products containing chemicals
which Tenant may use in conducting its business at the Premises so long as such
use is in compliance with all Laws. Tenant shall not store, use or dispose of
any Hazardous Materials except for those Hazardous Materials listed in a
Hazardous Materials management plan ("HMMP") which Tenant shall deliver to
Landlord for approval in advance of any such use, storage or disposal and update
at least annually with Landlord (once so approved by Landlord, the "Permitted
Materials"), which may be used, stored and disposed of provided (i) such
Permitted Materials are used, stored, transported, and disposed of in strict
compliance with applicable laws, (ii) such Permitted Materials shall be limited
to the materials listed on and may be used only in the quantities specified in
the HMMP, and (iii) Tenant shall provide Landlord with copies of all material
safety data sheets and other documentation required under applicable Laws in
connection with Tenant's use of Permitted Materials as and when such
documentation is provided to any regulatory authority having jurisdiction, in no
event shall Tenant cause or permit to be discharged into the plumbing or sewage
system of the Building or onto the land underlying or adjacent to the Building
any Hazardous Materials. Tenant shall be solely responsible for and shall
defend, indemnify, and hold Landlord and its agents harmless from and against
all claims, costs and liabilities, including attorneys' fees and costs, arising
out of or in connection with Tenant's storage, use and/or disposal of Hazardous
Materials. If the presence of Hazardous Materials on the Premises caused or
permitted by Tenant results in contamination or deterioration of water or soil,
then Tenant shall promptly take any and all action necessary to clean up such
contamination, but the foregoing shall in no event be deemed to constitute
permission by Landlord to allow the presence of such Hazardous Materials. At any
time prior to the expiration of the Lease Term if Tenant has a reasonable basis
to suspect that there has been any release or the presence of Hazardous
Materials in the ground or ground water on the Premises which did not exist upon
commencement of the Lease Term. Tenant shall have the right to conduct
appropriate tests of water and soil and to deliver to Landlord the results of
such tests to demonstrate that no contamination in excess of permitted levels
has occurred as a result of Tenant's use of the Premises. Tenant shall further
be solely responsible for, and shall defend, indemnify, and hold Landlord and
its agents harmless from and against all claims, costs and liabilities,
including attorneys' fees arid costs, arising out of or in connection with any
removal, cleanup and restoration work and materials required hereunder to return
the Premises and any other property of whatever nature to their condition
existing prior to the appearance of the Hazardous Materials. Tenant's obligation
hereunder shall survive the expiration or earlier termination of the Lease.
(c) Upon termination or expiration of the Lease. Tenant at its sole expense
shall cause all Hazardous Materials placed in or about the Premises, the
Building, the Common Areas, the Property, and/or the Property by Tenant, its
agents, contractors, or invitees, and all installations (whether interior or
exterior) made by or on behalf of Tenant relating to the storage, use, disposal
or transportation of Hazardous Materials to be removed and transported for use,
storage or disposal in accordance and compliance with all Laws and other
requirements respecting Hazardous Materials used or permitted to be used by
Tenant. Tenant shall apply for and shall obtain from all appropriate regulatory
authorities (including any applicable fire department or regional water quality
control board) all permits, approvals amid clearances necessary for the closure
of the Building arid the Property and shall take all other actions as may be
required to complete the closure of the Building and the Property. In addition,
prior to vacating the Premises, Tenant shall undertake and submit to Landlord an
environmental site assessment from an environmental consulting company
reasonably acceptable to Landlord which site assessment shall evidence Tenant's
compliance with this Paragraph 9.
(d) At any time prior to expiration of the Lease term, subject to
reasonable prior notice (not less than forty-eight (48) hours) and Tenant's
reasonable security requirements and provided such activities do not
unreasonably interfere with the conduct of Tenant's business at the Premises.
Landlord shall have the right to enter in and upon the Property, Building,
Common Areas. Premises and Property in order to conduct appropriate tests of
water and soil to determine whether levels of any Hazardous Materials in excess
of legally permissible levels has occurred as a result of Tenant's use thereof.
Landlord shall furnish copies of all such test results amid reports to Tenant
and, at Tenant's option and cost, shall permit split sampling for testing and
analysis by Tenant. Such testing shall be at Tenant's expense if Landlord has a
reasonable basis for suspecting and confirms the presence of Hazardous Materials
in the soil or surface or ground water in, on, under, or about the Property, the
Property, the Building, the Common Areas, or the Premises, which has been caused
by or resulted from the activities of Tenant, its agents, contractors, or
invitees.
(e) Landlord may voluntarily cooperate in a reasonable manner with the
efforts of all governmental agencies in reducing actual or potential
environmental damage. Tenant shall not be entitled to terminate this Lease or to
any reduction in or abatement of rent by reason of such compliance or
cooperation. Tenant agrees at all times to cooperate fully with the requirements
and recommendations of governmental agencies regulating, or otherwise involved
in, the protection of the environment.
10. NOTICES AND CONSENTS.
All notices, consents, demands and other communications from one party to
the other that are given pursuant to the terms of this Lease shall be in writing
and shall be deemed to have been fully given when delivered including delivery
by commercial delivery services, or if sent by the United States mail, certified
or registered, when deposited in the mail, postage prepaid. All notices,
consents, demands and other communications shall be addressed as follows: to
Tenant at the address specified in the Basic Lease Information, or to such other
place as Tenant may from time to time designate in a notice to Landlord; to
Landlord at the address specified in the Basic Lease Information, or to such
other place as Landlord may from time to time designate in a notice to Tenant;
or, in the case of Tenant, delivered to Tenant at the Premises. Tenant
7.
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hereby appoints as its agent to receive the service of all dispossessory or
distraint proceedings and notices thereunder the person in charge of or
occupying the Premises at the time, and, if no person shall be in charge of or
occupying the same, then such service may be made by attaching the same in the
main entrance of the Premises.
11. BROKERAGE COMMISSIONS.
Tenant represents and warrants that it has dealt with no broker, agent or
other person in connection with this transaction and that no broker, agent or
other person brought about this transaction, other than the Procuring Broker or
the Tenant's Broker identified in the Basic Lease information and Landlord and
Tenant each agree to indemnify and hold the other party harmless from and
against any claims by any other broker, agent or other person claiming a
commission or other form of compensation by virtue of having dealt with Landlord
or Tenant with regard to this leasing transaction. The provisions of this
paragraph shall survive the expiration or earlier termination of this Lease.
12. HOLDING OVER.
(a) If Tenant holds possession of the Premises after expiration of the term
of this Lease, Tenant shall become a tenant from month to month upon the terms
herein specified but at a monthly rental equivalent to 150% of the then
prevailing monthly rental paid by Tenant at the expiration of the term of this
Lease, payable in advance on or before the first day of each month. Each party
shall give the other notice at least one month prior to the date of termination
of such monthly tenancy of its intention to terminate such tenancy.
(b) If, without Landlord's written consent, Tenant holds possession of the
Premises after expiration of the term of this Lease or expiration of its
holdover tenancy, without limiting the liability of Tenant for its unauthorized
occupancy of the Premises, Tenant shall indemnify Landlord and any replacement
tenant for the Premises for any damages or loss suffered by either Landlord or
the replacement tenant resulting from Tenant's failure timely to vacate the
Premises.
13. ADDITIONAL OBLIGATIONS PAYABLE BY TENANT.
In addition to the monthly rental and other charges to be paid by Tenant
hereunder, Tenant shall pay or reimburse Landlord for any and all of the
following items when due (hereinafter collectively referred to as "Additional
Obligations"), whether or not now customary or in the contemplation of the
parties hereto: taxes other than local, state and federal personal or corporate
income taxes measured by the net income of Landlord from all sources,
assessments including, without limitation, all assessments for public
improvements, services or benefits, irrespective of when commenced or completed,
excises, levies, business taxes, license, permit, inspection and other
authorization fees, transit development fees, assessments or charges for housing
funds, service payments in lieu of taxes and any other fees or charges of any
kind, which are levied, assessed, confirmed or imposed by any public authority.
In the event that it shall not be lawful for Tenant to reimburse Landlord for
the Additional Obligations but it is lawful to increase the monthly rental to
take into account Landlord's payment of the Additional Obligations, the monthly
rental payable to Landlord shall be revised to net Landlord the same net return
without reimbursement of the Additional Obligations as would have been received
by Landlord with reimbursement of the Additional Obligations.
14. ALTERATIONS.
(a) Tenant shall not make any alterations to or modifications of the
Premises or construct any improvements within the Premises until Landlord shall
have first approved, in writing, the plans and specifications therefor, which
approval may be withheld in Landlord's sole discretion. All such modifications,
alterations or improvements, once so approved, shall be made, constructed or
installed by Tenant at Tenant's expense (including all permit fees and
governmental charges related thereto), using a licensed contractor first
approved by Landlord, in substantial compliance with the Landlord-approved plans
and specifications therefor. All work undertaken by Tenant shall be done in
accordance with all Laws and in a good and workmanlike manner using new or
like-new materials of good quality. Tenant shall not commence the making of any
such modifications or alterations or the construction of any such improvements
until (i) all required governmental approvals and permits shall have been
obtained, (ii) all requirements regarding insurance imposed by this Lease have
been satisfied, (iii) Tenant shall have given Landlord at lease five business
days prior written notice of its intention to commence such work so that
Landlord may post and file notices of non-responsibility, and (iv) if requested
by Landlord, Tenant shall have obtained contingent liability and broad form
builder's risk insurance in an amount satisfactory to Landlord in its reasonable
discretion to cover any perils relating to the proposed work not covered by
insurance carried by Tenant pursuant to Paragraph 20. In no event shall Tenant
make any modification, alterations or improvements whatsoever to the Common
Areas or the exterior or structural components of the Building including,
without limitation, any cuts or penetrations in the floor, roof or exterior
walls of the Premises. As used in this Article, the term "modifications,
alterations and/or improvements" shall include, without limitation, the
installation of additional electrical outlets, overhead lighting fixtures,
drains, sinks, partitions, doorways, or the like.
(b) All modifications, alterations and improvements made or added to the
Premises by Tenant (other than Tenant's inventory, equipment, movable furniture,
wall decorations and trade fixtures) shall be deemed real property and a part of
the Premises, but shall remain the property of Tenant during the Lease. Any such
modifications, alterations or improvements, once completed, shall not be altered
or removed from the Premises during the Lease Term without Landlord's written
approval first obtained in accordance with the provisions of Paragraph 14(a)
above. At the expiration or sooner termination of this Lease, all such
modifications, alterations and improvements other than Tenant's inventory,
equipment, movable furniture, wall decorations and trade fixtures, shall
automatically become the property of Landlord and shall be surrendered to
Landlord as part of the Premises as required pursuant to Paragraph 7, unless
Landlord shall require Tenant to remove any of such modifications, alterations
or improvements in accordance with the provisions of Paragraph 7, in which case
Tenant shall so remove same. Landlord shall have no obligations to reimburse
Tenant for all or any portion of the cost or value of any such modifications,
alterations or improvements so surrendered to Landlord. All modifications,
alterations or improvements which are installed or constructed on or attached to
the Premises by Landlord and/or at Landlord's expense shall be deemed real
property and a part of the Premises and shall be property of Landlord. All
lighting, plumbing, electrical, heating, ventilating and air conditioning
fixtures, partitioning, window coverings, wall coverings and floor coverings
installed by Tenant shall be deemed improvements to the Premises and not trade
fixtures of Tenant.
(c) Tenant shall make all modifications, alterations and improvements to
the Premises, at its sole cost, that are required by any Law because of (i)
Tenant's use or occupancy of the Premises, the Building, the Common Areas or the
Property, (ii) Tenant's application for any permit or governmental approval, or
(iii) Tenant's making of any modifications, alterations or improvements to or
within the Premises. If Landlord shall, at any time during the Lease Term, be
required by any governmental authority to make any modifications, alterations or
improvements to the Building or the Property, the cost incurred by Landlord in
making such modifications, alterations or improvements, including interest at a
rate equal to the greater of (a) 12%, or (b) the sum of that rate quoted by
Wells Fargo Bank, N.T. & S.A. from time to time as its prime rate, plus two
percent (2%) ("Wells Prime Plus Two"), shall be amortized by Landlord over the
useful life of such modifications, alterations or improvements, as determined in
accordance with generally accepted accounting principles, and the monthly
amortized cost of such modifications, alterations and improvements as so
amortized shall be included in Operating Expenses.
15. REPAIRS.
By entry hereunder Tenant accepts the Premises as being in the condition in
which Landlord is obligated to deliver the Premises. Tenant shall, at all times
during the term hereof, and at Tenant's sole cost and expense, keep the Premises
in good condition and repair, ordinary wear and tear, damage thereto by fire,
earthquake, act of God or the elements excepted. Tenant hereby waives all rights
to make repairs at the expense of Landlord or in lieu thereof to vacate the
Premises. Tenant shall at the end of the term hereof surrender to Landlord the
Premises and all alterations thereto in the good and clean condition, ordinary
wear and tear and damage by fire, earthquake, act of God or the elements
excepted. Landlord has no obligation and has made no promise to alter, remodel,
improve, repair, decorate or paint the Premise or any part
8.
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thereof, except as specifically hereto set forth. No representations or
warranties respecting the condition of the Premises or the Building have been
made by Landlord to Tenant, except as specifically herein set forth.
16. LIENS.
Tenant shall keep the Premises and the Building free from any liens arising
out of any work performed, materials furnished or obligations incurred by
Tenant. Landlord shall have the right to post and keep posted on the Premises
any notices that may be provided by law or which Landlord may deem to be proper
for the protection of Landlord, the Premises and the Building from such liens.
In the event any such lien attaches to the Premises or the Property, and Tenant
does not cause the same to be released by payment, bonding or otherwise, within
ten (10) days after the attachment thereof, Landlord shall have the right but
not the obligation to cause the same to be released by such means as it shall
deem proper, and any sums expended by Landlord in connection therewith shall be
payable by Tenant on demand with interest thereon from the date of expenditure
by Landlord at the rate specified in Paragraph 3(e). Landlord and Tenant each
hereby warrant to use best efforts to notify the other of the existence or
attachment of any and all liens contemplated under this Paragraph 15 within five
(5) business days of Landlord's or Tenant's actual knowledge of such lien(s).
17. ENTRY BY LANDLORD.
Landlord, upon reasonable notice to Tenant, may enter the Premises at
reasonable hours to (a) inspect the same; (b) exhibit the same to prospective
purchasers, lenders or tenants; (c) determine whether Tenant is complying with
all its obligations hereunder; (d) supply janitor service and any other service
to be provided by Landlord to Tenant hereunder; (e) post notices of
non-responsibility; and (f) make repairs or perform maintenance required of
Landlord under the terms hereof, make repairs to any adjoining space or utility
services, or make repairs, alterations or improvements to any other portion of
the Building. Landlord shall at all times have and retain a key with which to
unlock all of the doors in, on or about the Premises excluding Tenant's vaults,
safes and similar areas designated in writing by Tenant in advance; and Landlord
shall have the right to use any and all means which Landlord may deem proper to
open Tenant's doors in an emergency in order to obtain entry to the Premises,
and any entry to the Premises obtained by Landlord in a real or perceived
emergency shall not be considered 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.
18. SERVICES.
(a) Landlord shall maintain the Common Areas and public areas of the
Property, including lobbies, stairs, elevators, corridors and restrooms, all
exterior landscaping, the windows in the Building, the mechanical, plumbing and
electrical equipment serving the Building, and the structure itself in
reasonably good order and condition, except for damage occasioned by the act or
omission of Tenant, its employees, contractors, agents or invitees which damage
shall be repaired by Landlord at Tenant's expense.
(b) Landlord shall cause to be furnished (1) electricity for lighting and
the operation of office equipment, on a 24-hour basis, with power usage in
excess of the time allowance referred to in Paragraph 18(d) below to be at
Tenants cost, (2) heat and air conditioning to the extent reasonably required
for the comfortable occupancy by Tenant in its use of the Premises during the
period from 7:00 a.m. to 6:00 p.m. on weekdays excluding holidays, or as set
forth in the Rules and Regulations, which may be changed from time to time, or
such shorter periods as may be prescribed by any applicable policies or
regulations adopted by any utility or governmental agency, (3) elevator service,
(4) lighting replacement for building standard lights, (5) restroom supplies,
(6) window washing with reasonable frequency, (7) water for lavatory and
drinking purposes, and (8) security patrol services and janitor service during
the times and in the manner that such services are customarily furnished in
comparable office buildings in the area; provided that in no event shall
Landlord be obligated to furnish janitor service on Saturdays, Sundays, or legal
holidays. Landlord may establish reasonable measures to conserve energy,
including but not limited to, automatic switching of lights after hours and more
efficient forms of lighting, so long as such measures do not unreasonably
interfere with Tenants use of the Premises. Landlord shall not be in default
hereunder or be liable for any damages directly or indirectly resulting from,
nor shall the rental herein reserved be abated by reason of (i) the
installation, use or interruption of use of any equipment in connection with the
furnishing of any of the foregoing services, (ii) failure to furnish or delay in
furnishing any such services when such failure or delay is caused by accident or
any condition beyond the control of Landlord or by the making of necessary
repairs or improvements to the Premises or to the Building, or (iii) the
limitation, curtailment, rationing or restrictions on use of water, electricity,
gas or any other form of energy serving the Premises or the Building. Tenant
hereby waives the provisions of California Civil Code Section 1932 or any other
applicable existing or future law or ordinance or governmental regulation
permitting the termination of this lease due to any interruption, failure or
inability to provide Landlord services as provided for herein.
(c) Tenant shall reimburse Landlord, upon billing therefor, for the cost of
all heat or air conditioning provided to the Premises during hours requested by
Tenant when such services are not otherwise furnished by Landlord pursuant to
Paragraph 18(b) above. The cost of such after hours heat or air conditioning
shall be a per-hour charge reflecting the electrical energy, labor and fixed
plant costs of running the heating and air conditioning system which per hour
charge shall be fifteen dollars ($15.00). In the event that Landlord has
reasonable cause to believe that the cost of after hours heating, air
conditioning and electricity used by Tenant is exceeding the per hour charge,
Landlord may at its option install separate meter(s) for the Premises, or
portions thereof, at Tenant's sole expense, and Tenant thereafter shall pay all
charges of the utility providing service.
(d) In the event that Landlord, at Tenant's request, provides services to
Tenant that are (i) in excess of those services required to maintain "Building
Standard Improvements," or (ii) are not otherwise provided for in this Lease,
Tenant shall pay Landlord's reasonable charges for such services upon billing
therefor.
19. INDEMNIFICATION AND LIMITATION ON LANDLORD'S LIABILITY.
(a) Tenant shall defend with competent counsel satisfactory to Landlord any
claims made or legal actions filed or threatened against Landlord with respect
to the violation of any Law, or the death, bodily injury, personal injury,
property damage, or interference with contractual or property rights suffered by
any third party occurring within the Premises or resulting from Tenant's use or
occupancy of the Premises, the Building, or the Common Areas, or resulting from
Tenant's activities in or about the Premises, the Building, the Common Areas or
the Property, and Tenant shall indemnify and hold Landlord, Landlord's partners,
principals, members, employees, agents and contractors harmless from any loss,
liability, penalties, or expense whatsoever (including any loss attributable to
vacant space which otherwise would have been leased, but for such activities)
resulting therefrom, except to the extent proximately caused by the active
negligence or willful misconduct of Landlord. This indemnity agreement shall
survive until the latter to occur of (i) the date of the expiration, or sooner
termination, of this Lease, or (ii) the date Tenant actually vacates the
Premises.
(b) Landlord shall not be liable to Tenant for, and Tenant hereby releases
Landlord and its partners, principals, members, officers, agents, employees,
lenders, attorneys, and consultants from, any and all liability, whether in
contract, tort or on any other basis, for any injury to or any damage sustained
by Tenant, Tenant's agents, employees, contractors or invitees, any damage to
Tenant's property, or any loss to Tenant's business, loss of Tenant's profits or
other financial loss of Tenant resulting from or attributable to the condition
of, the management of, the repair or maintenance of, the protection of, the
supply of services or utilities to, the damage in or destruction of the
Premises, the Building, the Property or the Common Areas, including without
limitation (i) the failure, interruption, rationing or other curtailment or
cessation in the supply of electricity, water, gas or other utility service to
the Property, the Building or the Premises; (ii) the vandalism or forcible entry
into the Building or the Premises; (iii) the penetration of water into or onto
any portion of the Premises; (iv) the failure to provide security and/or
adequate lighting in or about the Property, the Building or the Premises, (v)
the existence of any design or construction defects within the Property, the
Building or the Premises; (vi) the failure of any mechanical systems to function
properly (such as the HVAC systems); (vii) the blockage of access to any portion
of the Property, the Building or the Premises, except that Tenant does not so
release Landlord from such liability
9.
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to the extent such damage was proximately caused by Landlord's active
negligence, willful misconduct, or Landlord's failure to perform an obligation
expressly undertaken pursuant to this Lease after a reasonable period of time
shall have lapsed following receipt of written notice from Tenant to so perform
such obligation. In this regard, Tenant acknowledges that it is fully apprised
of the provisions of Law relating to releases, and particularly to those
provisions contained in Section 1542 of the California Civil Code which reads 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."
Notwithstanding such statutory provision, and for the purpose of implementing a
full and complete release and discharge, Tenant hereby (i) waives the benefit of
such statutory provision and (ii) acknowledges that, subject to the exceptions
specifically set forth herein, the release and discharge set forth in this
paragraph is a full and complete settlement and release and discharge of all
claims and is intended to include in its effect, without limitation, all claims
which Tenant, as of the date hereof, does not know of or suspect to exist in its
favor.
20. INSURANCE AND SUBROGATION.
(a) Tenant shall maintain insurance complying with all of the following:
(i) Tenant shall procure, pay for and keep in full force and effect,
at all times during the Lease Term, the following:
(1) Comprehensive general liability insurance insuring Tenant
against liability for personal injury, bodily injury, death and damage
to property occurring within the Premises, or resulting from Tenant's
use or occupancy of the Premises, the Building, the Common Areas or
the Property, or resulting from Tenant's activities in or about the
Premises or the Property, with coverage in an amount equal to Tenant's
Required Liability Coverage (as set forth in Basic Lease Information),
which insurance shall contain a "broad form liability" endorsement
insuring Tenant's performance of Tenant's obligation to indemnify
Landlord as contained in this Lease;
(2) Fire and property damage insurance in so-called "fire and
extended coverage" form insuring Tenant against loss from physical
damage to Tenant's personal property, inventory, trade fixtures and
improvements within the Premises with coverage for the full actual
replacement cost thereof;
(3) Plate glass insurance, at actual replacement cost;
(4) Pressure vessel insurance, if applicable;
(5) Product liability insurance (including, without limitation,
if food and/or beverages are distributed, sold and/or consumed within
the Premises, to the extent obtainable, coverage for liability arising
out of the distribution, sale, use or consumption of food and/or
beverages (including alcoholic beverages, if applicable) at the
Premises for not less than Tenant's Required Liability Coverage (as
set forth in Basic Lease Information);
(6) Workers compensation insurance and any other employee benefit
insurance sufficient to comply with all laws; and
(7) With respect to making of alterations or the construction of
improvements or the like undertaken by Tenant, contingent liability
and builder's risk insurance, in an amount and with coverage
reasonably satisfactory to Landlord.
(ii) Each policy of liability insurance required to be carried by
Tenant pursuant to this paragraph or actually carried by Tenant with
respect to the Premises or the Property: (i) shall, except with respect to
insurance required by subparagraph (a)(vi) above, name Landlord, and such
others as are designated by Landlord, as additional insureds; (ii) shall be
primary insurance providing that the insurer shall be liable for the full
amount of the loss, up to and including the total amount of liability set
forth in the declaration of coverage, without the right of contribution
from or prior payment by any other insurance coverage of Landlord; (iii)
shall be in a form satisfactory to Landlord; (iv) shall be carried with
companies reasonably acceptable to Landlord with Best's ratings of at least
A and XI; (v) shall provide that such policy shall not be subject so
cancellation, lapse or change except after at least thirty days prior
written notice to Landlord, and (vi) shall contain a so-called
"severability" or "cross liability" endorsement. Each policy of property
insurance maintained by Tenant with respect to the Premises or the Property
or any property therein (i) shall provide that such policy shall not be
subject to cancellation, lapse or change except after at least thirty days
prior written notice to Landlord and (ii) shall contain a waiver and/or a
permission to waive by the insurer of any right of subrogation against
Landlord, its partners, principals, members, officers, employees, agents
and contractors, which might arise by reason of any payment under such
policy or by reason of any act or omission of Landlord, its partners,
principals, members, officers, employees, agents and contractors.
(iii) Prior to the time Tenant or any of its contractors enters the
Premises, Tenant shall deliver to Landlord, with respect to each policy of
insurance required to be carried by Tenant pursuant to this Paragraph, a
copy of such policy (appropriately authenticated by the insurer as having
been issued, premium paid) or a certificate of the insurer certifying in
fcrm satisfactory to Landlord that a policy has been issued, premium paid,
providing the coverage required by this Paragraph aid containing the
provisions specified herein. With respect to each renewal or replacement of
any such insurance, the requirements of this Paragraph must be complied
with not less than thirty days prior to the expiration or cancellation of
the policies being renewed or replaced. Landlord may, at any time and from
time to time, inspect and/or copy any and all insurance policies required
to be carried by Tenant pursuant to this Article. If Landlord's Lender,
insurance broker, advisor or counsel reasonably determines at any time that
the amount of coverage set forth herein for any policy of insurance Tenant
is required to carry pursuant to this Paragraph is not adequate, then
Tenant shall increase the amount of coverage for such insurance to such
greater amount as Landlord's Lender, insurance broker, advisor or counsel
reasonably deems adequate.
(b) With respect to insurance maintained by Landlord:
(i) Landlord shall maintain, as the minimum coverage required of it by
this Lease, fire and property damage insurance in so-called "fire and
extended coverage" form insuring Landlord (and such others as Landlord may
designate) against loss from physical damage to the Building with coverage
of not less than one hundred percent (100%) of the full actual replacement
cost thereof and against loss of rents for a period of not less than six
months. Such fire and property damage insurance, at Landlord's election but
without any requirements on Landlord's behalf to do so, (i) may be written
in so-called "all risk" form, excluding only those perils commonly excluded
from such coverage by Landlord's then property damage insurer; (ii) may
provide coverage for physical damage to the improvements so insured for up
to the entire full actual replacement cost thereof; (iii) may be endorsed
to cover loss or damage caused by any additional perils against which
Landlord may elect to insure, including earthquake and/or flood; and/or
(iv) may provide coverage for loss of rents for a period of up to twelve
months. Landlord shall not be required to cause such insurance to cover any
of Tenant's personal property, inventory, and trade fixtures, or any
modifications, alteration or improvements made or constructed by Tenant to
or within the Premises. Landlord shall use commercially reasonable efforts
to obtain such insurance at competitive rates.
(ii) Landlord shall maintain comprehensive general liability insurance
insuring Landlord (and such others as are designated by Landlord) against
liability for personal injury, bodily injury, death, and damage to property
occurring in, on or about, or resulting from the use or occupancy of the
Property, or any portion thereof, with combined single limit coverage of at
least Three Million Dollars
10.
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($3,000.000). Landlord may carry such greater coverage as Landlord or
Landlord's Lender, insurance broker, advisor or counsel may from time to
time determine is reasonably necessary for the adequate protection of
Landlord and the Property.
(iii) Landlord may maintain any other insurance which in the opinion
of its insurance broker, advisor or legal counsel is prudent to carry under
the given circumstances, provided such insurance is commonly carried by
owners of property similarly situated and operating under similar
circumstances.
(c) Landlord hereby releases Tenant, and Tenant hereby releases Landlord
and its respective partners, principals, members, officers, agents, employees
and servants, from any and all liability for loss, damage or injury to the
property of the other in or about the Premises or the Property which is caused
by or results from a peril or event or happening which is covered by insurance
actually carried and in force at the time of the loss by the party sustaining
such loss; provided, however, that such waiver shall be effective only to the
extent permitted by the insurance covering such loss and to the extent such
insurance is not prejudiced thereby.
21. DAMAGE OR DESTRUCTION.
(a) If the Premises, the Building or the Common Areas are damaged by any
peril after the Effective Term Commencement Date, Landlord shall restore the
same, as and when required by this paragraph, unless this Lease as terminated by
Landlord pursuant to Paragraph 21(c) or by Tenant pursuant to Paragraph 21(d).
If this Lease is not so terminated, then upon the issuance of all necessary
governmental permits, Landlord shall commence and diligently prosecute to
completion the restoration of the Premises, the Building or the Common Areas, as
the case may be, to the extent then allowed by law, to substantially the same
condition in which it existed as of the Term Commencement Date. Landlord's
obligation to restore shall be limited to the improvements constructed by
Landlord. Landlord shall have no obligation to restore any improvements made by
Tenant to the Premises or any of Tenant's personal property, inventory or trade
fixtures. Upon completion of the restoration by Landlord, Tenant shall forthwith
replace or fully repair all of Tenant's personal property, inventory, trade
fixtures and other improvements constructed by Tenant to like or similar
conditions as existed at the time immediately prior to such damage or
destruction.
(b) All insurance proceeds available from the fire and property damage
insurance carried by Landlord shall be paid to and become the property of
Landlord. If this Lease is terminated pursuant to either Paragraph 21(c) or
21(d), all insurance proceeds available from insurance carried by Tenant which
cover loss of property that is Landlord's property or would become Landlord's
property on termination of this Lease shall be paid to and become the property
of Landlord, and the remainder of such proceeds shall be paid to and become the
property of Tenant. If this Lease is not terminated pursuant to either Paragraph
21(c) or 21(d), all insurance proceeds available from insurance carried by
Tenant which cover loss to property that is Landlord's property shall be paid to
and become the property of Landlord, and all proceeds available from such
insurance which cover loss to property which would only become the property of
Landlord upon the termination of this Lease shall be paid to and remain the
property of Tenant. The determination of Landlord's property and Tenant's
property shall be made pursuant to Paragraph 14(b).
(c) Landlord's Right To Terminate. Landlord shall have the option to
terminate this Lease in the event any of the following occurs, which option may
be exercised only by delivery to Tenant of a written notice of election to
terminate within thirty days after the date of such damage or destruction:
(i) The Building is damaged by any peril covered by valid and
collectible insurance actually carried by Landlord and in force at the time
of such damage or destruction (an "insured peril") to such an extent that
the estimated cost to restore the Building exceeds the lesser of (i) the
insurance proceeds available from insurance actually carried by Landlord,
or (ii) fifty percent of the then actual replacement cost thereof;
(ii) The Building is damaged by an uninsured peril, which peril
Landlord was not required to insure against pursuant to the provisions of
Paragraph 20 of this Lease.
(iii) The Building is damaged by any peril and, because of the laws
then in force, the Building (i) cannot be restored at reasonable cost or
(ii) if restored, cannot be used for the same use being made thereof before
such damage.
(d) If the Premises, the Building or the Common Areas are damaged by any
peril and Landlord does not elect to terminate this Lease or is not entitled to
terminate this Lease pursuant to this Paragraph, then as soon as reasonably
practicable, Landlord shall furnish Tenant with the written opinion of
Landlord's architect or construction consultant as to when the restoration work
required of Landlord may be complete. Tenant shall have the option to terminate
this Lease in the event any of the following occurs, which option may be
exercised only by delivery to Landlord of a written notice of election to
terminate within seven (7) days after Tenant receives from Landlord the estimate
of the time needed to complete such restoration:
(i) If the time estimated to substantially complete the restoration
exceeds twelve months from and after the date the architect's or
construction consultant's written opinion is delivered; or
(ii) If the damage occurred within twelve (12) months of the last day
of the Lease Term and the time estimated to substantially complete the
restoration exceeds one hundred eighty days from and after the date such
restoration is commenced.
(e) Landlord and Tenant agree that the provisions of Paragraph 21(d) above
are intended to supersede and replace the provisions contained in California
Civil Code, Section 1932, Subdivision 2, and California Civil Code, Section
1934, and accordingly, Tenant hereby waives the provisions of such Civil Code
Sections and the provisions of any successor Civil Code Sections or similar laws
hereinafter enacted.
(f) In the event of damage to the Premises which does not result in the
termination of this Lease, the Base Rent (and any Escalation Rent) shall be
temporarily abated during the period of restoration in proportion in the degree
to which Tenant's use of the Premises is Impaired by such damage.
22. EMINENT DOMAIN.
(a) Except as otherwise provided in Paragraph 22(d) below regarding
temporary takings, Tenant shall have the option to terminate this Lease if, as a
result of any taking, (i) all of the Premises is taken, or (ii) twenty five
percent (25%) or more of the Premises is taken and the part of the Premises that
remain cannot, within a reasonable period of time, be made reasonably suitable
for the continued operation of Tenant's business. Tenant must exercise such
option within a reasonable period of time, to be effective on the later to occur
of (i) the date that possession of that portion of the Premises that is
condemned is taken by the condemnor or (ii) the date Tenant vacated the
Premises.
(b) Except as otherwise provided in Paragraph 22(d) below regarding
temporary takings, Landlord shall have the option to terminate this Lease if, as
a result of any taking, (i) all of the Premises is taken, (ii) twenty five
percent (25%) or more of the Premises is taken and the part of the Premises that
remains cannot, within a reasonable period of time, be made reasonably suitable
for the continued operation of Tenant's business, or (iii) because of the laws
then in force, the Premises may not be used for the same use being made before
such taking, whether or not restored as required by Paragraph 22(c) below. Any
such option to terminate by Landlord must be exercised within a reasonable
period of time, to be effective as of the date possession is taken by the
condemnor.
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(c) If any part of the Premises or the Building is taken and this Lease is
not terminated, then Landlord shall, to the extent not prohibited by laws then
in force, repair any damage occasioned thereby to the remainder thereof to a
condition reasonably suitable for Tenant's continued operations and otherwise,
to the extent practicable, in the manner and to the extent provided in Paragraph
21(a).
(d) If a portion of the Premises is temporarily taken for a period of one
year or less and such period does not extend beyond the Lease Expiration Date,
this Lease shall remain in effect. If any portion of the Premises is temporarily
taken for a period which exceeds one year or which extends beyond the Lease
Expiration Date, then the rights of Landlord and Tenant shall be determined in
accordance with Paragraphs 22(a) and 22(b) above.
(e) Any award made for any taking of the Property, the Building, or the
Premises, or any portion thereof, shall belong to and be paid to Landlord, and
Tenant hereby assigns to Landlord all of its right, tile and interest in any
such award; provided, however, that Tenant shall be entitled to receive any
portion of the award that is made specifically (i) for the taking of personal
property, inventory or trade fixtures belonging to Tenant, (ii) for the
interruption of Tenant's business or its moving costs, or (iii) for the value of
any leasehold improvements installed and paid for by Tenant. The rights of
Landlord and Tenant regarding any condemnation shall be determined as provided
in this Paragraph, and each party hereby waives the provisions of Section
1265.130 of the California Code of Civil Procedure, and the provisions of any
similar law hereinafter enacted, allowing either party to petition the Supreme
Court to terminate this Lease and/or otherwise allocate condemnation awards
between Landlord and Tenant in the event of a taking of the Premises.
(f) In the event of a taking of the Premises which does not result in a
termination of this Lease (other than a temporary taking), then, as of the date
possession is taken by the condemning authority, the Base Rent shall be reduced
in the same proportion that the area of that part of the Premises so taken (less
any addition to the area of the Premises by reason of any reconstruction) bears
to the area of the Premises immediately prior to such taking.
(g) The term "taking" or "taken" as used in this Article 11 shall mean any
transfer or conveyance of all or any portion of the Property to a public or
quasi-public agency or other entity having the power of eminent domain pursuant
to or as a result of the exercise of such power by such an agency, including any
inverse condemnation and/or any sale or transfer by Landlord of all or any
portion of the Property to such an agency under threat of condemnation or the
exercise of such power.
23. EVENTS OF DEFAULT.
(a) Tenant shall be in default of its obligations under this Lease if any
of the following events occur:
(i) Tenant shall have failed to pay Base Rent or any Escalation Rent
when due; or
(ii) Tenant shall have done or permitted to be done any act, use or
thing in its use, occupancy or possession of the Premises or the Building
or the Common Areas which is prohibited by the terms of this Lease; or
(iii) Tenant shall have failed to perform any term, covenant or
condition of this Lease (except those requiring the payment of Base Rent or
Escalation Rent, which failures shall be governed by subparagraph (a)
above) within thirty (30) days after written notice from Landlord to Tenant
specifying the nature of such failure and requesting Tenant to perform
same; or
(iv) Tenant shall have sublet the Premises or assigned or encumbered
its interest in this Lease in violation of the provisions contained in
Paragraph 24, whether voluntarily or by operation of law; or
(v) Tenant shall have abandoned the Premises; or
(vi) Tenant or any Guarantor of this Lease shall have permitted or
suffered the sequestration or attachment of, or execution on, or the
appointment of a custodian or receiver with respect to, all or any
substantial part of the property or assets of Tenant (or such Guarantor) or
any property or asset essential to the conduct of Tenant's (or such
Guarantor's) business, and Tenant (or such Guarantor) shall have failed to
obtain a return or release of the same within thirty days thereafter, or
prior to sale pursuant to such sequestration, attachment or levy, whichever
is earlier; or
(vii) Tenant or any Guarantor of this Lease shall have made a general
assignment of all or a substantial part of its assets for the benefit of
its creditors; or
(viii) Tenant or any Guarantor of this Lease shall have allowed (or
sought) to have entered against it a decree or order which: (i) grants or
constitutes an order for relief, appointment of a trustee, or condemnation
or a reorganization plan under the bankruptcy laws of the United States;
(ii) approves as properly filed a petition seeking liquidation or
reorganization under said bankruptcy laws or any other debtor's relief law
or similar statute of the United States or any state thereof; or (iii)
otherwise directs the winding up or liquidation of Tenant; provided,
however, if any decree or order was entered without Tenant's consent or
over Tenant's objection, Landlord may not terminate this Lease pursuant to
this Subparagraph if such decree or order is rescinded or reversed within
thirty days after its original entry; or
(ix) Tenant or any Guarantor of this Lease shall have availed itself
of the protection of any debtor's relief law, moratorium law or other
similar law which does not require the prior entry of a decree or order.
(b) In the event of any default by Tenant, and without limiting Landlord's
right to indemnification as provided in Paragraph 19, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by law
or otherwise provided in this Lease, to which Landlord may resort cumulatively,
or in the alternative:
(i) Landlord may, at Landlord's election, keep this Lease in effect
and enforce, by an action at law or in equity, all of its rights and
remedies under this Lease including, without limitation, (i) the right to
recover the rent and other sums as they become due by appropriate legal
action, (ii) the right to make payments required by Tenant, or perform
Tenant's obligations and to be reimbursed by Tenant for the cost thereof
with interest at the then maximum rate not prohibited by law from the date
the sum is paid by Landlord until Landlord is reimbursed by Tenant, and
(iii) the remedies of injunctive relief and specific performance to prevent
Tenant from violating the terms of this Lease and/or to compel Tenant to
perform its obligations under this Lease. as the case may be.
(ii) Landlord may, at Landlord's election, terminate this Lease by
giving Tenant written notice of termination, in which event this Lease
shall terminate on the date set forth for termination in such notice. Any
termination under this subparagraph shall not relieve Tenant from its
obligation to pay to Landlord all Base Rent and Escalation Rent then or
thereafter due, or any other sums due or thereafter accruing to Landlord,
or from any claim against Tenant for damages previously accrued or then or
thereafter accruing. In no event shall any one or more of the following
actions by Landlord, in the absence of a written election by Landlord to
terminate this Lease constitute a termination of this Lease;
(1) Appointment of a receiver or keeper in order to protect
Landlord's interest hereunder;
(2) Consent to any subletting of the Premises or assignment of
this Lease by Tenant, whether pursuant to the provisions hereof or
otherwise; or
12.
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(3) Any action taken by Landlord or its partners, principals, members,
officers, agents, employees, or servants, which is intended to mitigate the
adverse effects of any breach of this Lease by Tenant, including, without
limitation, any action taken to maintain and preserve the Premises on any action
taken to relate the Premises or any portion thereof for the account at Tenant
and in the name of Tenant.
(iii) In the event Tenant breaches this Lease and abandons the
Premises, Landlord may terminate this Lease, but this Lease shall not
terminate unless Landlord gives Tenant written notice of termination. If
Landlord does not terminate this Lease by giving written notice of
termination, Landlord may enforce all its rights and remedies under this
Lease, including the right and remedies provided by California Civil Code
Section 1951.4 ("lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has tight to
sublet or assign subject only to reasonable limitations"), as in effect on
the Term Commencement Date.
(iv) In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to the rights and remedies provided in
California Civil Code Section 1951.2, as in effect on the Term Commencement
Date. For purposes of computing damages pursuant to Section 1951.2, an
interest rate equal to the maximum rate of interest then not prohibited by
law shall be used where permitted. Such damages shall include, without
limitation:
(1) The worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount
of such rental loss that Tenant proves could be reasonably avoided,
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco, at the time of award plus one percent; and
(2) Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the ordinary course of things
would be likely to result therefrom, including without limitation, the
following: (i) expenses for cleaning, repairing or restoring the Premises,
(ii) expenses for altering, remodeling or otherwise improving the Premises
for the purpose of reletting, including removal of existing leasehold
improvements and/or installation of additional leasehold improvements
(regardless of how the same is funded, including reduction of rent, a
direct payment or allowance to a new tenant, or otherwise), (iii) broker's
fees allocable to the remainder of the term of this Lease, advertising
costs and other expenses of reletting the Premises; (iv) costs of carrying
and maintaining the Premises, such as taxes, insurance premiums, utility
charges and security precautions, (v) expenses incurred in removing,
disposing of and/or storing any of Tenant's personal property, inventory or
trade fixtures remaining therein; (vi) reasonable attorney's fees, expert
witness fees, court costs and other reasonable expenses incurred by
Landlord (but not limited to taxable costs) in retaking possession of the
Premises, establishing damages hereunder, and releasing the Premises; and
(vii) any other expenses, costs or damages otherwise incurred or suffered
as a result of Tenant's default.
(c) In the event Landlord fails to perform its obligations under this
Lease, Landlord shall nevertheless not be in default under the terms of this
Lease until such time as Tenant shall have first given Landlord written notice
specifying the nature of such failure to perform its obligations, and then only
after Landlord shall have had thirty (30) days following its receipt of such
notice within which to perform such obligations; provided that, if longer than
thirty (30) days is reasonably required in order no perform such obligations,
Landlord shall have such longer period. In the event of Landlord's default as
above set forth, then, and only then, Tenant may then proceed in equity or at
law to compel Landlord to perform is obligations and/or to recover damages
proximately caused by such failure no perform (except as and to the extent
Tenant has waived its right to damages as provided in this Lease).
(d) If Landlord is a corporation, trust, partnership, joint venture,
limited liability company, unincorporated association, or other form of business
entity, Tenant agrees that (i) the obligations of Landlord under this Lease
shall not constitute personal obligations of the officers, directors, trustees,
partners, joint venturers, members, owners, stockholders, or other principals of
such business entity, and (ii) Tenant shall have recourse only to the property
of such corporation, trust, partnership, joint venture, limited liability
company, unincorporated association, or other form of business entity for the
satisfaction of such obligations and not against the assets of such officers,
directors, trustees, partners, joint venturers, members, owners, stockholders or
principals. Additionally, if Landlord is a partnership or limited liability
company, then Tenant covenants and agrees:
(i) No partner or member of Landlord shall be sued or named as a party
in any suit or action brought by Tenant with respect to any alleged breach
of this Lease (except no the extent necessary to secure jurisdiction over
the partnership and then only for that sole purpose);
(ii) No service of process shall be made against any partner or member
of Landlord except for the sole purpose of securing jurisdiction over the
partnership; and
(iii) No writ of execution will ever be levied against the assets of
any partner or member of Landlord other than to the extent of his or her
interest in the assets of the partnership or limited liability company
constituting Landlord.
Tenant further agrees that each of the foregoing covenants and agreements shall
be enforceable by Landlord and by any partner or member of Landlord and shall be
applicable to any actual or alleged misrepresentation or nondisclosure made
regarding this Lease or the Premises or any actual or alleged failure, default
or breach of any covenant or agreement either expressly or implicitly contained
in this Lease or imposed by statute or at common law.
(e) Landlord and Tenant agree that the provisions of Paragraph 12.3 above
are intended to supersede and replace the provisions of California Civil Code
Sections 1932(1), 1941 and 1942, and accordingly, Tenant hereby waives the
provisions of California Civil Code Sections 1932(1), 1941 and 1942 and/or any
similar or successor law regarding Tenant's right to terminate this Lease or no
make repairs and deduct the expenses of such repairs from the rent due under
this Lease.
24. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not sublet the Premises or any portion thereof or assign
its interest in this Lease, whether voluntarily or by operation of Law, without
Landlord's prior written consent which shall not be unreasonably withheld. Any
attempted subletting or assignment without Landlord's prior written consent, at
Landlord's election, shall constitute a default by Tenant under the terms of
this Lease. The acceptance of rent by Landlord from any person or entity other
than Tenant, or the acceptance of rent by Landlord from Tenant with knowledge of
a violation of the provisions of this paragraph, shall not be deemed no be a
waiver by Landlord of any provision of this Article or this Lease or to be a
consent to any subletting by Tenant or any assignment of Tenant's interest in
this Lease. Without limiting the circumstances in which is may be reasonable for
Landlord to withhold its consent to an assignment or subletting, Landlord and
Tenant acknowledge than it shall be reasonable for Landlord to withhold its
consent in the following instances:
(i) the proposed assignee or sublessee is a governmental agency;
(ii) in Landlord's reasonable judgment, the use of the Premises by the
proposed assignee or subleases would involve occupancy by other than
primarily general office, would entail any alterations which would lessen
the value of the leasehold improvements in the Premises, or would require
increased services by Landlord;
(iii) in Landlord's reasonable judgment, the financial worth of the
proposed assignee is less than that of Tenant or does not meet the credit
standards applied by Landlord;
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(iv) the proposed assignee or subleases (or any of its affiliates) has
been in material default under a lease, has been in litigation with a
previous landlord, or in the ten years prior to the assignment or sublease
has filed for bankruptcy protection, has been the subject of an involuntary
bankruptcy, or has been adjudged insolvent;
(v) Landlord has experienced a previous default by or is in litigation
with the proposed assignee or sublessee;
(vi) in Landlord's reasonable judgment, the Premises, or the relevant
part thereof, will be used in a manner that will violate any negative
covenant as to use contained in this Lease;
(vii) the use of the Premises by the proposed assignee or sublessee
will violate any applicable law, ordinance or regulation;
(viii) the proposed assignee or sublessee is, as of the date of this
Lease, a tenant in the Building;
(ix) the proposed assignment or sublease fails to include all of the
terms and provisions required to be included therein pursuant to this
Paragraph 24;
(x) Tenant is in default of any obligation of Tenant under this Lease,
or Tenant has defaulted under this Lease on three or more occasions during
the 12 months preceding the date that Tenant shall request consent; or
(xi) in the case of a subletting of less than the entire Premises, if
the subletting would result in the division of the Premises into more than
two subparcels or would require improvements so be made outside of the
Premises.
(b) If Tenant is a corporation, any dissolution, merger, consolidation or
other reorganization of Tenant, or the sale or other transfer in the aggregate
over the Lease Term of a controlling percentage of the capital stock of Tenant,
shall be deemed a voluntary assignment of Tenant's interest in this Lease. The
phrase "controlling percentage" means the ownership of and the right to vote
stock possessing more than fifty percent of the total combined voting power of
all classes of Tenant's capital stock issued, outstanding and entitled to vote
for the election of directors. If Tenant is a partnership, a withdrawal or
change, voluntary, involuntary or by operation of Law, of any general partner,
or the dissolution of the partnership, shall be deemed a voluntary assignment of
Tenant's interest in this Lease.
(c) If Tenant shall desire to assign its interest under the Lease or to
sublet the Premises, Tenant must first notify Landlord, in writing, of its
intent to so assign or sublet, at least thirty (30) days in advance of the date
it intends to so assign its interest in this Lease or sublet the Premises but
not sooner than one hundred eighty (180) days in advance of such date,
specifying in detail the terms of such proposed assignment or subletting,
including the name of the proposed assignee or sublessee, the property
assignee's or sublessee's intended use of the Premises, current financial
statements (including a balance sheet, income statement and statement of cash
flow, all prepared in accordance with generally accepted accounting principles)
of such proposed assignee or sublessee, the form of documents to be used in
effectuating such assignment or subletting and such other information as
Landlord may reasonably request. Landlord shall have a period of ten (10)
business days following receipt of such notice and the required information
within which to do one of the following: (i) consent to such requested
assignment or subletting subject to Tenant's compliance with the conditions set
forth in Paragraph 24(d) below, or (ii) refuse to so consent to such requested
assignment or subletting, provided that such consent shall not be unreasonably
refused, or (iii) terminate this Lease as to the portion (including all) of the
Premises that is the subject of the proposed assignment or subletting. During
such ten (10) business day period, Tenant covenants and agrees to supply to
Landlord, upon request, all necessary or relevant information which Landlord may
reasonably request respecting such proposed assignment or subletting and/or the
proposed assignee or sublessee.
(d) If Landlord elects to consent, or shall have been ordered to so consent
by a court of competent jurisdiction, to such requested assignment or
subletting, such consent shall be expressly conditioned upon the occurrence of
each of the conditions below set forth, and any purported assignment or
subletting made or ordered prior to the full and complete satisfaction of each
of the following conditions shall be void and, at the election of Landlord,
which election may be exercised at any time following such a purported
assignment or subletting but prior to the satisfaction of each of the stated
conditions, shall constitute a material default by Tenant under this Lease until
cured by satisfying in full each such condition by the assignee or sublessee.
The conditions are as follows:
(i) Landlord having approved in form and substance the assignment or
sublease agreement and any ancillary documents, which approval shall not be
unreasonably withheld by Landlord if the requirements of this Paragraph 24
are otherwise complied with.
(ii) Each such sublessee or assignee having agreed, in writing
satisfactory to Landlord and its counsel and for the benefit of Landlord,
to assume, to be bound by, and to perform the obligations of this Lease to
be performed by Tenant which relate to space being subleased.
(iii) Tenant having fully and completely performed all of its
obligations under the terms of this Lease through and including the date of
such assignment or subletting.
(iv) Tenant having reimbursed to Landlord all reasonable costs and
reasonable attorneys' fees incurred by Landlord in conjunction with the
processing and documentation of any such requested subletting or
assignment.
(v) Tenant having delivered to Landlord a complete and fully-executed
duplicate original of such sublease agreement or assignment agreement (as
applicable) and all related agreement.
(vi) Tenant having paid, or having agreed in writing to pay as to
future payments, to Landlord fifty percent (50%) of all assignment
consideration or excess rentals to be paid to Tenant or to any other on
Tenant's behalf or for Tenant's benefit for such assignment or subletting
as follows:
(1) If Tenant assigns its interest under this Lease and if all or
a portion of the consideration for such assignment is to be paid by
the assignee at the time of the assignment, that Tenant shall have
paid to Landlord and Landlord shall have received an amount equal to
fifty percent (50%) of the assignment consideration so paid or to be
paid (whichever is the greater) as the time of the assignment by the
assignee: or
(2) If Tenant assigns its interest under this Lease and if Tenant
is to receive all or a portion of the consideration for such
assignment in future installments, that Tenant and Tenant's assignee
shall have entered into a written agreement with and for the benefit
of Landlord satisfactory to Landlord and its counsel whereby Tenant
and Tenant's assignee jointly agree to pay to Landlord an amount equal
to fifty percent (50%) of all such future assignment consideration
installments so be paid by such assignee as and when such assignment
consideration is so paid.
(3) If Tenant subleases the Premises, that Tenant and Tenant's
sublessee shall have entered into a written agreement with and for the
benefit of Landlord satisfactory to Landlord and its counsel whereby
Tenant and Tenant's sublessee jointly agree to pay to Landlord fifty
percent (50%) of all excess rentals to be paid by such sublessee as
and when such excess rentals are so paid.
14.
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(e) For purposes of this Article, including any amendment to this Article
by way of addendum or other writing, the term "assignment consideration" shall
mean all consideration so be paid by the assignee to Tenant or so any other
party on Tenant's behalf or for Tenant's benefit as consideration for such
assignment, without deduction for any commissions paid by Tenant or any other
costs or expenses (including, without limitation, tenant improvements, capital
improvements, building upgrades, permit fees, attorneys' fees, and other
consultants' fees) incurred by Tenant in connection with such assignment, and
the term "excess rentals" shall mean all consideration so be paid by the
sublessee to Tenant or to any other party on Tenant's behalf or for Tenant's
benefit for the sublease of the Premises in excess of the rent due to Landlord
under the terms of this Lease for the same period, without deduction for any
commissions paid by Tenant or any other costs or expenses (including, without
limitation, tenant improvements, capital improvements, building upgrades, permit
fees, attorneys' fees, and other consultants' fees) incurred by Tenant in
connection with such sublease. Tenant agrees that the portion of any assignment
consideration and/or excess rentals arising from any assignment or subletting by
Tenant which is to be paid to Landlord pursuant to this Article now is and shall
then be the property of Landlord and not the property of Tenant.
(f) All payments required by this Paragraph to be made to Landlord shall be
made in cash in full as and when they become due. At the time Tenant, Tenant's
assignee or sublessee makes each such payment to Landlord, Tenant or Tenant's
assignee or sublessee, as the case may be, shall deliver to Landlord an itemized
statement in reasonable detail showing the method by which the amount due
Landlord was calculated and certified by the party making such payment as true
and correct.
(g) The rights granted so Tenant by this Article are granted in
consideration of Tenant's express covenant that all pertinent allocations which
are made by Tenant between the rental value of the Premises and the value of any
of Tenant's personal property which may be conveyed or leased generally
concurrently with and which may reasonably be considered a part of the same
transaction as the permitted assignment or subletting shall be made fairly,
honestly and in good faith. If Tenant shall breach this covenant, Landlord may
immediately declare Tenant to be in default under the terms of this Lease and
terminate this Lease and/or exercise any other rights and remedies Landlord
would have under the terms of this Lease in the case of a material default by
Tenant under this Lease.
(h) No subletting or assignment, even with the consent of Landlord, shall
relieve Tenant of its personal and primary obligation so pay rent and to perform
all of the other obligations to be performed by Tenant hereunder. Consent by
Landlord to one or more assignments of Tenant's interest in this Lease or to one
or more sublettings of the Premises shall not be deemed so be a consent so any
subsequent assignment or subletting. If Landlord shall have been ordered by a
court of competent jurisdiction to consent to a requested assignment or
subletting, or such an assignment or subletting shall have been ordered by a
court of competent jurisdiction over the objection of Landlord, such assignment
or subletting shall not be binding between the assignee (or sublessee) and
Landlord until such time as all conditions set forth in Paragraph 7.4 above have
been fully satisfied (to the extent not then satisfied) by the assignee or
sublessee, including, without limitation, the payment to Landlord of all agreed
assignment considerations and/or excess rentals then due Landlord.
25. SUBORDINATION
(a) This Lease is subject to and subordinate so all ground leases,
mortgages and deeds of trust which affect the Building or the Property and which
are of public record as of the Term Commencement Date, and so all renewals,
modifications, consolidations, replacements and extensions thereof. However, if
the lessor under any such ground lease or any lender holding any such mortgage
or deed of trust shall advise Landlord that it desires or requires this Lease to
be made prior and superior thereto, then, upon written request of Landlord to
Tenant, Tenant shall promptly execute, acknowledge and deliver any and all
customary or reasonable documents or instruments which Landlord and such lessor
or lender deems necessary or desirable so make this Lease prior thereto. Tenant
hereby consents to Landlord's ground leasing the land underlying the Building or
the Property and/or encumbering the Building or the Property as security for
future loans on such terms as Landlord shall desire, all of which future ground
leases, mortgages or deeds of trust shall be subject to and subordinate so this
Lease. However, if any lessor under any such future ground lease or any lender
holding such future mortgage or deed of trust shall desire or require that this
Lease be made subject to and subordinate to such future ground lease, mortgage
or deed of trust, then Tenant agrees, within ten days after Landlord's written
request therefor, so execute, acknowledge and deliver to Landlord any and all
documents or instruments requested by Landlord or by such lessor or lender as
may be necessary or proper to assure the subordination of this Lease to such
future ground lease, mortgage or deed of trust, but only if such lessor or
lender agrees so recognize Tenant's rights under this Lease and agrees not to
disturb Tenant's quiet possession of the Leased Premises so long as Tenant is
not in default under this Lease. If Landlord assigns the Lease as security for a
loan, Tenant agrees to execute such documents as are reasonably requested by the
lender and to provide reasonable provisions in the Lease protecting such
lender's security interest which are customarily required by institutional
lenders making loans secured by a deed of trust.
(b) Tenant shall, upon request, attorn (i) to any purchaser of the Building
or the Property at any foreclosure sale or private sale conducted pursuant so
any security instruments encumberng the Building or she Property, (ii) to any
grantee or transferee designated in any deed given in lieu of foreclose of any
security interest encumbering the Building or the Property, or (iii) so the
lessor under an underlying ground lease of the land underlying the Building or
the Property, should such ground lease be terminated; provided that such
purchaser, grantee or lessor recognizes Tenant's rights under this Lease.
26. ESTOPPEL CERTIFICATE. Tenant will, following any request by Landlord,
promptly execute and deliver to Landlord an esstoppel certificate (i) certifying
that this Lease is unmodified and in full force and effect, or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect, (ii) stating the date to which the rent
and other charges are paid in advance, if any, (iii) 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, and (iv) certifying
such other information about this Lease as may be reasonably requested by
Landlord, its Lender or prospective lenders, investors or purchasers of the
Building or the Property. Tenant's failure to execute and deliver such estoppel
certificate within ten days after Landlord's request therefor shall be a
material default by Tenant under this Lease, and Landlord shall have all of the
rights and remedies available to Landlord as Landlord would otherwise have in
the case of any other material default by Tenant, including the right to
terminate this Lease and sue for damages proximately caused thereby, it being
agreed and understood by Tenant that Tenant's failure to so deliver such
estoppel certificate in a timely manner could result in Landlord being unable to
perform committed obligations to other third parties which were made by Landlord
in reliance upon this covenant of Tenant. Landlord and Tenant intend that any
statement delivered pursuant to this paragraph may be relied upon by any Lender
or purchaser or prospective Lender or purchaser of the Building, the Property,
or any interest in them.
27. Tenant's Financial Information. Tenant shall, within ten business days
after Landlord's request therefor, deliver to Landlord a copy of Tenant's (and
any guarantor's) current financial statements (including a balance sheet, income
statement and statement of cash flow, all prepared in accordance with generally
accepted accounting principles, and any such other information reasonably
requested by Landlord regarding Tenant's financial condition. Landlord shall be
entitled to disclose such financial statements or other information to its
Lender, to any present or prospective principal of or investor in Landlord, or
to any prospective Lender or purchaser of the Building, the Property, or any
portion thereof or interest therein. Any such financial statement or other
intonation which is marked "confidential" or "company secrets" (or is otherwise
similarly marked by Tenant) shall be confidential and shall not be disclosed by
Landlord to any third party except as specifically provided in this paragraph,
unless the same becomes a part of the public domain without the fault of
Landlord.
28. RULES.
Tenant shall faithfully observe and comply with the rules and regulations
annexed to this Lease, and after notice thereof, all reasonable modifications
thereof and additions thereto from time to time promulated in writing by
Landlord. Landlord shall not be responsible to Tenant for the non-performance by
any other tenant or occupant of the Building of any of said rules and
regulations.
15.
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29. ATTORNEYS' FEES.
If as a result of any breach or default in the performance of any of the
provisions of this Lease, Landlord or Tenant uses the services of an attorney
and brings an action in a local, state or federal court of law in order to
secure compliance with such provisions or to recover damages therefor, or to
terminate this Lease or evict Tenant, the party against whom judgement has been
rendered shall reimburse the prevailing party upon demand for any and all
reasonable attorneys' fees and expenses so incurred by the prevailing party.
30. WAIVER.
The waiver by Landlord of any agreement, condition or provision herein
contained shall not be deemed to be a waiver of any subsequent breach of the
same or any other agreement, condition or provision herein contained, nor shall
any custom or practice which may grow up between the parties in the
administration of the terms hereof be construed to waive or to lessen the right
of Landlord to insist upon the performance by Tenant in strict accordance with
such terms. The subsequent acceptance of rental hereunder by Landlord shall not
be deemed to be a waiver of any preceding breach by Tenant of any agreement,
condition or provision of this Lease, other than the failure of Tenant to pay
the particular rental so accepted, regardless of Landlord's knowledge of the
preceding breach at the time of acceptance or payment of the rental.
31. PARKING AND TRANSPORTATION MANAGEMENT.
(a) Unless Tenant is in default hereunder, Tenant shall be entitled to park
in the Building's parking lot (the "Lot") on a non-assigned, unreserved basis
the number of automobiles designated in the Basic Lease Information for
`onsite', subject to all of the rules and regulations applicable to such parking
as are promulgated by Landlord and to any restrictions or regulations at any
time imposed by the City of Santa Clara on Landlord's ability to offer such
parking.
(b) Landlord may assign any unreserved and unassigned parking spaces and/or
make all or a portion of such spaces reserved, if it determines in its sole
discretion that such action is necessary for orderly and efficient parking.
Tenant shall not use more parking spaces than the number of parking privileges
specified herein. Landlord may, at its option, cause all parking so be valet
parked or implement a regulated or monitored parking program with any associated
costs deemed an Operating Expense. If Tenant permits or allows any of the
prohibited activities described in this Paragraph 31, then Landlord shall have
the right, without notice, in addition to such other rights and remedies that it
may have, to remove or tow away the vehicle involved and charge the cost to
Tenant, which cost shall be immediately payable upon demand by Landlord.
Landlord shall have no responsibility for damage to automobiles incurred in the
Lot.
(c) All parking rights granted to Tenant in this Paragraph 31 shall be for
the sole use of the employees and invitees of the named Tenant, and no parking
rights may be assigned or sublet to any other party.
(d) Tenant agrees that it will use its best efforts to cooperate in
programs which may be undertaken by Landlord independently, or in cooperation
with local municipalities or governmental agencies or other property owners in
the vicinity of the Building, to reduce peak levels of commuter traffic. Such
programs may include, but shall not be limited so, carpools, vanpools and other
ride sharing or transportation system management programs, public and private
transit, and flexible work hours. Tenant agrees to cooperate with Landlord in
Landlord's administration of a transportation-management program (if any)
required by the City of Santa Clara. Tenant acknowledges that as a part of this
program, Tenant may be required to distribute employee transportation
information at the Term Commencement Date, participate in annual employee
transportation surveys, allow employees to participate in commuter activities,
designate a liaison for commuter transportation related activities, distribute
commuter information to all employees prior to relocation and to new employees
when hired, and otherwise participate in other programs or services initiated
under the transportation management program.
32. COMPLETE AGREEMENT.
There are no oral agreements between Landlord and Tenant affecting this
Lease, and this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements, and understandings if any, between Landlord
and Tenant or displayed by Landlord to Tenant with respect to the subject manner
of this Lease or the Property. There are no representations between Landlord and
Tenant other than those contained in this Lease and all reliance with respect to
any representations is solely upon the representations contained in this Lease.
All implied warranties, including implied warranties of merchantability and
fitness, are excluded. Except as otherwise provided herein, no subsequent
change, modification or addition to this Lease shall be binding unless in
writing and signed by the parties hereto.
33. MODIFICATION FOR LENDER.
If, in connection with obtaining financing or refinancing for the Property
or the Premises or the Building or any portion thereof, Landlord's lender shall
request reasonable modification of or to this Lease as a condition to such
financing or refinancing. Tenant shall not unreasonably withhold, delay or defer
its consent thereto, provided such modifications do not materially affect
Tenant's rights or obligations hereunder.
34. MERGER.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies, or operate as
an assignment to it of any or all such subleases or subtenancies.
35. SALE.
In the event the original Landlord hereunder, or any successor owner of the
Building or Property, shall sell or convey the Building or Property, all
liabilities and obligations on the part of the original Landlord, or such
successor owner, under this Lease accruing thereafter shall terminate, and
thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner.
36. NO LIGHT, AIR, OR VIEW EASEMENT.
Any diminution of shutting off or light, air or view by any structure which
may be erected on lands adjacent to the Building or the Property shall in no way
affect this Lease or impose any liability on Landlord.
37. CORPORATE AUTHORITY.
If Tenant signs as a corporation, each of the persons executing this Lease
on behalf of Tenant warrants that Tenant is a duly authorized and existing
corporation, that Tenant has and is qualified to do business in California, that
the corporation has full right and authority to enter into this Lease, and that
each and both of the persons signing on behalf of the corporation were
authorized to do so.
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38. ABANDONMENT.
If Tenant shall abandon or surrender the Premises, or be dispossessed by
process of law or otherwise, any personal property belonging to Tenant and left
on the Premises shall be deemed to be abandoned, at the option of Landlord,
except such property as may be mortgaged to Landlord.
39. FUTURE DEVELOPMENT.
Tenant agrees that any construction work performed on the Building may
result in minor inconveniences to Tenant but shall not entitle Tenant to any
rebate of rent or subject Landlord to any liability. Tenant further acknowledges
that such construction work shall be in Landlord's sole discretion. Tenant
agrees to execute and deliver, upon demand by Landlord and in the form requested
by Landlord, any additional documents needed to conform this Lease so the
circumstances resulting from such construction.
40. SECURITY MEASURES.
Landlord may, but shall be under no obligation to, implement security
measures for the Building or the Property, such as the registration or search of
all persons entering or leaving the Building, requiring identification for
access to the Building, evacuation of the Building for cause, suspected cause,
or for drill purposes, the issuance of magnetic pass cards or keys for Building
or elevator or access and other actions that Landlord deems necessary or
appropriate to prevent any threat of property loss or damage, bodily injury or
business interruption. Tenant shall cooperate and comply with, and cause its
employees, representatives and visitors to cooperate and comply with, such
security measures. Landlord, its agents and employees shall have no liability to
Tenant, its employees, agents and invitees for the implementation or exercise
of, or the failure to implement or exercise, any such security measures or for
any resulting disturbance of Tenant's use or enjoyment of the Premises.
41. FORCE MAJEURE.
In the event Landlord is delayed, interrupted or prevented from performing
any of its obligations under this Lease, including its obligations under Exhibit
D with respect to Tenant Improvements, and such delay, interruption or
prevention is due to fire, act of God, governmental act, strike, labor dispute,
unavailability of materials or any other cause outside the reasonable control of
Landlord, then the time for performance of the affected obligations of Landlord
shall be extended for a period equivalent to the period of such delay,
interruption or prevention.
42. RECORDING.
Neither landlord nor Tenant shall record this Lease, nor a short form
memorandum of this Lease, without the prior written consent of the other.
43. MISCELLANEOUS.
The words "Landlord" and "Tenant" as used herein shall include the plural
as well as the singular. if there be more than one Tenant, the obligations
hereunder imposed upon Tenant shall be joint and several. Time is of the essence
of this Lease and each and all of its provisions. Submission of this instrument
for examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant. The agreements, conditions
and provisions herein contained shall, subject to the provisions as to
assignment, apply so and bind the heirs, executors, administrators, successors
and assigns of the parties hereto. Tenant shall not, without the consent of
Landlord, use the words "Marriott Plaza" or "2901 Tasman Drive" for any purpose
other than as the address of the business so be conducted by Tenant in the
Premises. If any provision of this Lease shall be determined to be illegal or
unenforceable, such determination shall not affect any other provision of this
Lease and all such other provisions shall remain in full force and effect. This
Lease shall be governed by and construed pursuant to the laws of the State of
California. Exclusive jurisdiction and venue for resolving any dispute between
Tenant and Landlord shall be in the County of Santa Clara, State of California.
44. EXHIBITS.
The exhibits and addendum, if any, specified in the Basic Lease Information
are attached so this Lease and by this reference made a part hereof.
45. TELEPHONE SERVICE.
Notwithstanding any other provision of this Lease so the contrary:
(a) So long as the entirety of the Premises is leased to Tenant:
(i) Landlord shall have no responsibility for providing to Tenant any
telephone equipment, including wiring, within the Premises or for providing
telephone service or connections from the utility to the Premises; and
(ii) Landlord makes no warranty as so the quality, continuity or
availability of the telecommunications services in the Building, and Tenant
hereby waives any claim against Landlord for any actual or consequential
damages (including damages for loss of business) in the event Tenant
telecommunications services in any way are interrupted, damaged or rendered
less effective, except to the extent caused by the grossly negligent or
willful act or omission by Landlord, its agents or employees. Tenant's
accepts the telephone equipment (including, without limitation, the INC. as
defined below) in its `AS-IS' condition, and Tenant shall be solely
responsible for contracting with a reliable third party vendor to assume
responsibility for the maintenance and repair thereof (which contract shall
contain provisions requiring such vendor to inspect the INC periodically
(the frequency of such inspections to be determined by such vendor based on
its experience and professional judgment), and requiring such vendor to
meet local and federal requirements for telecommunications material and
workmanship). Landlord shall not be liable to Tenant and Tenant waives all
claims against Landlord whatsoever, whether for personal injury, property
damage, loss of use of the Premises, or otherwise, due to the interruption
or failure of telephone services to the Premises. Tenant hereby holds
Landlord harmless and agrees to indemnify, protect and defend Landlord from
and against any liability for any damage, loss or expense due to any
failure or interruption of telephone service to the Premises for any
reason. Tenant agrees to obtain loss of rental insurance adequate to cover
any damage, loss or expense occasioned by the interruption of telephone
service.
(b) At such time as the entirety of the Leased Premise is no longer leased
to Tenant, Landlord shall in its sole discretion have the right, by written
notice to Tenant, to elect to assume limited responsibility for INC, as provided
below, and upon such assumption of responsibility by Landlord, this subparagraph
(b) shall apply prospectively.
(i) Landlord shall provide Tenant access to such quantity of pairs in
the Building intra-building network cable ("INC") as is determined to be
available by Landlord in its reasonable discretion. Tenant's access to the
INC shall be solely by arrangements made by Tenant, as Tenant may elect,
directly with Pacific Bell or Landlord (or such vendor as Landlord may
designate), and Tenant shall pay all reasonable charges as may be imposed
in connection therewith. Pacific Bell's charges shall be deemed to be
reasonable. Subject to the foregoing, Landlord shall have no responsibility
for providing to Tenant any telephone equipment, including wiring, within
the Premises or for providing telephone service or connections from the
utility to the Premises, except as required by law.
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(ii) Tenant shall not alter, modify, add to or disturb any telephone
wiring in the Premises or elsewhere in the Building without the Landlord's
prior written consent. Tenant shall be liable to Landlord for any damage to
the telephone wiring in the Building due to the act, negligent or
otherwise. of Tenant or any employee, contractor or other agent of Tenant.
Tenant shall have no access to the telephone closets within the Building,
except in the manner and under procedures established by Landlord. Tenant
shall promptly notify Landlord of any actual or suspected failure of
telephone service to the Premises.
(iii) All costs incurred by Landlord for the installation,
maintenance, repair and replacement of telephone wiring in the Building
shall be included in Operating Expenses
(iv) Landlord makes no warranty as to the quality, continuity or
availability of the telecommunications services in the Building, and Tenant
hereby waives any claim against Landlord for any actual or consequential
damages (including damages for loss of business) in the event Tenant's
telecommunications services in any way are interrupted, damaged or rendered
less effective, except to the extent caused by the grossly negligent or
willful act or omission by Landlord, its agents or employees. Tenant
acknowledges that Landlord meets its duty of care to Tenant with respect to
the Building INC by contracting with a reliable third party vendor to
assume responsibility for the maintenance and repair thereof (which
contract shall contain provisions requiring such vendor to inspect the INC
periodically (the frequency of such inspections to be determined by such
vendor based on its experience and professional judgment), and requiring
such vendor to meet local and federal requirements for telecommunications
material and workmanship). Subject to the foregoing, Landlord shall not be
liable to Tenant and Tenant waives all claims against Landlord whatsoever,
whether for personal injury, property damage, loss of use of the Premises,
or otherwise, due to the interruption or failure of telephone services to
the Premises. Tenant hereby holds Landlord harmless and agrees to
indemnify, protect and defend Landlord from and against any liability for
any damage, loss or expense due to any failure or interruption of telephone
service to the Premises for any reason. Tenant agrees so obtain loss of
rental insurance adequate to cover any damage, loss or expense occasioned
by the interruption of telephone service.
IN WITNESS WHEREOF, the parties have executed this Lease on the respective
dates indicated below:
LANDLORD:
MARRIOTT PLAZA ASSOCIATES L.P.,
A California Limited Partnership
By: Menlo Equities Associates IV LLC, a California Limited Liability Company,
Its General Partner
By: Menlo Equities LLC, a California Limited Liability Company,
Its Manager
By:
----------------------------
Its: Member
Date:
---------------------------
TENANT:
MAKER COMMUNICATIONS, a Delaware corporation
Signature: /s/ Mitchell Mackoff
-------------------------
By: /s/ Mitchell Mackoff
------------------------------
Its: Vice President & CFO
Date: 12/31/97
------------------------------
<PAGE>
EXHIBIT B
FLOOR PLANS
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, hails, passages, exits, entrances, elevators, and
stairways of the Building shall not be obstructed by any of the tenants or used
by them for any purpose other than for ingress to and egress from their
respective Premises. The halls, passages, exits, entrances, elevators, and
stairways are not for the general public, and Landlord shall in all cases retain
the right to control and prevent access thereto of all persons whose presence in
the judgment of Landlord would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that nothing
herein contained shall be construed to prevent ingress to and egress from
Tenant's Premises to persons with whom any tenant normally deals in the ordinary
course of its business, unless such persons are engaged in illegal activities.
No tenant and no employee or invitee of any tenant shall go upon the roof of the
Building.
2. No sign, placard, picture, name, advertisement or notice visible from
the exterior of any tenant's Premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant on any part of the Building without the prior
written consent of Landlord. Landlord will adopt and furnish to tenants general
guidelines relating to signs inside the Building on the office floors. Each
tenant shall conform to such guidelines, but may request approval of Landlord
for modifications, which approval will not be unreasonably withheld. All
approved signs or lettering on doors shall be printed, painted, affixed or
inscribed at the expense of the tenant by a person approved by Landlord, which
approval will not be unreasonably withheld. Material visible from outside the
Building will not be permitted.
3. The Premises shall not be used for the storage of merchandise held for
sale so the general public or for lodging. No cooking shall be done or permitted
by any tenant on the Premises, except that use by the tenant of food and
beverage vending machines and Underwriters' Laboratory approved microwave and
toaster ovens and equipment for brewing coffee, tea, hot chocolate and similar
beverages shall be permitted; provided that such use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations.
4. No tenant shall employ any person or persons other than Landlord's
janitorial service for the purpose of cleaning the Premises, unless otherwise
approved by Landlord. No person or persons other than those approved by Landlord
shall be permitted so enter the Building for the purpose of cleaning the same.
No tenant shall cause any unnecessary labor by reason of such tenant's
carelessness or indifference in the preservation of good order and cleanliness.
Janitor service will not be furnished on nights when rooms are occupied after
8:00 P.M. unless, by prior arrangement with Landlord, service is extended to a
later hour for specifically designated rooms with any additional cost to be paid
by the requesting tenant.
5. Landlord will furnish each tenant free of charge with two keys to each
door lock in its Premises. Landlord may make a reasonable charge for any
additional keys Tenants shall have the right to make keys. No tenant shall
change any lock without the express written consent of the Landlord. The tenants
shall in each case furnish Landlord with a key for any such lock. Each tenant,
upon the termination of its tenancy, shall deliver so Landlord all keys so doors
in the Building which shall have been furnished to or made by the tenant.
6. The elevator shall be available for use by all tenants in the Building.
The persons employed to move equipment in or out of the Building must be
acceptable to Landlord. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects shall, if considered necessary by
Landlord, stand on wood strips of such thickness as is necessary properly to
distribute the weight. Landlord will not be responsible for loss of or damage to
any such property from any cause, and all damage done to the Building by moving
or maintaining such property shall be repaired at the expense of the tenant.
7. No tenant shall use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of office equipment, or, without Landlord's prior approval, use any method of
heating or air conditioning other than that supplied by Landlord. No tenant
shall use or keep or permit to be used or kept any foul or noxious gas or
substance in the Premises, or permit or suffer the Premises to be occupied or
used in a manner offensive or objectionable so Landlord or other occupants of
the Building by reason of noise, odors or vibrations, or interfere in any way
with other tenants or those having business therein.
8. Landlord shall have the right, exercisable without liability to any
tenant to change the name and street address of the Building.
9. Landlord reserves the right to exclude from the Building between the
hours of 6:00 P.M. and 8:00 A.M. and as all hours on Saturdays, Sundays and
legal holidays all persons who do not present a proper access card or other
identification as an employee of Tenant or who do not otherwise present proper
authorization by Tenant for access to the Premises. Tenant shall be responsible
for all persons for whom is authorizes access and shall be liable to Landlord
for all acts of such persons. Landlord shall in no case be liable for damages
for any error with regard to the admission so or exclusion from the Building of
any person. In the case of invasion, mob, riot, public excitement or other
circumstances rendering such action advisable in Landlord's opinion. Landlord
reserves the right to prevent access to the Building during the continuance of
the same by such action as Landlord may deem appropriate.
10. The directory of the Building will be provided for the display of the
name and location of tenants. Any additional name which Tenant desires to have
added to the directory shall be subject to Landlord's approval and may be
subject so a charge therefor.
11. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any exterior window in the Building without the prior
consent of Landlord. If consented so by Landlord, such items shall be installed
on the office side of the standard window covering and shall in no way be
visible from the exterior of the Building.
12. Messenger services and suppliers of bottled water, food, beverages, and
other products or services shall be subject to such reasonable regulations as
may be adopted by Landlord. So long as the time for pick-up and delivery of
packages from and to the Premises is not materially increased, Landlord may
establish a central receiving station in the Building for delivery and pick-up
by all messenger services, and may limit delivery and pick-up at tenant Premises
to Building personnel.
13. Each ten shall see that the doors of its Premises are closed and locked
and that all water faucets or apparatus, cooking facilities and office equipment
(excluding office equipment required to be operative at all times) are shut off
before the tenant or its employees leave the Premises at night, so as to prevent
waste or damage, and for any default or carelessness in this regard the tenant
shall be responsible for any damage sustained by other tenants or occupants of
the Building or Landlord. All tenants shall keep the doors to the Building
corridors closed at all times except for ingress and egress.
14. The toilets, urinals, wash bowls and other restroom facilities shall
not be used for any purpose other than that for which they were constructed, no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the tenant who, or whose employees or invitees, shall have
caused it.
15. Except with the prior consent of Landlord, no tenant shall sell, or
permit the sale at retail, of newspapers, magazines, periodicals, theater
tickets or any other goods or merchandise to the general public in or on the
Premises, in or from the Premises for the service
1.
<PAGE>
or accommodation of occupants of any other portion of the Building, nor shall
the Premises of any tenant be used for manufacturing of any kind, or any
business or activity other than that specifically provided for in such tenant's
lease.
16. No tenant shall install any antenna, loudspeaker, or any other device
on the roof or exterior walls of the Building.
17. There shall not be used in any portion of the Building, by any tenant
or its invitees, any hand trucks or other material handling equipment except
those equipped with rubber tires and side guards unless otherwise approved by
Landlord.
18. Each tenant shall store its refuse within its Premises. No material
shall be placed in the refuse boxes or receptacles if such material is of such
nature that is may not be disposed of in the ordinary and customary manner of
removing and disposing of refuse in the City of Santa Clara without being in
violation of any law or ordinance governing such disposal. All refuse disposal
shall be made only through entryways and elevators provided for such purposes
and at such tunes as Landlord shall designate.
19. Canvassing, peddling, soliciting, and distribution of handbills or any
other written materials in the Building are prohibited, and each tenant shall to
prevent the same.
20. Smoking in all portions of the Building is prohibited, and each tenant
shall cooperate to prevent the same.
21. No objects of any kind (including, without limitation, picture frames
and cups) shall be placed on the interior window sills, chair rails, or mullions
which adjoin the exterior windows of the Building.
22. Holidays shall include the following: Christmas (December 25); New
Years (January 1); Memorial Day; Independence Day (July 4); Labor Day and
Thanksgiving.
23. The requirements of the tenants will be attended to only upon
application by telephone or in person at the office of the Landlord or
Landlord's designated representative. Employees of Landlord shall not perform
any work or do anything outside of their regular duties unless under special
instructions from Landlord.
24. Subject so the terms of the leases, Landlord may waive any one or more
of these Rules and Regulations for the benefit of any particular tenant or
tenants, but no such waiver by Landlord shall be construed as a waiver of such
Rules and Regulations in favor of any other tenant or tenants, nor prevent
Landlord from thereafter enforcing any such Rules and Regulations against any or
all of the tenants of the Building.
25. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of Premises in the Building.
26. Subject to the terms of the leases, Landlord reserves the right to make
such other and reasonable rules and regulations as in its judgment may from time
to time be needed for the safety, care and cleanliness of the Building, and for
the preservation of good order therein.
2.
<PAGE>
EXHIBIT E
SAMPLE FORM OF TENANT ESTOPPEL CERTIFICATE
The undersigned, ___________________________, a ________ ("Landlord"), with a
mailing address of California 9______, Attn:________, and _________________, a
________________ ("Tenant"), hereby certify to ________________________, as
follows:
1. Attached hereto is a true, correct and complete copy of that certain
lease dated ___________________, 19___, between Landlord and Tenant (the
"Lease"), which demises premises which are located at
______________________[city], California 9____. The Lease is now in full force
and effect and has not been amended, modified or supplemented, except as set
forth in Paragraph 4 below.
2. The term of the Lease commenced on _________________, 19___.
3. The term of the Leases will expire on _________________, 19___.
4. The Lease has: (Initial one)
(_) not been amended, modified, supplemented, extended, renewed or
assigned.
(_) been amended, modified, supplemented, extended, renewed or
assigned by the following described agreements, copies of which
are attached hereto:
5. Tenant has accepted and is now in possession of said Premises.
6. Tenant and Landlord acknowledge that the Lease will be assigned
to___________ and that no modification, adjustment, revision or cancellation of
the Lease or amendments thereto shall be effective unless written consent
of________________ is obtained, and that until further notice, payments under
the Lease may continue as heretofore.
7. The amount of current monthly rent is $______; current monthly parking
charges are $________.
8. The amount of security deposits (if any) is $_________. No other
security deposits have been made.
9. Tenant is paying the full lease rental, which has been paid in full as
of the date hereof. No rent under the Lease has been paid for more than
thirty (30) days in advance of its due date.
10. All work required to be performed by Landlord under the Lease has been
completed.
11. There are no defaults on the part of the Landlord or Tenant under the
Lease.
12. Tenant has no defense as to its obligations under the Lease and claims
no set-off or counterclaim against Landlord.
13. Tenant has no right to any concession (rental or otherwise) or similar
compensation in connection with renting the space it occupies, except as
provided in the Lease.
14. All provisions of the Lease and the amendments thereto (if any)
referred to above are hereby ratified.
The foregoing certification is made with the knowledge that _________________ is
about to [fund a loan to Landlord/purchase the property from Landlord], and
that_________________ is relying upon the representations herein made in
[funding such loan/purchasing the property].
Dated:___________, 19____
TENANT:
_________________
Signature: _____________________________________
By:_____________________________________________________
Its:____________________________________________________
Date:___________________________________________________
LANDLORD:
MARRIOTT PLAZA ASSOCIATES L.P.,
A California Limited Partnership
By: Menlo Equities Associates IV LLC, a California Limited Liability Company,
Its General Partner
By: Menlo Equities LLC, a California Limited Liability Company, Its Manager
By: ______________________________________________
Its: Member
Date: ____________________________________________
<PAGE>
EXHIBIT F
COMMENCEMENT DATE CERTIFICATE
Commencement Date Certificate is entered into by landlord and Tenant pursuant to
Exhibit D of the Lease.
(a) Landlord: Marriott Plaza Associates L.P., a California
limited partnership
(a) Tenant: Maker Communications
(b) Lease: Office Lease Dated December 10, 1997 between
landlord and Tenant
(c) Premises: Suite 204
(d) Building Address: 2901 Tasman Drive, Santa Clara, California
CONFIRMATION OF LEASE COMMENCEMENT.
Landlord and Tenant confirm that the Commencement Date of the lease is
1-9-98 and the Expiration Date is 1-15-2000 and that the Basic Lease Information
is amended accordingly.
Landlord and Tenant have executed this Commencement Date Certificate as the
dates set forth below.
LANDLORD:
MARRIOTT PLAZA ASSOCIATES L.P.,
a California Limited Partnership
Menlo Equities Associates IV LLC, a California Limited Liability Company,
Its General Partner
By: Menlo Equities LLC,
a California Limited Liability Company, Member
By: /s/ [Illegible]
------------------------
Its: Member
Date: 1/28/98
TENANT:
MAKER COMMUNICATIONS, a Delaware corporation
By: /s/ Mitchell Mackoff
- ----------------------------------
Mitchell Mackoff
- ----------------------------------
Vice President & CFO
- ----------------------------------
1/20/98
PERINI CORPORATION
COMMERCIAL LEASE
for
TABLE OF CONTENTS
ARTICLE
ARTICLE NUMBER
- ------- -------
Summary of Terms 1
Lease Term 2
Rent 3
Security Deposit 4
Use of Premises 5
Operating Expense 6
Real Estate Tax 7
Late Payment 8
Utilities 9
Compliance with Laws 10
Fire Insurance 11
Maintenance of Premises 12
Alterations 13
Assignment or Subleasing 14
Subordination 15
Estoppel Certificates 16
Lessors Access 17
Snow Removal 18
Access and Parking 19
Lessee's Liability Insurance 20
Waiver of Subrogation 21
Fire, Casualty, Eminent Domain 22
Interruptions 23
Brokerage 24
Signs 25
Default, Bankruptcy and Acceleration of Rent 26
No Accord and Satisfaction 27
Notices 28
Occupancy 29
Fire Prevention 30
Outside Area 31
Environment 32
Responsibility 33
Surrender 34
Legal 35
General 36
Waivers, Etc 37
Additional Provisions 38
This lease consists of nineteen (19) pages including the Table of Contents.
1
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PERINI CORPORATION
COMMERCIAL LEASE
In consideration of the covenants herein contained, Perini Corporation, a
Massachusetts corporation with a usual place of business at 73 Mount Wayte
Avenue, P0 Box 9160, Framingham, Massachusetts 01701-9160, hereinafter called
LESSOR, which expression shall include successors and assigns where the context
so admits, does hereby lease to:
Maker Communications, Inc.
486 Totten Pond Road
Waltham, MA 02154
hereinafter called LESSEE, which expression shall include successors, executors,
administrators, and assigns where the context so admits, and LESSEE hereby
leases from LESSOR the premises hereinafter described, to have and to hold and
to quietly enjoy from the Lease Commencement Date until the Lease Termination
Date (the Lease Term) as hereinafter specified, subject to the terms and
conditions hereinafter set forth:
1. SUMMARY OF TERMS.
Description of the Leased Premises: The premises located at 73 Mt. Wayte
Avenue, Framingham, Massachusetts 01701, As shown on plan (Lease Exhibit A)
attached hereto and made a part hereof (hereinafter the "Leased Premises").
The Leased Premises contain approximately ten thousand eight hundred
eighty-seven (10,887) rentable square feet (hereinafter the `Total Floor
Area of the Leased Premises").
Parking Spaces: 40
Permitted Uses: Normal office use and research and development uses for
software
Lease Term: Three years commencing on the Lease Commencement Date and
expiring three years thereafter ("Initial Term') together with the
extension options as set forth in Section 38(b).
Lease Commencement Date: July 1, 1997
Lease Termination Date: June 30, 2000 unless sooner terminated as herein
provided.
Annual Fixed Rent for the Lease Term: $185,079 per annum ($15,423.25/month)
for each Lease Year during the Initial Lease Term which includes Tenant's
electricity charge for the Leased Premises.
As used in this Lease, Lease Year shall mean a period of twelve (12)
calendar months, with the first Lease Year to commence upon the Lease
Commencement Date and end upon the anniversary thereof, and with successive
Lease Years continuing for twelve (12) month intervals thereafter until the
Lease Termination Date.
LESSEE's Share of Base Operating Expenses Included in Annual Fixed Rent
Those
2
<PAGE>
incurred during calendar year ending December 31, 1996, or $3.25 per square
foot, whichever is higher.
LESSEE's Share of Real Estate Tax Expenses Included in Annual Fixed Rent
per rentable square foot of the Leased Premises.
LESSEE's Proportionate Share of Operating Expenses: 10.5% Percent
LESSEE's Proportionate Share of Real Estate Tax Expenses: 10.5% Percent
Total Rentable Floor Area of the Building: approximately 103,455 rentable
square feet, including fifteen (15) percent common area factor.
Security Deposit: $92,539.50 - see Section 4
2. LEASE TERM. The Lease Term shall commence on the Lease Commencement
Date, unless such date is advanced or extended as herein provided, and continue
until the Lease Termination Date.
3. RENT. LESSEE shall pay to LESSOR, without any offset or deduction
whatever except as made in accordance with the provisions of this Lease, the
Annual Fixed Rent as specified in Article 1 above in monthly installments at the
rate of $15,423.25 during the Initial Term and the greater of $15,423.25 per
month or fair market value during the extension term described in Section 39(b),
payable in advance on the first day of each calendar month, the first monthly
payment to be made on the Commencement Date, including payment in advance of
appropriate fractions of a monthly payment for any portion of a month at the
commencement of said Lease Term. All payments are to be made to Perini
Corporation, 73 Mount Wayte Avenue, Framingham, Massachusetts 01701, or at such
other place as LESSOR shall from time to time in writing designate.
4. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in the
amount of $92,539.50 upon the execution of this Lease, which amount shall be
held as security by LESSOR (and may be commingled with other fund of LESSOR) for
LESSEE's performance as herein provided and refunded to LESSEE with interest at
the prevailing money market rate at the end of this Lease subject to LESSEE'S
satisfactory compliance with the conditions hereof. The security deposit shall
not be mortgaged, assigned, transferred or encumbered by LESSEE without the
written consent of LESSOR. In the event of any default or breach of this Lease
by LESSEE, LESSOR shall immediately apply the security deposit first to any
unamortized improvements completed for LESSEE's occupancy, then to offset any
outstanding invoice or other payment due to LESSOR, with the balance applied to
outstanding rent, and LESSEE shall forthwith upon demand restore said security
to the original sum deposited. LESSEE's failure to remit the full security
deposit when due shall constitute a default of this Lease.
Notwithstanding the foregoing, LESSEE may request that LESSOR reimburse to
LESSEE $46,269.75 of the security deposit if and when LESSEE's net worth,
calculated in accordance with generally accepted accounting principles, equals
or exceeds $5,500,000. Any such request shall be accompanied by appropriate
financial statements and a certificate of LESSEE's chief financial officer to
the effect that LESSEE's net worth has increased as aforesaid. In the event at
the time of such request LESSEE is not in default under this Lease, LESSOR shall
release to LESSEE $46,269.75.
3
<PAGE>
Following any release of monies as aforesaid, LESSEE shall submit to LESSOR
quarterly financial statements on a continuing basis certified by LESSEE's chief
financial officer showing LESSEE's net worth. In the event LESSEE'S net worth at
any time falls below $5,500,000, LESSEE shall thereupon become obligated,
without notice from LESSOR, to forthwith increase the security deposit to
$92,539.50.
5. USE OF PREMISES. LESSEE shall use the Leased Premises only for the
purpose specified in Article 1 and for no other purpose.
6. OPERATING EXPENSES. If, with respect to any Lease Year or fraction
thereof, LESSOR'S 0perating Expenses Allocable to the Leased Premises, as
hereinafter defined, shall for such Lease Year of fraction thereof exceed the
product of (a) LESSEE's Share of Operating Expenses Included in Annual Fixed
Rent multiplied by (b) the Total Rentable Floor Area of the Leased Premises,
then on or before the thirtieth day following receipt by LESSEE of written
notice from LESSOR as provided below, LESSEE shall pay to LESSOR, as Additional
Rent, the amount of such excess.
For any Lease Year or fraction thereof for which LESSEE shall owe Operating
Expenses as herein provided, LESSOR shall deliver to LESSEE a statement in
reasonable detail showing for said Lease Year or fraction thereof, as the case
may be, LESSOR's operating expenses for the Property ("Operating Expenses'),
excluding costs of special services rendered to lessees (including LESSEE) for
which a separate charge is otherwise made, but including, without limitation:
premiums for insurance for fire and extended casualty, general and excess
liability, rent insurance, and any necessary endorsements pertaining to these
policies or, if there be any mortgage (5) of the lot or improvements, or both,
insurance as may be required by the holder of the mortgage(s); compensation and
all fringe benefits, workmen's compensation insurance premiums and payroll taxes
paid by LESSOR to, for, or with respect to all persons engaged in the operating,
maintaining, or cleaning of the Property in proportion to the percentage of such
employee's time spent with respect to such property, as evidenced by time cards
or other record keeping mechanisms; steam, water, sewer, gas, telephones, and
other utility charges, and electricity charges attributable to the common areas;
cost of providing conditioned water for HVAC services attributable to the common
areas; cost of building and cleaning supplies and equipment; rental costs for
equipment used in the operating, cleaning, maintaining, or repairing of the
property; cost of maintenance, cleaning, repairs, including those with respect
to elevators, (other than repairs and other expenditures not properly chargeable
against income or for which LESSOR has received reimbursement from contractors
under guaranties or insurance proceeds under insurance). LESSOR's reasonable
accounting and legal costs applicable to the operation and management of the
Property; management costs incurred in respect of the Property; cost of snow and
trash removal and care of landscaping; payments under service contracts with
contractors including security services and janitorial services attributable to
the common areas; costs of any road or parking lot maintenance allocable to the
Property; the cost of any capital improvement made for the purpose of reducing
operating expenses which costs shall be amortized over such reasonable period as
the LESSOR shall reasonably determine equals the useful life of such capital
improvement together with interest on the unamortized balance at the base
lending rate charged by a major commercial bank designated by the LESSOR on
funds said bank ordinarily loans for the purpose of constructing, installing or
making similar, and all other reasonable and necessary expenses paid in
connection with the operation, cleaning, maintenance and repair of the Property.
The following shall be excluded from Operating Expenses: any costs or
expenses incurred by LESSOR in construction and development of the Building;
payment of principal, interest and other changes on mortgages and ground rent;
salaries of executives and principals of LESSOR (except as may be attributable
to actual building operations), expenses for repairs, replacement or other work
4
<PAGE>
necessitated by insured fire or other casualty (including the action of any
public authority in consequence thereof) or by any taking by eminent domain; the
cost of correcting defects, except that conditions (not occasioned by
construction defects) resulting from ordinary wear and tear shall not be deemed
defects for this purpose; depreciation or amortization; costs relating to
lessees' alterations; principal and interest on LESSOR's indebtedness; costs for
which LESSOR, by the terms of this Lease or any other lease for space within the
Property makes a separate charge; charges for utilities exclusively serving
other Lessees or LESSOR; and all other items, or portions thereof, which under
generally accepted accounting principles as generally applied in the real estate
industry for similar properties are not properly classified as Operating
Expenses for the Property or are properly classified as capital expenditures.
Cost of all LESSOR's services provided by LESSOR or its affiliates shall not
exceed the commercially comparable rates for such services to similar first
class buildings in the city where the building is located.
LESSOR reserves the right at any time during a Lease Year to bill LESSEE in
equal monthly payments, on account, but as Additional Rent due with the next
succeeding month's payment of Annual Fixed Rent, for the amount of increases in
Operating Expenses in the event the LESSOR's Operating Expenses Allocable to the
Leased Premises (as hereinafter defined) exceed the product of (a) LESSEE's
Proportionate Share of Operating Expenses Included in Annual Fixed Rent and (b)
the Total Rentable Floor Area of the Leased Premises.
LESSOR's Operating Expenses Allocable to the Leased Premises shall exclude
any expenses otherwise separately billed to LESSEE, and shall be the sum of the
following:
(a) in the case of certain of the Operating Expenses attributable to the
entire Property but not to any specific lessees, said Operating
Expenses multiplied by LESSEE's Proportionate Share of Operating
Expenses as set forth in Article 1 above;
(b) in the case of certain Operating Expenses attributable not to the
entire Property but to certain specific lessees including LESSEE, said
Operating Expenses multiplied by the fraction the numberator of which
is the Total Rentable Floor Area of the Leased Premises, and the
denominator of which is the total rentable floor area of all leased
premises within the Property, including the Leased Premises, to which
such Operating Expenses are attributable;
(c) any Operating Expenses attributable specifically to LESSEE.
Operating Expenses, if any, attributable to LESSEE's use of the Property
during other than normal business hours (8:00 a.m. until 6:00 p.m., Monday
through Friday, and 8:00 a.m. until 12: noon Saturdays, locally observed state
and federal holidays excepted) may at LESSOR's option be billed separately and
directly to LESSEE as Additional Rent except the LESSOR agrees that there shall
be no additional costs assessed to LESSEE for building or HVAC for the Leased
Premises and common areas outside of such regular business hours long as LESSEE
operates its use at customary levels. The HVAC will be functional 7 days a week,
24 hours a day, but will be reduced by not more than 10 degrees, plus or minus,
outside normal business hours which are 8:00 am to 6:00 pm Monday through
Friday.
LESSOR shall have the right from time to time to change the period of
accounting for Operating Expenses to any period other than a Lease Year, and
upon any such change, all expense items referred to in this Article shall be
appropriately reapportioned. In all statements rendered to LESSEE under this
Section amounts for periods partially within and partially without the
accounting periods shall be appropriately apportioned. Any cost which is not
determinable at the time of a statement may at LESSOR's discretion be included
therein on the basis of LESSOR's estimate, and LESSOR shall render to LESSEE
after determination of such cost if different from LESSOR's estimate, a
supplemental statement
5
<PAGE>
and appropriate adjustment shall be made according thereto.
7. REAL ESTATE TAX. If, in any Tax Year (as herein defined) or the portion
of a Tax Year which begins with LESSEE'S first occupancy of the Leased Premises
and ends on June 30, LESSOR's Real Estate Tax Expenses per square foot of
rentable floor area of the Building exceed LESSEE's share of Real Estate Tax
Expenses Included in Annual Fixed Rent as specified in Article 1 herein, then,
on or before the thirtieth day following receipt by LESSEE of written notice
from LESSOR that such increased taxes are payable, LESSEE shall pay to LESSOR,
as Additional Rent, the difference between (a) LESSOR's Real Estate Tax Expenses
Allocable to the Leased Premises, as hereinafter defined, less (b) the product
of (i) LESSEE's Share of Real Estate Tax Expenses Included in Annual Fixed Rent
and (ii) the Total Rentable Floor Area of the Leased Premises. LESSOR shall
promptly pay to LESSEE. LESSEE's proportionate share of any refund or abatement
of Real Estate Tax Expenses received by LESSOR.
LESSOR's Real Estate Tax Expense Allocable to the Leased Premises shall be
determined by multiplying LESSOR'S Real Estate Tax Expenses, as hereinafter
defined, for the Property times LESSEE's Proportionate Share of Real Estate Tax
Expenses as set forth in Article 1 herein. "Tax Year" shall mean the
twelve-month period beginning July 1 each year, or if the appropriate
governmental tax fiscal period shall begin on any date other than July 1, such
other date.
As used in this Lease the term Real Estate Tax Expenses shall mean all
taxes and special assessments of every kind and nature assessed by any
governmental authority on the Property and which the LESSOR shall become
obligated to pay because of or in connection with the ownership, leasing and
operation of the Property, and reasonable expenses of any proceedings for
abatement of taxes and assessments including appeals thereof, subject to the
following: (a) the amount of special taxes or special assessments to be included
shall be limited to the amount of the installment (plus any interest, other than
penalty interest, payable thereon) of such special tax or special assessment
(which shall be payable over the longest period permitted by law) required to be
paid during the Tax Year in respect of which such taxes are being determined;
(b) there shall be excluded from such taxes all income, estate, succession,
inheritance and transfer taxes; provided, however, that if at any time during
the Lease Term the present system of ad valorem taxation of real property shall
be changed so that in lieu of the whole or any part of the ad valorem tax on
real property, there shall be assessed on LESSOR a capital levy or other tax on
the rents received with respect to the Property, or a Federal, State, County,
Municipal, or other local income, franchise, excise or similar tax, assessment,
levy or charge (distinct from any now in effect in the jurisdiction in which the
Property is located) measured by or based, in whole or in part, upon any such
gross rents, then any and all of such taxes, assessments, levies or charges, to
the extent so measured or based, shall be deemed to be included within the term
"Real Estate Tax Expenses". A payment shall be deemed to be in lieu of the ad
valorem tax on real property only if by reason thereof and to the extent that
LESSOR is relieved of the payment of such tax or any increase thereof
8. LATE PAYMENT. LESSEE shall pay interest (which shall be considered
additional rent) at an annual rate which shall be the lesser of eighteen (18)
percent or the maximum rate allowed by law, from the date due, for any
installment of Annual Fixed Rent which is not received by LESSOR within 10 days
of due date.
9. UTILITIES. LESSOR shall provide equipment as presently existing and
installed to heat and cool the Leased Premises in season at temperatures
customarily maintained in similar buildings used for general office space,
without consideration of any special furniture, equipment or uses installed or
operated by LESSEE. Electricity will be furnished by LESSOR for building and
6
<PAGE>
Leased Premises electricity and for use in common area lighting and other normal
common area purposes. No plumbing, construction or electrical work of any type
shall be done without LESSOR's prior written approval which shall not be
unreasonably withheld and the appropriate State, Municipal and other permits and
inspectors' approval. Water and sewer (or septic) for domestic type sanitary
purposes shall be supplied by LESSOR to the common area lavatories and Leased
Premises. The HVAC will be functional 7 days a week, 24 hours a day, but will be
reduced by not more than 10 degrees, plus or minus, outside normal business
hours which are 8:00 am to 6:00 pm Monday through Friday.
10. COMPLIANCE WITH LAWS. LESSEE acknowledges that no trade, occupation, or
activity shall be conducted in the Leased Premises or use made thereof which
will be unlawful, improper, noisy or offensive, or contrary to any statute,
regulation, or ordinance in force in the city or town which the Leased Premises
are situated. LESSEE shall keep all employees working in the Leased Premises
covered with Workers Compensation Insurance in accordance with law. LESSEE shall
be responsible for causing any work conducted in the Leased Premises to be in
full compliance with the Occupational Safety and Health Act of 1970 and any
amendments thereof.
11. FIRE INSURANCE. LESSEE shall not permit any use of the Leased Premises
which will adversely affect, increase the premium of or make voidable, any
insurance on the Property or on any building or portion of the Property or the
contents thereof or which shall be contrary to any law or regulation form time
to time established by the Insurance Services Office (or successor), local Fire
Department, or any similar body. LESSEE shall on demand reimburse LESSOR, and
all other tenants, all extra insurance premiums caused by LESSEE's use of the
premises.
12. MAINTENANCE OF PREMISES. LESSOR shall be responsible for all structural
maintenance of the Leased Premises and other portions of the Property as
necessary to maintain tenantable conditions, and for the normal maintenance
within and upon said areas of all heating and cooling equipment, doors, locks,
plumbing, electrical wiring, landscaping, snow removal, fluorescent light bulbs
used in lighting provided by LESSOR, window glass, and janitorial services
including regular cleaning of the Leased Premises. LESSOR shall not be
responsible for any maintenance of equipment or alterations provided by or
installed by LESSEE, nor shall LESSOR be responsible for any damage caused by
the careless, malicious, willful, or negligent acts of LESSEE or its servants,
agents, customers, contractors, employees, invitees, visitors or licensees.
LESSEE agrees to maintain at its expense all aspects of the Leased Premises in
the same condition as they are at the commencement of the Lease Term or as they
may be put in during the Lease Term, normal wear and tear and damage by fire or
other casualty only excepted. LESSEE will properly control or vent all solvents,
degreasers, etc. and shall not cause the area surrounding the Leased Premises to
be in anything other than a neat and clean condition, depositing all waste in
appropriate receptacles. LESSEE shall be solely responsible for any damage to
plumbing equipment sanitary lines, or any other portion of the Property which
results from the improper discharge or improper use of any material or substance
by LESSEE. LESSEE shall not permit the Leased Premises to be overloaded,
damaged, stripped or defaced, nor suffer any waste, and will not keep animals
within the Leased Premises. Any increase in air conditioning equipment or
electrical capacity, or mechanical maintenance or operating expense which is
necessitated by some specific aspect of LESSEE's use of the premises shall be at
LESSEE's expense. All maintenance provided by LESSOR shall be during LESSOR's
normal weekday business hours. LESSOR agrees to use good faith efforts not to
interfere with LESSEE's business
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activities while performing its maintenance responsibilities.
13. ALTERATIONS. Except as set forth in Exhibit A, LESSEE shall not make
structural alterations or additions of any kind to the Leased Premises, but may
make nonstructural alterations provided LESSOR consents thereto in advance in
writing, which consent shall not be unreasonably withheld provided said
alterations are consistent in appearance and quality with the rest of the
Building and Property. However, LESSOR shall not be obligated to approve any
such alterations which would subject LESSOR to additional expense to readapt or
prepare the Leased Premises for re-leasing upon the termination of this Lease or
which would increase the Operating Expenses or Real Estate Tax Expenses of the
Property. All such allowed alterations shall be at LESSEE's sole risk and
expense, shall conform with LESSOR's construction specifications, shall be
performed in good and workmanlike manner, and shall comply with all applicable
codes and regulations. If LESSOR performs any services for LESSEE in connection
with such alterations or otherwise, any just invoice will be considered
additional rent and will be promptly paid. LESSEE shall not permit any
mechanics' liens, or similar liens, to remain upon the Leased Premises in
connection with work of any character performed at the direction of LESSEE and
shall cause any such lien to be released or removed without cost to LESSOR
within ten (10) days of written request by LESSOR. Any alterations or
improvements shall become part of the real estate and the property of LESSOR.
LESSEE shall remove any alteration or addition made by it and restore the Leased
Premises and other affected area(s), if any, to the same condition as they were
in on the Lease Commencement Date upon the expiration or termination of this
Lease if LESSOR so directs, unless prior written approval for the alterations
was granted by LESSOR. Any alterations completed by LESSOR shall be `building
standard" unless noted otherwise. LESSOR shall have the right at any time to
change the arrangement and layout of parking areas, stairs, walkways, common
areas and other areas of the Property not contained within the Leased Premises,
to install, repair, replace, remove, use, maintain and relocate for service to
the Leased Premises and to other parts of the Property, pipes, ducts, conduits,
wires and appurtenant fixtures wherever located inside or outside of the
Building and the Property, to change the boundaries of the lot upon which the
Building is located, to construct additions to existing buildings on the
Property, and to construct additional buildings and improvements on the
Property, LESSOR hereby agreeing that any such alterations shall not
unreasonably reduce LESSEE's access to the Leased Premises or unreasonably
inconvenience the operation of LESSEE's business on the Leased Premises or
LESSEE's employees or invitees.
14. ASSIGNMENT OR SUBLEASING. LESSEE shall not assign, mortgage, pledge,
hypothecate or otherwise transfer this Lease or sublet (which term, without
limitation, shall include granting of concessions, licenses, and the like) or
allow any other firm or individual to occupy the whole or any part of the Leased
Premises without the prior written consent of LESSOR, which consent shall not be
unreasonably withheld, or suffer or permit this Lease or the leasehold estate
hereby created or any other rights arising under this Lease to be assigned,
transferred, or encumbered, in whole or in part, whether voluntarily,
involuntarily, or by operation of law without the prior written consent of
LESSOR, which consent shall not be unreasonably withheld. In the event of any
intent to assign this Lease or sublet any portion or all of the Leased Premises,
LESSEE shall notify LESSOR in writing of LESSEE's intent and the proposed
effective date of such subletting or assignment, and shall request in such
notification that LESSOR consent thereto, provided that LESSOR may terminate
this LEASE in the case of a proposed assignment, or suspend this Lease for the
period and with respect to the space involved in the case of a proposed
subletting, by giving written notice of termination or suspension to LESSEE,
with such termination or suspension to be effective as of the effective date of
such assignment or subletting. LESSEE will
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reimburse LESSOR, as additional rent, for reasonable legal and other expenses
incurred by LESSOR in connection with any request by LESSEE for consent to
assignment or subletting. In the event that the fixed rental to be paid by any
sublessee, assignee or transferee of LESSEE shall exceed the Annual Fixed Rent
as set forth in Article 3 herein payable by LESSEE to LESSOR, or in the event
that any sublessee, assignee or transferee shall pay to LESSEE a sum of money in
consideration for such sublease, assignment or transfer, then LESSEE shall pay
to LESSOR, as additional rent, a sum equal to fifty (50) percent of the amount
by which the fixed rent payable by such sublessee, assignee or transferee
exceeds the Annual Fixed Rent payable under Article 3 herein or an amount equal
to such sum of money. No assignment or subletting and no consent of LESSOR
thereto shall affect the continuing primary liability of LESSEE (which,
following assignment, shall be joint and several with the assignee) for the
payment of all rent and for the full performance of the covenants and conditions
of this Lease. No consent to any of the foregoing in a specific instance shall
operate as a waiver in any subsequent instance, and no assignment shall be
binding upon LESSOR or any of LESSOR's mortgagees, unless LESSEE shall deliver
to LESSOR an instrument in recordable form which contains a covenant of
assumption by the assignee running to LESSOR and all persons claiming by,
through or under LESSOR, but the failure or refusal of the assignee to execute
such instrument of assumption shall not release or discharge assignee from its
liability as a lessee for the payment of all rent and for the full performance
of the covenants and conditions of this Lease, nor shall execution of such
instrument of assumption affect the continuing primary liability of LESSEE for
the payment of all rent and for the full performance of the covenants and
conditions of this Lease. Notwithstanding anything contained herein to the
contrary, LESSEE may assign this Lease or sublet the premises to any Parent,
affiliate or subsidiary company of LESSEE without the need to obtain LESSOR'S
consent so long as LESSEE remains primarily liable on the Lease and so long as
LESSEE provides LESSOR fifteen (15) days written notice prior to such assignment
or subletting. Affiliate shall include any entity which directly or indirectly
controls LESSEE or is a successor to LESSEE by name, merger, consolidation or
other operation of law or any entity to whom all or substantially all of the
assets of LESSEE are conveyed.
15. SUBORDINATION. LESSEE agrees at the request of LESSOR to subordinate
this Lease to any first mortgage or other security interest hereafter created
covering the Leased Premises or any portion of the Leased Premises and to any
renewal, modification, replacement or extension or any existing first mortgage,
or any mortgage or security interest hereinafter created and to any and all
advances made or to be made thereunder or to any ground Lease of the Property or
the Building, provided that the mortgagee or holder of such security interest or
ground Lessor agrees, for itself and its successors and assigns in writing with
the LESSEE that so long as LESSEE shall not be in default under this Lease, the
mortgagee or other holder of such security interest or ground LESSOR and its
successors and assigns will not disturb the peaceful quiet enjoyment of the
Leased Premises by the LESSEE. LESSEE also agrees that if this Lease is so
subordinated, no entry under any mortgage or sale for the purpose of foreclosing
the same or entry for termination of any ground Lease shall be regarded as an
eviction of LESSEE, constructive or otherwise, or give LESSEE any right to
terminate this Lease, whether it attorns or becomes LESSEE of the mortgagee or
new owner, and such mortgage, or security interest to which this Lease shall
become subordinated may contain such other terms, provisions and conditions as
are usual and customary. LESSEE agrees that it will, within ten (10) days of
receipt of written request of the LESSOR, execute and deliver any and all
instruments necessary or desirable to give effect to or notice of such
subordination in such forms as may be required by such mortgagee or other holder
of such security interest or ground Lessor, and LESSOR shall deliver a
Non-Disturbance Agreement executed by such mortgagee or other holder of such
security interest or ground lessor to LESSEE within 30 days thereafter.
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16. ESTOPPEL CERTIFICATES. Upon ten (10) days prior written request by
LESSOR or LESSEE, the other party agrees to execute and deliver an estoppel
certificate certifying that this Lease is unmodified and in full force and
effect (or, if there have been any modifications that this Lease is in full
force and effect as modified and stating the modifications) and the dates to
which the Annual Fixed Rent, additional rent and other charges have been paid
through and any other information reasonably requested. Any such statement
delivered pursuant to this Article may be relied upon by any prospective
purchaser, mortgagee or lending source.
17. LESSOR'S ACCESS. LESSOR or agents of LESSOR may upon at least 24 hours
advance notice at reasonable times enter to view the Leased Premises and may,
after providing notice to LESSEE, remove at LESSEE's expense any signs,
alterations or additions not approved and constructed or installed as herein
provided, may make such repairs and alterations as LESSOR may deem necessary to
avert an emergency, may make any repairs which LESSEE is required but has failed
to do, and may show the leased premises to others. LESSOR agrees to use its good
faith efforts to avoid interfering with LESSEE's use of the Leased Premises in
carrying out the activities permitted by this Paragraph 17.
18. SNOW REMOVAL. The plowing of snow from all common roadways: accessways
and unobstructed parking and loading areas, and the clearing of snow from common
walkways sufficient to provide access to the Building, shall be performed by
LESSOR or its agents.
19. ACCESS AND PARKING. LESSEE shall have the non-exclusive right, without
additional charge, to use the number of parking spaces specified in Article 1,
said spaces to be located within the parking area provided for the Leased
Premises in common with others entitled to the use thereof. LESSEE may not
sublease any parking space so allocated. Neither LESSOR or LESSEE will obstruct
in any manner any portion of the Building or the Property, including the parking
area, walkways or approaches to said Building or Property, so as to unreasonably
interfere with either party's access to the Building or to the Leased Premises
and LESSEE will conform to all reasonable rules now or hereafter made by LESSOR
for parking, and for the care, use, or alteration of the Property, its
facilities and approaches. LESSOR shall have the right to impose reasonable
controls on the operation of the parking area, including but not limited to the
installation of access gates. The issuance of identifying cards and/or stickers
to those employees, guests and invitees of LESSEE who will be using the parking
area, and the designation of certain portion(s) of the parking area as reserved
for such purpose(s) as LESSOR in its sole judgement may determine, provided that
such designation shall not reduce the number of spaces allocated to LESSEE and
shall not materially interfere with LESSEE's use of the Leased Premises.
LESSEE further warrants that LESSEE will not permit any employee, visitor
or invitee to violate this or any other covenant or obligation of LESSEE. No
vehicle shall be stored or left in any parking area for more than seven (7)
consecutive nights without LESSOR's written approval. From December 1 through
March 30 annually, however, all unattended parking will be prohibited between
12:00 AM and 5:00 AM except in those areas which may at LESSOR's discretion be
specifically designated for assigned overnight parking as shown on Exhibit B,
with a minimum of ten (10) spaces. Unregistered or disabled vehicles, or storage
trailers of any type, may not be parked overnight at any time. LESSEE agrees to
assume all expense and risk for towing of any misparked vehicle belonging to
LESSEE or LESSEE's agents, employees, business invites, or callers, at any time.
LESSEE shall have access to the termination points for telephone wiring and data
wiring on a 24 hours basis. LESSEE shall have the right to use, in common with
LESSOR and any other
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tenants, facilities for deliveries and handicapped access during normal business
hours which are 8:00 am to 6:00 pm Monday through Friday.
20. LESSEE'S LIABILITY INSURANCE. LESSEE will secure and carry at its own
expense a comprehensive general liability policy insuring LESSEE and LESSOR
against any claims based on bodily injury (including death) or property damage
arising out of the condition of the Leased Premises or their use by LESSEE, such
policy to insure LESSEE and LESSOR against any claim up to One Million Dollars
($1,000,000) per occurrence for injury or death to one person, Three Million
Dollars ($3,000,000) for injury or death to more than one person in the same
accident, and One Million Dollars ($1,000,000) for damage to property. Such
limits shall be subject to increase from time to time during the Lease Term. The
amount of such insurance shall not limit LESSEE's liability nor relieve LESSEE
of any obligation hereunder.
Upon the commencement of the Lease Term LESSEE will promptly file with
LESSOR certificates reasonably satisfactory to LESSOR showing that such
insurance is in force, accompanied by evidence of the payment of the premium for
the policy, and thereafter will file renewal certificates at least thirty (30)
days prior to the expiration of any such policies. All such insurance
certificates shall provide that such policies shall not be cancelled nor
materially changed without at least ten (10) days prior written notice to each
assured named therein. LESSEE may, at LESSEE's cost maintain such other
liability insurance as LESSEE may deem necessary to protect it.
LESSEE shall assume exclusive control of the Leased Premises, and all tort
liabilities incident to the control or ownership thereof and agrees to indemnify
and hold the LESSOR free and harmless from any and all liability, penalties,
losses, damages, costs and expenses, causes of action, claims or judgements or
encumbrances created or suffered by the LESSEE, and from any and all liability,
penalties, losses, damages, costs and expenses, causes of action, claims, or
judgements arising from injury to persons or property of any nature on the
Leased Premises or the Property, occasioned by any acts or omissions of the
LESSEE or of its employees, agents, invitees, visitors, callers, servants,
subtenants, or independent contractors, and arising out of the use or occupation
of said Leased Premises by LESSEE from any neglect or misuse on the Leased
Premises or by any reason of nuisance made or suffered on the Leased Premises by
LESSEE excluding in all cases, loss or damage due to LESSOR's acts or omissions
and also against all legal costs and charges, including counsel fees, reasonably
incurred in and about such matters and the defense of any action arising out of
the same, or in discharging the Leased Premises or any part thereof from any and
all liens that may be placed thereon from charges incurred by LESSEE, except as
caused by LESSORS negligence. If LESSOR intervenes in or becomes a party to any
such action or actions growing out of this Lease to protect its rights, then the
LESSEE shall pay LESSOR's reasonable attorneys' fees in such action or actions.
LESSOR agrees to carry, at its own expense, liability insurance covering
injuries or damage to persons or property arising out of LESSOR's negligence on
or about the Building or Property.
21. WAIVER OF SUBROGATION. Any casualty and liability insurance carried by
LESSEE or LESSOR with respect to the Leased Premises, the Property, or
occurrences thereon shall include a clause or endorsement denying to the insurer
rights of subrogation against the other party to the extent rights have been
waived by the insured prior to the occurrence of injury or loss. Each party,
notwithstanding any provisions of this Lease to the contrary, hereby waives any
rights of recovery against the other for injury or loss due to hazards covered
by such insurance containing such antisubrogation clause or endorsement to the
extent of the indemnification received
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thereunder.
22. FIRE, CASUALTY, EMINENT DOMAIN. Should a substantial portion of the
Leased Premises be substantially damaged by fire or other casualty, or if
substantial damage as a result of fire or casualty to the Building or Property
or taking by eminent domain, shall deprive LESSEE of access or use of the Leased
Premises, this Lease shall terminate at LESSEE's election by written notice
given to LESSOR within sixty (60) days after occurrence of the event giving rise
to the election to terminate which notice shall specify the effective date of
termination. Should a substantial portion of the Leased Premises, or of the
Property, be substantially damaged by fire or other casualty, or by action of
public or other authority in consequence thereof or be taken by eminent domain,
or should LESSOR receive compensable damage by reason of anything lawfully done
in pursuance of public or other authority, this Lease shall terminate at
LESSOR's election, which may be made notwithstanding LESSOR's entire interest
may have been divested, by written notice given to LESSEE within sixty (60) days
after the occurrence of the event giving rise to the election to terminate,
which notice shall specify the effective date of termination.
The effective date of any termination by LESSOR or LESSEE under this
Article shall be not less than fifteen (15) nor more than thirty (30) days after
the date of such notice of termination. For the purpose of this Article, damage
or taking shall be considered substantial if the time needed for LESSOR to
perform repairs and/or construction necessary to put the Leased Premises or such
remainder in proper condition for use and occupation is estimated by LESSOR to
exceed two (2) months, or if more than thirty (30) percent of the non-wetlands
land area of the Property, or if more than ten (10) percent of the Building, or
if more than ten (10) percent of the Leased Premises are so taken. In case of
any such damage or taking, LESSOR shall notify LESSEE within thirty (30) days
after the occurrence thereof of LESSOR's estimate of the time needed to perform
the repairs and/or construction necessary to put the Leased Premises or such
remainder in proper condition for use and occupancy, or of the percentage of the
non-wetlands land area, or of the Building, or of the Leased Premises taken.
If in any such case the Leased Premises are rendered unfit for use and
occupation and the Lease is not so terminated, LESSOR shall use due diligence to
put the Leased Premises, or in case of taking what may remain thereof (excluding
any items installed or paid for by Tenant, which Tenant may be required to
remove), into proper condition for use and occupation and a just proportion of
the Annual Fixed Rent and any additional rent according to the nature and extent
of the injury shall be abated until the Leased Premises or such remainder shall
have been put by LESSOR in such condition and in case of a taking which
permanently reduces the area of the Leased Premises, a just proportion of the
Annual Fixed Rent and additional rent shall be abated for the remainder of the
Lease Term.
LESSOR reserves to itself any and all rights to receive awards made for
damages to the Leased Premises and the Property and the leasehold hereby
created, or any one or more of them, accruing by reason of exercise of eminent
domain or by reason of anything lawfully done in pursuance of public or other
authority. LESSEE hereby releases and assigns to LESSOR all of LESSEE's rights
to such awards, and covenants to deliver such further assignments and assurances
thereof as LESSOR may from time to time request It is agreed and understood,
however, that LESSOR does not reserve to itself and LESSEE does not assign to
LESSOR, any damages payable for (i) movable trade fixtures installed by LESSEE
or anybody claiming under LESSEE at its own expense or fixtures or items the
removal of which is required or permitted by any agreement given pursuant the
Lease, or (ii) relocation expenses recoverable by LESSEE from
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such authority in a separate action.
23. INTERRUPTIONS. LESSOR shall not be liable to LESSEE for any
compensation or reduction of rent by reason of inconvenience or annoyance or for
loss of business arising from power and other utility losses, shortages or
malfunctions, the necessity of LESSOR's entering the Leased Premises for any of
the purposes in this Lease authorized, or for repairing the Leased Premises or
any other portion of the Property however the necessity may occur unless due to
LESSOR's gross negligence or malfeasancy. In case LESSOR is prevented or delayed
from making any repairs, alterations or improvements, or furnishing any services
or performing any other covenant or duty to be performed on LESSOR's part, by
reason of any and all causes reasonably beyond LESSOR'S control, LESSOR shall
not be liable to LESSEE therefor, nor shall the same give rise to a claim in
LESSEE's favor that such failure constitutes actual or constructive, total or
partial, eviction from the Leased Premises. LESSOR reserves the right to stop
any service or utility system, when necessary by reason of accident or
emergency, or until necessary repairs have been completed, provided, however,
that in each instance of stoppage, LESSOR shall exercise reasonable diligence to
eliminate the cause thereof
24. BROKERAGE. LESSEE warrants and represents to LESSOR that LESSEE has
dealt with no broker other than R.W. Holmes Realty Co., Inc. ("BROKER") with
respect to this Lease and LESSEE agrees to indemnify LESSOR against any
brokerage claims arising by virtue of this Lease, other than from the BROKER.
LESSOR warrants and represents to LESSEE that LESSOR has employed no exclusive
broker or agent in connection with the letting of the Leased Premises other than
the BROKER, and agrees to indemnify LESSEE against any brokerage claims arising
by virtue of this Lease, other than from the BROKER. Pursuant to its exclusive
agency agreement with the BROKER, LESSOR shall only be responsible for the
brokerage commission due the BROKER.
25. SIGNS. LESSEE may display signs on the Leased Premises including one
(1) free standing sign by road entrance and one free standing sign near the
building entrance. LESSEE shall, however, first obtain the written consent of
LESSOR, which consent shall not be unreasonably withheld and any approvals
required under applicable by-laws or regulations, before erecting any sign on
the Property, and shall obtain written approval as to size, content, appearance,
and location of all authorized signs.
26. DEFAULT. BANKRUPTCY AND ACCELERATION OF RENT. In the event that (a)
LESSEE files a petition for adjudication as a bankrupt or shall be declared
bankrupt or insolvent according to law, or if an involuntary petition under any
of the provisions of the Bankruptcy Act is filed against LESSEE and is not
dismissed within sixty (60) days thereafter, or if any assignment shall be made
of LESSEE's property for the benefit of creditors; or (b) LESSEE shall default
in the observance or performance of any of LESSEE's covenants, agreements, or
obligations hereunder, other than substantial monetary payments as provided
below, and such default shall not be corrected with thirty (30) days after
written notice thereof, then LESSOR shall have the right thereafter, while such
default continues, and without demand or further notice to re-enter and take
complete possession of the Leased Premises, or declare the term of this Lease
ended, and to remove LESSEE's effects, without being guilty of any manner of
trespass, and without prejudice to any remedies which might be otherwise used
for arrears of rent or other default or breach of covenant. In addition to the
foregoing, if LESSEE shall default in the payment of Annual Fixed Rent, taxes,
or additional rent, and such default shall continue for ten (10)
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days after written notice thereof and, because both parties agree that
nonpayment of said sums when due is a considerable and significant breach of the
Lease, and, because the payment of rent in monthly installments is for the sole
benefit and convenience of LESSEE, then, if Landlord elects to terminate this
Lease, the net present value of the entire balance of rent over and above the
net present value of the Fair Market Rental Value of the Leased Premises for the
balance of the term shall, at the option of LESSOR, become immediately due and
payable, and, in addition, LESSOR shall have all other rights of LESSOR, as set
forth in this Article, for a default by LESSEE.
LESSOR, without being under any obligation to do so and without thereby
waiving any default, may remedy same for the account and at the expense of
LESSEE. If LESSOR pays or incurs any obligations for the payment of money in
connection therewith, including but not limited to reasonable attorney's fees in
instituting, prosecuting or defending any action or proceeding, such sums paid
or obligations incurred and costs, shall be paid to LESSOR by LESSEE as
additional rent. Any sums received by LESSOR shall be applied first to offset
any outstanding invoice or other payment due to Lessor, with the balance applied
to outstanding rent. Notwithstanding the foregoing, LESSEE agrees to pay
reasonable attorney's fees incurred by LESSOR in enforcing any or all
obligations of LESSEE under this Lease at any time. LESSOR agrees to use good
faith efforts to relet the Premises in the event of a termination of the Lease
pursuant to this Paragraph 26.
Any and all rights and remedies which LESSOR may have under this Lease, at
law and equity, shall be cumulative and shall not be deemed inconsistent with
each other, and any two or more of all such rights and remedies may be exercised
at the same time insofar as permitted by law.
27. NO ACCORD AND SATISFACTION. No acceptance by LESSOR of a lesser sum
than the Annual Fixed Rent and additional rent then due shall be deemed to be
other than on account of the earliest installment of such rent due, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and LESSOR may accept
such check or payment without prejudice to LESSOR's right to recover the balance
of such installment or pursue any other remedy provided in this Lease.
28. NOTICES. Any notice from LESSOR to LESSEE relating to the Leased
Premises or to the occupancy thereof shall be deemed duly served, if delivered
to LESSEE by certified mail, return receipt requested, postage prepaid,
addressed to LESSEE at the Leased Premises.
with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, Massachusetts 02110
Attn: Jennifer C. Platt
Any notice from LESSEE to LESSOR relating to the Leased Premises, the occupancy
thereof or this Lease shall be deemed duly served if delivered to LESSOR by
certified mail, return receipt requested postage prepaid addressed to LESSOR as
follows:
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Perini Corporation
73 Mount Wayte Avenue, P0 Box 9160
Framingham, MA 01701-9160
Attn: John Rizzo/John Bolis
or at such other address as LESSOR or LESSEE may from time to time in writing
designate.
29. OCCUPANCY. In the event that LESSEE takes possession of said premises
prior to the Lease Commencement Date, LESSEE will perform and observe all of
LESSEE's covenants from the date upon which LESSEE takes possession except the
obligation for the payment of extra rent for any period of less than one month.
LESSEE shall not remove LESSEE's goods or property from the Leased Premises
other than in the ordinary and usual course of business, without having first
paid and satisfied LESSOR for all rent which may become due during the entire
term of this Lease. In the event that LESSEE continues to occupy or control all
or any part of the Leased Premises after the agreed termination date of this
Lease without the written permission of LESSOR, then all other terms of this
Lease shall continue to apply except that rent shall be due in full monthly
installments at a rate of one hundred fifty (150) percent of that which would
otherwise be due under this Lease, it being understood between the parties that
such extended occupancy as a tenant at sufferance is solely for the benefit and
convenience of LESSEE and such has greater rental value and, in the event that
LESSEE continues to occupy or control the Leased Premises for a period of more
than one month after the Lease termination date, LESSEE shall be liable to
LESSOR for any and all loss, damages or expenses incurred by LESSOR. LESSEE's
control or occupancy of all or any part of the Leased Premises beyond midnight
on the last day of any monthly rental period shall constitute LESSEE's occupancy
for an entire additional month, and increased rent as provided in this Article
shall be due and payable immediately in advance.
30. FIRE PREVENTION. LESSEE agrees to use every reasonable precaution
against fire and LESSOR agrees that the Leased Premises (upon delivery to
LESSEE) and the Building shall comply with the local Fire Marshall's
requirements for approved, labeled fire extinguishers and emergency lighting
equipment
31. OUTSIDE AREA. Except for permitted parking, no goods, equipment or
things of any type or description shall be held or stored outside the Leased
Premises at any time without express written approval from LESSOR. Any goods,
equipment or things left outside the Leased Premises without LESSOR'S prior
written consent shall be deemed abandoned and may be removed after 24 hours
notice by LESSOR. LESSEE agrees to pay upon written notice all reasonable
charges, as additional rent associated with said removal.
32. ENVIRONMENT. LESSEE will so conduct and operate the Leased Premises as
not to interfere in any way with the use and enjoyment of other portions of the
same or neighboring buildings by others by reason of odors, smells, noise,
vibration, pets, accumulation of garbage or trash, vermin or other pests, or
otherwise, and will at its expense employ a professional pest control service if
necessary. LESSEE agrees to maintain efficient and effective devices for
preventing damage to heating equipment from harmful solvents, degreasers,
cutting oils, etc. which may be used within the Leased Premises. No hazardous
wastes or chemical wastes of any sort shall be used, generated, stored, disposed
of or allowed to remain within the Leased Premises or the Property at any time,
except in compliance with applicable laws and regulations and LESSEE
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shall be solely responsible for any and all corrosion or other damage associated
with the improper use, generation, storage, disposal and control of same by
LESSEE.
33. RESPONSIBILITY. LESSOR shall not be held liable to anyone for loss or
damage caused in any way by the use, leakage, seepage or escape of water from
any source, or for the cessation of any service rendered customarily to the
Property, or agreed to by the terms of this Lease, due to any accident, to the
making of repairs, alterations or improvements, to labor shortages or disputes,
weather conditions, or mechanical breakdowns, to trouble or scarcity in
obtaining fuel, electricity, service or supplies from the sources from which
they are usually obtained for the Property, or to any cause beyond LESSOR's
reasonable control.
34. SURRENDER. LESSEE shall at the expiration or other termination of this
Lease remove all of LESSEE'S goods and effects from the Leased Premises. LESSEE
shall deliver to LESSOR the Leased Premises and all keys, access control cards
(if used in the Building) locks, and other fixtures and equipment connected
therewith, and all alterations, additions and improvements made to or upon the
Leased Premises, including but not limited to any offices, partitions, floor
coverings (including computer floors), window shades and blinds, plumbing an&
plumbing fixtures, air conditioning equipment and duct work of any type, exhaust
fans or heaters, water coolers, burglar alarms telephone wiring, telephone
equipment (excluding telephone handsets and switching equipment), wooden or
metal shelving which has been bolted, welded or otherwise attached to the
Building, air or gas distribution piping, compressors, overhead cranes, hoists,
trolleys or conveyors, counters or signs attached to wails or floors, and all
electrical work, including but not limited to lighting fixtures of any type,
wiring, conduit, EMT, distribution panels, bus ducts, raceways, outlets and
disconnects, unless otherwise directed by LESSOR in writing. Anything to the
contrary notwithstanding LESSOR shall not request that LESSEE remove any
improvements from the Leased Premises which were installed as part of LESSOR's
original improvements delivered with the Leased Premises at the commencement of
this Lease. LESSEE shall deliver the Leased Premises broom clean and in the same
condition as they were at commencement of the Lease Term, or as they were put in
during the Lease Term, reasonable wear and tear and damage by fire or other
casualty only excepted. In the event of LESSEE's failure to remove any of
LESSEE's property from the Leased Premises, LESSOR is hereby authorized, without
liability to LESSEE for loss or damage thereto, and at the sole risk of LESSEE,
to remove and store any such property at LESSEE's expense, or to retain same
under LESSOR's control, or to sell at public or private sale (with notice), any
or all of the property not so removed and to apply the net proceeds of such sale
to the payment of any sum due hereunder, or to destroy such property which shall
be conclusively deemed to have been abandoned. In no case shall the Leased
Premises be deemed surrendered to LESSOR until the expiration date provided
herein or such other date as may be specified in a written agreement between the
parties and attached hereto.
35. LEGAL. In case LESSOR shall be made party to any litigation commenced
by or against LESSEE or by or against any parties in possession of the Leased
Premises or any party thereof claiming under LESSEE, LESSEE shall pay, as
additional rent, all costs, including without limitation reasonable counsel fees
incurred by or imposed upon LESSOR in connection with such litigation, and shall
also pay, as additional rent all such reasonable costs and fees incurred by
LESSOR in connection with the enforcement by LESSOR of any obligations of LESSEE
under this Lease. LESSEE shall defend, with counsel approved by LESSOR, save
harmless and indemnify LESSOR from any liability or injury, loss, accident or
damage to any person or property, and from any claims, actions, proceedings and
reasonable expenses and costs in connection therewith (including without
limitation reasonable counsel fees) (i) arising from the omission, fault,
willful act,
16
<PAGE>
negligence or other misconduct of LESSEE on the Leased Premises not due to the
omission, fault, willful act, negligence or other misconduct of LESSOR or (ii)
resulting from the failure of LESSEE to perform and discharge its covenants and
obligations under this Lease. Notwithstanding the foregoing and unless
prohibited by applicable law, in the event of any litigation between LESSOR and
LESSEE, the prevailing party by court order, decree or judgment shall be
reimbursed by the other party for its reasonable legal fees and costs incurred
in such litigation.
36. GENERAL.
(a) The invalidity or unenforceability of any provision of this Lease shall not
affect or render invalid or unenforceable any other provision hereof.
(b) The obligations of this Lease shall run with the land, and this Lease shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that LESSOR shall be liable only for
obligations occurring before the beginning of the Lease Term, or thereafter
while owner of the Leased Premises.
(c) If LESSOR is acting under any trust or corporation the obligations of LESSOR
shall be binding upon the trust estate or corporation, but not upon any trustee,
officer, corporate officer, shareholder, or beneficiary of the trust or
corporation individually.
(d) This Lease is made and delivered in the state of Massachusetts, and shall be
interpreted, construed, and enforced in accordance with the laws thereof.
(e) This Lease was the result of negotiations between parties of equal
bargaining strength, and when executed by both parties shall constitute the
entire agreement between said parties. No other oral or written representation
shall have any effect hereon, and this agreement may not be altered, extended or
amended except by written agreement attached hereto or as otherwise provided
herein.
(f) Notwithstanding any other statements herein, LESSOR makes no warranty,
express or implied, concerning the suitability of the Leased Premises for
LESSEE's Permitted Use, but does represent that the Leased Premises conform to
building laws and regulations applicable to the Leased Premises as of the
execution of the Lease.
(g) LESSEE agrees that if LESSOR does not deliver possession of the Leased
Premises as herein provided, LESSOR shall not be liable for any damages to
LESSEE for such failure, but LESSOR agrees to use reasonable efforts to obtain
possession for LESSEE on or before the Lease Commencement Date, as it may be
extended pursuant to the provisions of this Lease.
(h) The submission of this Lease to LESSEE does not constitute a reservation of
or option for the Leased Premises, or an offer to lease, it being expressly
understood and agreed as between LESSEE and LESSOR that this Lease shall not
bind either party in any manner whatsoever until it has been executed by both
parties.
(i) LESSEE agrees that each owner of the Property from time to time shall not be
liable to LESSEE for breach of any of the LESSOR's obligations herein contained
committed by any prior or subsequent owner.
17
<PAGE>
(j) LESSOR shall have the right to issue to lessees including LESSEE, and from
time to time to revise, reasonable written Rules and Regulations pertaining to
the Property, and LESSEE shall upon receipt of said Rules and Regulations, and
any revision(s) thereof, abide by same.
37. WAIVERS. ETC. No consent of waiver, express or implied, by LESSOR, to
or of any breach of any covenant, condition or duty of LESSEE shall be construed
as a consent or waiver to or of any other breach of the same or any other
covenant, condition or duty. If LESSEE is several persons or a partnership
LESSEE's obligations are joint and also several. Unless repugnant to the
context, "LESSOR" and "LESSEE" mean the person or persons, natural or corporate,
named above as "LESSOR and as LESSEE respectively, and their respective heirs,
executors, administrators, successors and assigns."
38. ADDITIONAL PROVISIONS.
(a) Lessors Improvements.
(a) LESSOR, at an expense incorporated entirely into the Annual Fixed Rent
and at no further cost to LESSEE, shall construct LESSEE's improvements within
the Leased Premises, which shall consist solely of three demising walls and two
security doors as shown in Exhibit A ("Lessor's Work"). Lessors Work, including,
if necessary, the issuance of a certificate of occupancy permitting such use,
shall be performed prior to the Lease Commencement Date.
(b) Extension Options. Provided LESSEE is not in default hereunder, the
LESSEE shall have the option, exercisable by written notice from LESSEE to
LESSOR given not less than nine (9) months prior to the end of the Initial Term,
to extend the term of this Lease for an additional three (3) years on all of the
terms and conditions of this Lease except that the Annual Fixed Rent shall be
the greater of fair market value or $15,423 per month.
(c) Right of First Offer. In the event Landlord, in its sole and absolute
discretion, determines to rent additional space on the second floor adjacent to
the Leased Premises, it shall first offer such space to Tenant. Tenant shall
have five (5) business days to notify Landlord whether it wishes to rent such
space.
IN WITNESS WHEREOF, LESSOR AND LESSEE have hereunto set their hands and common
seals and intend to be legally bound hereby this 6th day of May 1997.
LESSOR: PERINI CORPORATION
By: /s/ JOHN H. SCHWARZ JOHN H. SCHWARZ
----------------------------- -----------------------------
Signature Print or type name
Exec. V.P. 5/6/97
----------------------------- -------------
Title Date
18
<PAGE>
LESSOR: MAKER COMMUNICATIONS, INC.
--------------------------
By: /s/ WILLIAM N. GIUDICE William N. Giudice
----------------------------- -----------------------------
Signature Print or type name
President May 2, 1997
----------------------------- -------------
Title Date
19
<PAGE>
Perini Corporation
First Amendment to Commercial Lease
Reference is made to a Lease dated May 6, 1997 between Perini Corporation, a
Massachusetts Corporation with a usual place of business at 73 Mount Wayte
Avenue, P0 Box 9160, Framinghan, Massachusetts 01701-9160, hereinafter called
LESSOR, and Maker Communications, Inc. 486 Totem Pond Road, Waltham,
Massachusetts 02154, hereinafter called LESSEE;
Now therefore both the LESSOR and LESSEE agree to amend the terms of the LEASE
as follows:
Description of the Leased Preemies: The premises located at 73 Mt. Wayte Avenue,
Framingham, Massachusetts 01701, as shown on plan (Lease Exhibit B) attached
hereto and made a part hereof (hereinafter the "Leased Premises"). The Leased
premises contain approximately Eleven Thousand Six Hundred Sixty (11,660)
rentable square feet (hereinafter the "Total Floor Area of the Leased
Premises").
Annual Fixed Rent for the Lease Term: One Hundred Ninety Eight Thousand Two
Hundred Twenty and 00/100 Dollars ($198,220.00) annually, Sixteen Thousand Five
Hundred Eighteen and 33/100 ($16,518.33) monthly commencing January 1, 1998 for
the remainder of the initial Lease Term, which includes Tenant's electricity
charge for the Leased Premises.
As used in this Lease, Lease Year shall mean a period of 12 calendar months,
with the first Lease Year to commence upon the Lease Commencement Date and end
upon the anniversary thereof, and with successive Lease Years continuing for
twelve (12) month intervals thereafter until the Lease Termination Date.
Unless modified herein, all other terms and conditions of the LEASE remain in
full force and effect.
Executed as of the 15th day of December, 1997
LESSOR: PERINI CORPORATION
By: /s/ CARL GAUTHIER CARL GAUTHIER
----------------------------- -----------------------------
Signature Print or type name
Vice President DEC 15th 1997
----------------------------- -----------------------------
Title Date
<PAGE>
LESSEE: MAKER COMMUNICATIONS, INC.
By: /s/ MITCHELL MACKOFF MITCHELL MACKOFF
----------------------------- -----------------------------
Signature Print or type name
Vice President + CFO 12/15/97
----------------------------- -----------------------------
Title Date
<PAGE>
Perini Corporation
Third Amendment to Commercial Lease
Reference is made to a Lease dated May 6, 1997, the First Lease Amendment dated
December 18, 1997 and the Second Lease Amendment dated June 29, 1998, between
Perini Corporation, a Massachusetts Corporation with a usual place of business
at 73 Mount Wayte Avenue, P0 Box 9160, Framingham, Massachusetts 01701-9160,
hereinafter called LESSOR, and Maker Communications, Inc. 486 Totem Pond Road,
Waltham, Massachusetts 02154, hereinafter called LESSEE;
Now therefore both the LESSOR and LESSEE agree to amend the terms of the LEASE
as follows:
Description of the Leased Premises: The premises located at 73 Mt. Wayte Avenue,
Framingham, Massachusetts 01701, as shown on plan (Lease Exhibit D) attached
hereto and made a part hereof (hereinafter the "Leased Premises"). The Leased
premises contain approximately Eighteen Thousand Four Hundred Ninety-Eight
(18,498) rentable square feet (hereinafter the "Total Floor Area of the Leased
Premises").
Annual Fixed Rent for the Lease Term: Three Hundred Fourteen Thousand Four
Hundred Sixty-Six and 00/100 Dollars ($314,466.00) annually, Twenty-Six Thousand
Two Hundred Five and 50/100 Dollars ($26,205.50) monthly commencing January 1,
1999 for the remainder of the initial Lease Term, which includes Tenant's
electricity charge for the Leased Premises.
As used in this Lease, Lease Year shall mean a period of 12 calendar months,
with the first Lease Year to commence upon the Lease Commencement Date and end
upon the anniversary thereof, and with successive Lease Years continuing for
twelve (12) month intervals thereafter until the Lease Termination Date.
38. Additional Provisions.
(C) Deleted
(d) Right of First Refusal LESSOR shall provide LESSEE with the First Right of
Refusal as long as LESSEE is not in default of the Lease, LESSOR shall grant to
LESSEE a First Right of Refusal on 6,612 square feet of space on the first floor
as marked on Exhibit E, option space. The rental rate for the option space shall
be $17.00 per square foot. This First Right of Refusal must be accepted by
LESSEE within 15 days of notification from LESSOR, that the space is available.
If the LESSEE decides not to take the additional space this Right of First
Refusal will terminate upon the expiration of the 15 day acceptance period.
<PAGE>
Unless modified herein, all other terms and conditions of the LEASE remain in
full force and effect.
Executed as of the 8th day of December, 1998
LESSOR: PERINI CORPORATION
By: /s/ DOUGLAS V. MURE Douglas V. Mure
----------------------------- -----------------------------
Signature Print or type name
December 15, 1998
----------------------------- -----------------------------
Title V.P. Perini Corp Date
LESSEE: MAKER COMMUNICATIONS, INC.
By: /s/ MICHAEL RUBINO Michael Rubino
----------------------------- -----------------------------
Signature Print or type name
Vice President & CFO December 8, 1998
----------------------------- -----------------------------
Title Date
<PAGE>
EXHIBIT "D"
THIRD LEASE AMENDMENT
PERINI CORP. & MAKER COMMUNICATIONS
[GRAPHIC OMITTED]
18,498 Sq. Ft. SECOND FLOOR
|_| GROUP EXECUTIVE
|_| SAFETY
|_| CORPORATE DEVELOPMENT
|_| LEGAL
|_| CORPORATE CONTROLLER
|_| INTERNAL AUDIT
|_| GENERAL EXECUTIVE
|_| CORPORATE FINANCE
|_| TAX
|_| TREASURY
|_| HUMAN RESOURCES
|_| ACCOUNTING DEPARTMENT
|_| PAYROLL
<PAGE>
EXHIBIT "E"
THIRD LEASE AMENDMENT
PERINI CORP. & MAKER COMMUNICATIONS
[GRAPHIC OMITTED]
6,612 Sq. Ft. FIRST FLOOR
|_| GROUP EXECUTIVE
|_| SAFETY
|_| CORPORATE DEVELOPMENT
|_| LEGAL
|_| CORPORATE CONTROLLER
|_| INTERNAL AUDIT
<PAGE>
Perini Corporation
Second Amendment to Commercial Lease
Reference is made to a Lease dated May 6, 1997 and First Lease Amendment dated
December 18, 1997, between Perini Corporation, a Massachusetts Corporation with
a usual place of business at 73 Mount Wayte Avenue, P0 Box 9160, Framingham,
Massachusetts 01701-9160, hereinafter called LESSOR, and Maker Communications,
Inc. 486 Totem Pond Road, Waltham, Massachusetts 02154, hereinafter called
LESSEE;
Now therefore both the LESSOR and LESSEE agree to amend the terms of the LEASE
as follows:
Description of the Leased Preemies: The premises located at 73 Mt. Wayte Avenue,
Framingham, Massachusetts 01701, as shown on plan (Lease Exhibit C) attached
hereto and made a part hereof (hereinafter the "Leased Premises"). The Leased
premises contain approximately Twelve Thousand Six Hundred Seventeen (12,617)
rentable square feet (hereinafter the "Total Floor Area of the Leased
Premises").
Annual Fixed Rent for the Lease Term: Two Hundred Fourteen Thousand Four Hundred
Eighty Eight and 00/100 Dollars ($214,488.00) annually, Seventeen Thousand Eight
Hundred Seventy-Four and 00/100 ($17,874.00) monthly commencing July 1, 1998 for
the remainder of the initial Lease Term, which includes Tenant's electricity
charge for the Leased Premises.
As used in this Lease, Lease Year shall mean a period of 12 calendar months,
with the first Lease Year to commence upon the Lease Commencement Date and end
upon the anniversary thereof, and with successive Lease Years continuing for
twelve (12) month intervals thereafter until the Lease Termination Date.
Unless modified herein, all other terms and conditions of the LEASE remain in
full force and effect.
Executed as of the 29th. day of June, 1998
LESSOR: PERINI CORPORATION
By: /s/ CARL P. GAUTHIER Carl P. Gauthier
----------------------------- -----------------------------
Signature Print or type name
June 29, 1998
----------------------------- -----------------------------
Title V.P. Perini Land & Date
Development Co.
<PAGE>
LESSEE: MAKER COMMUNICATIONS, INC.
By: /s/ MICHAEL RUBINO Michael Rubino
----------------------------- -----------------------------
Signature Print or type name
Vice President & CFO June 29, 1998
----------------------------- -----------------------------
Title Date
<PAGE>
[FLOOR PLAN]
[GRAPHIC OMITTED]
|_| GROUP EXECUTIVE
|_| SAFETY
|_| CORPORATE DEVELOPMENT
<PAGE>
Perini Corporation
First Amendment to Commercial Lease
Reference is made to a Lease dated May 6, 1997 between Perini Corporation, a
Massachusetts Corporation with a usual place of business at 73 Mount Wayte
Avenue, P0 Box 9160, Framingham, Massachusetts 01701-9160, hereinafter called
LESSOR, and Maker Communications, Inc. 486 Totem Pond Road, Waltham,
Massachusetts 02154, hereinafter called LESSEE;
Now therefore both the LESSOR and LESSEE agree to amend the terms of the LEASE
as follows:
Description of the Leased Preemies: The premises located at 73 Mt. Wayte Avenue,
Framingham, Massachusetts 01701, as shown on plan (Lease Exhibit B) attached
hereto and made part hereof (hereinafter the "Leased Premises"). The Leased
premises contain approximately Eleven Thousand Seven Hundred Ninety Nine
(11,799) rentable square feet (hereinafter the "Total Floor Area of the Leased
Premises").
Annual Fixed Rent for the Lease Term: Two Hundred Thousand Five Hundred Eighty
Three and 00/100 Dollars ($200,583.00) annually, Sixteen Thousand Seven Hundred
Fifteen and 25/100 ($16,715.25) monthly commencing January 1, 1998 for the
remainder of the initial Lease Term, which includes Tenant's electricity charge
for the Leased Premises.
As used in this Lease, Lease Year shall mean a period of 12 calendar months,
with the first Lease Year to commence upon the Lease Commencement Date and end
upon the anniversary thereof and with successive Lease Years continuing for
twelve (12) month intervals thereafter until the Lease Termination Date.
Unless modified herein, all other terms and conditions of the LEASE remain in
full force and effect.
Executed as of the 18th. day of December, 1997
LESSOR: PERINI CORPORATION
By: /s/ CARL P. GAUTHIER Carl P. Gauthier
----------------------------- -----------------------------
Signature Print or type name
December 18, 1998
----------------------------- -----------------------------
Title V.P. Perini Land & Date
Development Co.
<PAGE>
LESSEE: MAKER COMMUNICATIONS, INC.
By: /s/ MITCHELL MACKOFF Mitchell Mackoff
----------------------------- -----------------------------
Signature Print or type name
Vice President & CFO December 18, 1997
----------------------------- -----------------------------
Title Date
Signature Copy
Agreement for ASIC Design and Purchase of Products
between
IBM Microelectronics
1000 River Street
Essex Junction, Vermont
and
Maker Communications, Inc.
Agreement Number: X0458
Commencement Date:
IBM Customer Account
Representative: Dave Warner
Maker Communication, Inc.
73 Mount Wayte Avenue
Framingham, MA 01702
This agreement ("Agreement") is entered into by and between International
Business Machines Corporation, incorporated under the laws of the State of New
York ("IBM") and Maker Communications, Inc. ("Buyer"), incorporated under the
laws of the State of Delaware.
This Agreement and its attachments ("Attachments") sets forth the terms and
conditions pursuant to which semiconductor products will be designed,
manufactured, sold and purchased. The terms and conditions by which IBM licenses
to Buyer the IBM Design Kits specified in Attachment A are governed by the IBM
Design Kit License initially executed by the parties on December 13, 1996.
1.0 DEFINITIONS
1.1 "ASIC(s)" means application specific integrated circuits.
1.2 "ASIC Tool Kits" means any computer aided design software and data
provided by IBM and used by Buyer for the purpose of designing or
checking ASIC designs, as updated or enhanced from time to time by IBM.
1.3 "Buyer Deliverable Items" means any information and materials supplied
to IBM by Buyer, as set forth in Attachment B, including, without
limitation, software, schematics, netlists, microcode, designs or
techniques, as accepted by IBM and utilized in the design of or
otherwise incorporated into a Product.
1.4 "EngineerIng Change" means a mechanical or electrical change to the
Product which affects form, fit, function or maintainability.
1.5 "IBM Deliverable Items" means the information, materials and tools
supplied to Buyer by IBM, as set forth in Attachment B, including,
without limitation, IBM Design Kits, ASIC Tool Kits and Prototype
devices.
1.6 "IBM Design Kits" means any IBM computer aided design software and data
(including libraries) provided to Buyer for the purpose of designing or
testing ASIC designs, as updated and enhanced from time to time. The
term "IBM Design Kits" includes ASIC Tool Kits.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
EXHIBIT, WHICH PORTIONS HAVE BEEN OMITTED AND REPLACED WITH [**] AND FILED
SEPARATELY WITH THE COMMISSION.
IBM/Maker Page 1 of 17
<PAGE>
Signature Copy
1.7 "Initial ASIC Design Review Checklist" ("IDR") means a written report in
form and content as regularly used by IBM to make a preliminary
assessment of the feasibility of Buyer's proposed Product design.
1.8 "Mandatory Engineering Changes" means engineering changes required to
satisfy governmental standards, protect Product, system or data
integrity, or for environmental, health or safety reasons.
1.9 "Milestones" means completion of the (i) initial design review ("IDR
Milestone"), (ii) pre-layout and timing analysis ("RTL Milestone"), and
(iii) the release to manufacturing ("RTM Milestone") stages of work.
1.10 "Nonrecurring Engineering Charges" ("NRE charges") means the costs for
NRE Services.
1.11 "Nonrecurring Engineering Services" ("NRE Services") means engineering
services provided by IBM to develop Products to be manufactured under
this Agreement, which shall include delivery of Prototypes as specified
in Attachment C.
1.12 "Product(s)" means production units of the ASIC product(s) to be sold
and purchased under this Agreement as specified in Attachment A and as
may be amended by the parties to include additional Products. Products
shall not include Prototypes.
1.13 "Product Specifications" means the specifications for each Product
including, without limitation, the post-layout electronic data
interchange format ("EDIF") and timing requirements (including clock
skew requirements), a statement of post-layout test coverage and I/O
placement; as documented in the RTM, expressly or by specific
incorporation.
1.14 "Prototype Acceptance" means Buyer's written approval that Buyer's
Prototype evaluation demonstrates Prototype conformance to Product
Specifications.
1.15 "Prototype device(s)" or "Prototypes" means a preliminary version of a
Product which may or may not be functional and which is not suitable for
production in commercial quantities.
1.16 "Purchase Order Lead Time" means the required minimum amount of time
between IBM's receipt of the Purchase Order issued by Buyer and the
requested shipment date necessary to accommodate manufacturing cycle
time, as specified in Attachment C.
1.17 "Release to Layout Checklist" ("RTL") means a performance approval
written report in form and content as regularly used by IBM to document
completion of the pre-layout Level Sensitive Scan Design ("LSSD") and
timing analysis milestone of the SOW.
1.18 "Release to Manufacturing Checklist" ("RTM") means a performance
approval written report in form and content as regularly used by IBM to
document the design review milestone at the completion of the
post-layout timing analysis.
1.19 "Scheduled Shipment Date" means the date for shipment of Product
requested by Buyer in a Purchase Order and accepted by IBM in accordance
with Section 6.0 of this Agreement.
1.20 "Shipment Date" means the date for shipment of Product requested by
Buyer in a Purchase Order.
1.21 "Statement of Work" or "SOW" means a written statement of work as set
forth in Attachment A that identifies the respective design obligations
that the parties agree to complete for the development of particular
Products.
2.0 TERM OF AGREEMENT
This Agreement shall become effective on the date it is executed by
Buyer and IBM (the "Commencement Date"). The term of this Agreement will
begin on the Commencement Date and will be effective [**] after the
Commencement Date (the "Contract Period"), subject, however, to earlier
termination as permitted under Section 13.0.
3.0 WORK SCOPE
3.1 IBM will provide Buyer with engineering support and assistance and Buyer
will provide IBM with the Buyer Deliverable items and cooperate with IBM
in the use of IBM Deliverable Items to enable IBM to manufacture
Products, in accordance with the SOW. The Products are designed for
verification on IBM ASIC tools and to be manufactured by IBM under this
Agreement. The terms and conditions by which IBM licenses the IBM Design
Kits are exclusively governed by the IBM Design Kit License Agreement,
which is hereby incorporated by reference.
3.2 In the event that multiple Products are developed under this Agreement
or this Agreement is amended to include additional Products, each such
Product shall be developed under and subject to a separate SOW, separate
development checklist and separate Product pricing.
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM/Maker Page 2 of 17
<PAGE>
Signature Copy
4.0 ASIC PRODUCT DES1GN
4.1 IBM's ASIC development checklists shall document the development of each
of Buyer's Product design(s).
4.1.1 The IDR will be used to make a preliminary feasibility assessment
of each of Buyer's proposed Product design(s) and to advise Buyer of any
areas where Buyer's design(s) do not conform to IBM design requirements.
4.1.2 The RTL shall include, expressly or by specific incorporation, the
design specifications for each Product required by Buyer to successfully
place, route, time and conform to LSSD and provide static timing
analysis. The RTL shall also document the fact that such information is
available to Buyer and has been communicated to Buyer before each
Product netlist is released to layout. Buyer's signature on the RTL
shall record Buyer's acknowledgment of satisfactory completion of all
work on such Product through such Milestone.
4.1.3 Buyer's signature on the RTM shall record Buyer's acknowledgment
of (i) satisfactory completion of all work on such Product through the
RTM Milestone and (ii) the specifications to which IBM's warranty
obligations, set forth in Section 14.0, apply. To the extent that
specifications and test parameters contained in the RTM vary those set
forth in the RTL, the specifications contained in the RTM shall govern.
4.1.4 Buyer's signature on the RTL and RTM checklists shall not be
unreasonably withheld.
4.2 [**]
4.3 Any data relating to a Product design that Buyer is to furnish to IBM
must be compatible with IBM tools, with which IBM will verify all design
and engineering work for conformance to IBM's technology ground rules.
4.4 [**]
4.5 [**]
4.6 Subject to the terms and conditions of this Agreement, both parties will
exercise reasonable diligence in performing the design activities set
forth in the SOW for each Product.
4.7 IBM agrees to provide Products to Buyer as requested by Buyer and
accepted by IBM subject to the provisions of this Agreement.
4.8 [**]
5.0 PRODUCT DEMAND FORECASTS
5.1 The Product demand forecasts agreed to by Buyer and IBM are set forth in
Attachment C. The forecasts cover yearly periods through 1999 broken out
by Product and month. During the term of this Agreement, Buyer will
provide IBM with updated Product demand forecasts on a monthly basis
covering a rolling twelve (12) month period (not to extend beyond the
Contract Period), which will be reviewed for approval by IBM within ten
(10) days of receipt by IBM. Updated forecasts shall be in substantially
the same format as the first forecast in Attachment C. Forecasts shall
be provided to IBM's Customer Account Representative as identified
above. Forecasts shall constitute good faith estimates of Buyer's
anticipated requirements for Products for the periods indicated based on
current market conditions, and IBM's acceptance shall constitute IBM's
good faith intention to quote and supply such requirements if requested
and ordered by Buyer in accordance with this Section 5.0.
Notwithstanding the foregoing, Product demand forecasts accepted by IBM
shall not contractually obligate IBM to supply, nor contractually
obligate Buyer to purchase, the quantities of units of Product set forth
in such forecasts.
5.2 Buyer may request Products that exceed Product demand forecasts
previously accepted by IBM. Such requests are subject to rejection by
IBM for any reason, including, without limitation, resource
availability. In the event IBM rejects such a request, IBM shall provide
buyer with written notice of such rejection within fourteen (14)
calendar days of Buyer's Request, specifying the reason for the
rejection.
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM/Maker Page 3 of 17
<PAGE>
Signature Copy
6.0 PURCHASE ORDERS
6.1 [**]
6.2 [**]
6.3 [**]
6.4 Purchase orders issued to IBM shall include the following:
6.4.1 NRE Services and/or Product(s) being ordered;
6.4.2 quantity of units of Product requested (in increments of the
minimum ship pack quantity ("SPQ") only);
6.4.3 NRE Charges and/or unit price per Attachment C;
6.4.4 billing address;
6.4.5 shipping instructions, including carrier, destination address and
requested shipment dates; and
6.4.6 reference to this Agreement and Agreement Number.
6.5 This Agreement shall take precedence over and govern in case of any
additional, different or conflicting terms and conditions in any
purchase order(s) or any other form of either party. Purchase orders and
other forms of either party may not vary the terms of this Agreement.
Additional, different or conflicting terms and conditions on a purchase
order or other form shall be of no effect, unless in writing and signed
by both parties.
6.6 Notwithstanding any other provision of this Agreement, in the event that
IBM's ability to supply the Product is constrained (except as caused by
Buyer) for reasons which include, but are not limited to, component
availability, and the Scheduled Shipment Date cannot be met, IBM will
reduce the quantities of Products to be supplied to Buyer in proportion
to the reduction in quantities of products of the same technology or
utilizing the same manufacturing process to be supplied to satisfy
others. Receipt of such allocated supply and later delivery of all
undelivered ordered quantities after the constraint ends shall
constitute Buyer's exclusive remedy in the event of such supply
constraint.
7.0 PRICING
7.1 Buyer shall pay IBM the NRE Charge applicable to such Product as set
forth in Attachment C, as well as other sums for special services as are
separately ordered by Buyer and listed or referenced in Attachment C, or
as otherwise agreed to in writing by the parties.
7.2 The unit price for each unit of Product ordered shall be determined at
the time the applicable purchase order is accepted using the Product's
Price Quantity Matrix set forth in Attachment C. The quantity used as an
input into such Price Quantity Matrix shall be the cumulative quantity
of units of a Products determined by the purchase orders accepted by IBM
after the Commencement Date, including the units of Product requested in
the purchase order that is the subject of such price determination.
8.0 TITLE AND SHIPMENT
8.1 Title and risk of loss for a Product pass to Buyer when IBM delivers the
Product to the carrier.
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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8.2 Products shall be shipped from the manufacturing location FOB for
domestic U.S. destinations and ExWorks (as defined in the 1990 INCO
Terms) for international shipments.
8.3 In no event shall IBM be deemed to assume any liability in connection
with any shipment, nor shall the carrier be construed as an agent of
IBM.
9.0 INVOICING, PAYMENT TERMS, TAXES
9.1 NRE Charges shall accrue and be invoiced on the schedule set forth in
Section 2.0 of Attachment C. IBM shall invoice Buyer for all units of
Product upon shipment. All payments under this Agreement shall be due
within thirty (30) days of the date of invoice. If Buyer's account
becomes in arrears or if Buyer exceeds its credit limit with IBM, in
addition to any other right under this Agreement, IBM reserves the right
to cease development work or stop shipment to Buyer or ship to Buyer on
a cash-in-advance basis, or other mutually agreeable terms, until
Buyer's account is again current.
9.2 [**]
9.3 Buyer shall provide IBM with a copy of a valid reseller's exemption
certificate for Products purchased for resale for each applicable taxing
jurisdiction. Based on such certificate, and where the law permits, IBM
will treat Buyer as exempt from applicable state and local sales tax for
Products purchased hereunder. Buyer shall notify IBM promptly in writing
of any modification or revocation of its exempt status. Buyer shall
reimburse IBM for any and all assessments resulting from a refusal by a
taxing jurisdiction to recognize any Buyer reseller's exemption
certificate, or from Buyer's failure to have a valid reseller's
exemption certificate. If Buyer purchases Product under this Agreement
for internal use, Buyer agrees to notify IBM and pay applicable sales
tax.
10.0 INTEREST ON OVERDUE PAYMENTS
Late payment of invoices will be assessed a charge equal to the lesser
of one and one-half (1.5%) per month or the statutorily maximum rate of
interest in accordance with the laws of the State of New York.
11.0 CANCELLATION CHARGES, RESCHEDULING, ORDER CHANGE PROVISIONS [**]
11.1 Buyer may cancel a purchase order or any portion thereof upon written
notice to IBM. If Buyer cancels a purchase order for NRE Services or
Prototypes, or if Buyer unreasonably withholds its signature from the
RTL or RTM, IBM will cease further work in connection with the Product
and invoice Buyer for (i) the total of all unpaid NRE Charges applicable
to the next development Milestone (Section 2.0 of Attachment C) and (ii)
an NRE cancellation charge pursuant to Section 3.0 of Attachment C and
the applicable unit price for any canceled Prototype devices that were
ordered pursuant to Section 4.5 of this Agreement. For purchase orders
for units of Product, if the written notice is less than the Purchase
Order Lead Time, then a cancellation charge, as specified in Section 9.0
of Attachment C, will immediately become due for each canceled unit.
11.2 For a purchase order for production units which is more than thirty (30)
days, but less than the Purchase Order Lead Time from its Scheduled
Shipment Date, Buyer may request in writing a one-time deferral of the
Scheduled Shipment Date for not more than ninety (90) days, with no
cancellation charge imposed. However, if this purchase order is
subsequently deferred or canceled, then the cancellation charge
specified in Section 9.0 of Attachment C will be due.
11.3 [**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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12.0 ENGINEERING CHANGES
12.1 [**]
12.2 [**]
12.3 [**]
12.4 [**]
13.0 TERMINATION OF AGREEMENT
13.1 If either party is in material default of a provision of this Agreement
and such default is not corrected within thirty (30) days of receipt of
written notice, this Agreement may be terminated by the party not in
default.
13.1.1 If Buyer terminates due to IBM default, all previously accepted
purchase orders shall be automatically canceled without charge to Buyer,
except for any specific purchase order(s) that the parties mutually
agree in writing not to cancel.
13.1.2 If IBM terminates due to Buyer default, at IBM's discretion, all
previously accepted purchase orders shall be automatically canceled and
adjustment charges and cancellation charges will apply in addition to
any other amounts then due.
13.2 Notwithstanding the provisions of Section 13.1, either party shall have
the right to terminate this Agreement immediately if:
13.2.1 The other party files a petition in bankruptcy, undergoes a
reorganization pursuant to a petition in bankruptcy, is adjudicated a
bankrupt, becomes insolvent, becomes dissolved or liquidated, files a
petition for dissolution or liquidation, makes an assignment for benefit
of creditors, or has a receiver appointed for its business; or
13.2.2 The other party is subject to property attachment or court
injunction or court order which has a substantial negative effect on its
ability to fulfill its material obligations under this Agreement.
13.3 IBM may terminate this Agreement, or its obligations with respect to
specifically affected Products, immediately if:
13.3.1 Buyer unreasonably withholds its consent for IBM to make Elective
Engineering Changes under Section 12.0; or
[**]
13.4 In the event this Agreement is terminated pursuant to Section 13.1.2,
13.2 or 13.3, all amounts due and payable to the non-terminating party
as of the date of such termination shall become immediately due and
payable.
13.5 [**]
13.6 All Products shipped against accepted purchase orders will be subject to
the terms and conditions of this Agreement notwithstanding any
termination or expiration of the term of this Agreement.
13.7 [**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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14.0 WARRANTIES
14.1 IBM warrants that each unit of Product after delivery will be free from
defects in material and workmanship and will conform to the Product
Specifications as set forth in the RTM for the applicable period set
forth in Attachment C. Delivery to Buyer of each unit of Product is
deemed to occur five (5) days after shipment from IBM. Buyer
acknowledges that the functionality of Products is contingent upon
Buyer's designs and, therefore, the warranty of this Section 14.1 does
not apply to the functionality of Products fabricated hereunder. This
warranty does not include repair of damage resulting from failure to
provide a suitable installation environment, or any use for other than
the intended purpose, accident, disaster, neglect, misuse,
transportation, alterations, or non-IBM repairs or activities.
14.2 [**]
14.3 Should any unit of Product returned to IBM hereunder be found by IBM to
be free from defects or non-conformities, IBM will return such unit of
Product to Buyer transportation prepaid by IBM. Payment for such unit of
Product will be due and payable by Buyer as set forth in Section 9.0
above.
14.4 Prototypes provided by IBM under this Agreement are provided on an "AS
IS" basis, without warranty of any kind.
14.5 No course of dealing, course of performance, usage of trade, Product or
Prototype description shall be deemed to establish a warranty, express
or implied.
14.6 THE FOREGOING WARRANTIES MADE BY IBM ARE EXCLUSIVE AND IN LIEU OF ANY
OTHER WARRANTIES, EXPRESS OR IMPLIED INCLUDING, WITHOUT LIMITATION, THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, AND ANY IMPLIED WARRANTIES OF NON-INFRINGEMENT.
15.0 CONFIDENTIAL INFORMATION
[**]
16.0 TRADEMARKS AND TRADE NAMES
16.1 Neither this Agreement, nor the sale of Products hereunder, shall be
deemed to give either party any right to use the other party's
trademarks or any of the other party's trade names without specific,
prior written consent.
17.0 INTELLECTUAL PROPERTY RIGHTS
17.1 [**]
17.2 [**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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17.3 [**]
17.4 [**]
17.5 [**]
18.0 INTELLECTUAL PROPERTY INDEMNIFICATION
18.1 IBM shall indemnify Buyer from and against any damages finally settled
or awarded by a court of competent jurisdiction resulting from any
direct infringement of any patents or copyrights of a third party in any
country in which IBM sells similar products that expose IBM to similar
liabilities as the Product, arising as a result of any of IBM's
manufacturing process, equipment or testing, that is not specifically
required by Buyer's designs, specifications or instructions. IBM shall
defend at its own expense, including attorney's fees, any suit brought
against Buyer alleging such infringement. In the event that Buyer
becomes enjoined from using Product in its inventory due to such
infringement, IBM at its option and expense, will secure for Buyer the
right to continue to use and market the Product, or modify or replace
the Product with a non-infringing product. If IBM determines that
neither of the foregoing alternatives is reasonably available, Buyer may
return the affected Product in Buyer's inventory to IBM for a credit
equal to the price paid for the units of Product affected. IBM shall
have no obligation regarding any claim based upon modification of the
Product by Buyer or its customers, use of the Product in other than its
intended operating environment or the combination, operation or use of
the Product with non-IBM products or equipment.
18.2 Buyer shall indemnify IBM from and against any damages finally settled
or awarded by a court of competent jurisdiction resulting from any
infringement of any patents or copyrights of a third party in any
country where Buyer uses or distributes the Product, arising as a result
of IBM's compliance with any of Buyer's design, specifications,
instructions or modifications of the Product by Buyer and shall defend
at its own expense, including attorney's fees, any suit brought against
IBM alleging any such infringement.
18.3 The rights provided in Sections 18.1 and 18.2 are contingent upon the
parties seeking to enforce indemnification by giving prompt written
notice to the indemnifying party regarding any claim, demand or action
for which the indemnified party seeks indemnification. The indemnified
party is required to fully cooperate with the indemnifying party at the
indemnifying party's expense and shall allow the indemnifying party to
control the defense or settlement of any such claim, demand or action,
including obtaining the written consent of the indemnifying party prior
to any settlement proposal or settlement. IBM shall have the right to
waive Buyer's obligations under Section 18.2 and provide for its own
defense, at IBM's sole discretion and expense.
18.4 The purchase, receipt or possession of the Product from or through IBM
carries no license or immunity, express or implied, under any patent of
IBM covering the combination of the Product with other products or the
use of any such combination, or under any patent or other intellectual
property right of any third party relating to the Product or its
combinations with any other products.
18.5 Except as expressly stated in this Agreement, this Section 18.0 states
the entire liability of the parties and their exclusive remedies with
respect to infringement and all other warranties against infringement of
any intellectual property rights, statutory, express or implied are
hereby disclaimed.
19.0 INDEPENDENT PARTIES
Each party hereto is an independent contractor and is not an agent of
the other party for any purpose whatsoever. Neither party shall make any
warranties or representations on the other party's behalf, nor shall it
assume or create any other obligations on the other party's behalf. IBM
and Buyer agree to indemnify from and against any damages finally
awarded by a court of competent jurisdiction resulting from any
violation of this Section 19.0.
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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20.0 LIMITATION OF REMEDIES
20.1 IBM's entire liability and Buyer's exclusive remedy are set forth in
this Section:
20.1.1 [**]
20.1.2 IBM's liability for actual damages for any cause whatsoever
(other than as set forth in Section 20.1 .1), shall be limited to the
greater of fifty thousand dollars ($50,000) or the applicable unit price
for the specific units of Product that caused the damages or that are
the subject matter of, or are directly related to, the cause of action.
This limitation will apply, except as otherwise stated in this Section,
regardless of the form of action, whether in contract or in tort,
including negligence. This limitation will not apply to the payment of
costs, damages and attorney's fees referred to in Section 18.0. This
limitation will also not apply to claims by Buyer for bodily injury or
damage to real property or tangible personal property caused by IBM's
negligence.
20.1.3 In no event will either party be liable to the other party for
any lost profits, lost savings, incidental damages or other
consequential damages, even if advised of the possibility of such
damages, except as provided in Section 18.0. In addition IBM will not be
liable for any claim based on any third-party claim, except as provided
in Section 18.0. In no event will IBM be liable for any damages caused
by Buyer's failure to perform Buyer's responsibilities.
20.1.4 In addition, IBM shall have no liability when the Products are
used in conjunction with (a) any medical implantation or other direct
life support applications where malfunction may result in direct
physical harm or injury to persons or (b) commercial aviation, nuclear
materials, or other ultra-hazardous activities.
21.0 SUBCONTRACT AND ASSIGNMENT
21.1 IBM has the right to subcontract its responsibilities under this
Agreement, provided that any subcontractor retained by IBM is obligated
in writing to the same obligations as set forth herein with respect to
IBM. In the event that IBM does subcontract certain portions of its
responsibilities, the term "employee" as used herein shall be deemed to
include such subcontractor and/or its employees.
21.2 [**]
22.0 COMPETITIVE PRODUCTS AND SERVICES
Neither this Agreement nor any activities hereunder will impair any
right of IBM or Buyer to design, develop, manufacture, market, service,
or otherwise deal in, directly or indirectly, other products or services
including those which are competitive with those offered by IBM or
Buyer.
23.0 PROMOTIONAL ACTIVITY
Press releases and other like publicity, advertising or promotional
material which mention the other party by name, this Agreement or any
term hereof shall be agreed upon by both parties in writing prior to any
release.
24.0 FORCE MAJEURE
Except for payments due IBM, neither party shall be in default or liable
for any delay or failure of compliance with this Agreement due to an act
of nature, public enemy, freight embargo, or other cause if such act of
nature, public enemy, freight embargo, or other cause is beyond the
control of the non-performing party. A non-performing party shall cure
as soon as practicable, and as soon as practicable after such force
majeure event, notify the other party in writing of such event.
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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25.0 NOTICES
25.1 All notices shall be in writing and shall be deemed delivered when sent
by certified mail return receipt requested.
IBM Maker Communications, Inc.
Dept. LJGV-965-3J 73 Mount Wayte Avenue
1000 River Street Framingham, MA 01702
Essex Junction, VT 05452
Attn: Contract Administrator Attn: Chief Financial Officer
25.2 Day to day technical activities under this Agreement will be directed by
the Technical Coordinators identified in Attachment A, who will be
responsible for maintaining technical liaison between the parties.
Either party may change its respective representative designated for
receipt of notices, or its Technical Coordinator and their addresses
designated for notices by notifying the other party in the same manner
as any other notice.
25.3 [**]
26.0 GENERAL PROVISIONS
26.1 This Agreement may be executed in any number of identical counterparts,
each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument when each
party has signed one such counterpart.
26.2 The activities of each party and its employees, agents or
representatives while on the other party's premises (including any
design center) shall comply with the host company's policies and
procedures for such facilities, including security procedures and
visitation guidelines.
26.3 Each party will comply with all applicable federal, state and local
laws, regulations and ordinances including, without limitation, the
regulations of the U.S. Government relating to the export of commodities
and technical data insofar as they relate to the activities under this
Agreement. Buyer agrees that machines, commodities, and technical data
provided under this Agreement are subject to restrictions under the
export control laws and regulations of the United States of America,
including, without limitation, the U.S. Export Administration Act and
the U.S. Export Administration Regulations. Buyer hereby gives its
written assurance that neither machines, commodities or technical data
provided by IBM under this Agreement, nor the direct product thereof,
will be exported, or re-exported, directly or indirectly, to prohibited
countries or nationals thereof without first obtaining applicable
government approval. Buyer agrees it is responsible for obtaining
required government documents and approvals prior to export of any
machine, commodity, or technical data.
26.4 [**]
26.5 If any section or subsection of this Agreement is found by competent
judicial authority to be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of any such section
or subsection in every other respect and the remainder of this Agreement
shall continue in effect so long as the redacted Agreement still
expresses the intent of the parties. If the intent of the parties cannot
be preserved, this Agreement shall be either renegotiated or terminated.
26.6 No actions, regardless of form, arising out of this Agreement, may be
brought by either party more than two (2) years after the cause of
action has arisen, or, in the case of nonpayment, more than two (2)
years from the date the last payment was due.
26.7 This Agreement may be modified only by a written amendment signed by
persons authorized to so bind Buyer and IBM. This Agreement shall not be
supplemented or modified by any course of dealing, course of performance
or trade usage. The term "this Agreement" as used herein includes any
applicable Attachments or future written amendment(s) made in accordance
with this Section.
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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26.8 Failure by either party to insist in any instance on strict conformance
by the other to any term of this Agreement or failure by either party to
act in the event of a breach will not be construed as a consent to or
waiver of any subsequent breach of the same or of any other term
contained in this Agreement.
26.9 All obligations and duties which by their nature survive the expiration
or termination of this Agreement shall remain in effect beyond any
expiration or termination, including, without limitation, Sections 8.0,
9.0, 10.0, 13.6, 14.0, 15.0, 16.0, 17.0, 18.0,19.0 and 20.0.
26.10 The headings in this Agreement are for convenience only and are not
intended to affect the meaning or interpretation of this Agreement.
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27.0 SOLE AGREEMENT
The parties acknowledge that each has read this Agreement and its
Attachments, understands them, and agrees to be bound by their terms and
conditions. Further, the parties agree that this Agreement and its
Attachments and the IBM Design Kit License Agreement, are the complete
and exclusive statement of the agreement between the parties, which
supersedes all proposals and all prior agreements, oral or written, and
all other communications between the parties relating to the subject
matter hereof.
Agreed to: Agreed to:
INTERNATIONAL BUSINESS MAKER COMMUNICATIONS, INC.
MACHINES CORPORATION
By: /s/ PETER HANSEN By: /s/ MICHAEL RUBINO
--------------------------------- --------------------------
Authorized Signature Authorized Signature
Name: Peter Hansen Name: Michael Rubino
Title: VP North American Sales, IBM MD Title: VP & CFO
Dated: 8/13/98 Dated: 9/2/98
- --------------------------------------------------------------------------------
This agreement shall not bind either party to any obligations unless and until
it is executed in writing by both parties.
- --------------------------------------------------------------------------------
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Attachment A
1.0 Product Name and Description
[**]
2.0 Technical Coordinators
[**]
3.0 Design Schedule/Statement of Work
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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Attachment B
Deliverable Items
1.0 [**]
2.0 [**]
3.0 Deliverable Items associated with the RTM Milestone:
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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Attachment C
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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Attachment C (continued)
PRODUCT PURCHASE INFORMATION
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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Attachment C (continued)
PRODUCT PURCHASE INFORMATION
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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AMENDMENT 1 TO AGREEMENT X0458
This Amendment to the Agreement for ASIC Design and Purchase of Products
("Amendment 1") is made and entered into between International Business Machines
Corporation ("IBM") and Maker Communications, Inc. ("Buyer"). This Amendment 1
shall be effective as of February 15, 1999 (the "Effective Date").
WHEREAS IBM and Buyer are parties to the Agreement for ASIC Design and Purchase
of Products, Agreement Number X0458, having an effective date of September 2,
1998 (the "Agreement");
WHEREAS IBM and Buyer desire to amend the Agreement as set forth herein;
NOW THEREFORE the parties hereby agree as follows:
The parties agree that Attachments A, B and C to the Agreement for ASIC Design
and Purchase of Products, with Agreement Number X0458, shall be amended, and are
restated as follows:
Attachment A-1
1.0 Product Name and Description
[**]
2.0 Technical Coordinators
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM Maker Communications
<PAGE>
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Attachment A-1 (continued)
3.0 Design Schedule/Statement of Work
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM Maker Communications
<PAGE>
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Attachment B-1
Deliverable Items
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM Maker Communications
<PAGE>
Signature Copy Page 4 of 7
Attachment C-1
PRODUCT PURCHASE INFORMATION
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM Maker Communications
<PAGE>
Signature Copy Page 5 of 7
Attachment C-1 (continued)
PRODUCT PURCHASE INFORMATION
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM Maker Communications
<PAGE>
Signature Copy Page 6 of 7
Attachment C-1 (continued)
PRODUCT PURCHASE INFORMATION
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM Maker Communications
<PAGE>
Signature Copy Page 7 of 7
Attachment C-1 (continued)
PRODUCT PURCHASE INFORMATION
[**]
This Agreement, as amended herein, sets forth the entire agreement and
understanding between the parties, and supersedes and cancels all previous
negotiations, agreements, commitments and writings, in respect to the subject
matter hereof, and neither party hereto shall be bound by any term, clause,
provision or condition except as expressly provided in the Agreement as amended
herein or as duly set forth on or subsequent to the date hereof in writing,
signed by duly authorized representatives of the parties.
Agreed to: Agreed to:
INTERNATIONAL BUSINESS MAKER COMMUNICATIONS, INC.
MACHINES CORPORATION
By: /s/ Peter D. Hansen By: /s/ Michael Rubino
----------------------------- -------------------------------
Authorized Signature Authorized Signature
Name: Peter D. Hansen Name: Michael Rubino
Title: VP North American Sales Title: VP and CFO
Dated: Dated:
------------------------- ----------------------------
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM Maker Communications
<PAGE>
Signature Copy
AMENDMENT 2
TO AGREEMENT FOR ASIC DESIGN AND PURCHASE OF PRODUCTS
This amendment ("Amendment 2") to Agreement Number X0458, entered into between
IBM and Maker Communications, Inc. on September 2, 1998, as amended by Amendment
1 ("the Agreement"), is made and entered into by and between Maker
Communications, Inc. ("Buyer") and International Business Machines Corporation
("IBM"). Amendment 2 shall be effective when signed by both parties.
WHEREAS IBM and Buyer desire to amend the agreement so as to add an additional
product to be developed, manufactured and sold under the terms and conditions of
the Agreement.
NOW THEREFORE, the parties hereby agree to amend the Agreement by adding a
second set of Attachments to the base terms and conditions of the Agreement.
This Attachment has three parts: A-2, B-2, and C-2 that are applicable only to
the Product identified in Attachment A-2.
Attachment A-2
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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Attachment B-2
Deliverable Items
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM/Maker Page 3 of 7
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Attachment C-2
PRODUCT PURCHASE INFORMATION
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM/Maker Page 4 of 7
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Signature Copy
Attachment C-2 (continued)
PRODUCT PURCHASE INFORMATION
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM/Maker Page 5 of 7
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Attachment C-2 (continued)
PRODUCT PURCHASE INFORMATION
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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Agreed to: Agreed to:
INTERNATIONAL BUSINESS MAKER COMMUNICATIONS, INC.
MACHINES CORPORATION
By: By:
----------------------------- -------------------------------
Authorized Signature Authorized Signature
Name: Peter D. Hansen Name: Michael Rubino
Title: VP North American Sales Title: VP and CFO
Dated: Dated:
------------------------- ----------------------------
IBM/Maker Page 7 of 7
Phoenix Technologies Ltd./Confidential Phoenix Agreement Number 14820100
PHOENIX TECHNOLOGIES LTD.
TECHNOLOGY LICENSE AGREEMENT
This Technology License Agreement ("Agreement") is entered into and is
effective as of February 12, 1998 ("Effective Date") between Phoenix
Technologies Ltd., a Delaware corporation having its principal place of business
at 411 East Plumeria Drive, San Jose, California 95134 ("PTL"), and Maker
Communication, Inc., a corporation having its principal place of business at 73
Mount Watye Avenue, Framingham, Massachusetts 01702 ("Licensee"). In
consideration of the premises and covenants contained herein, the parties agree
as follows:
1.0 DEFINITIONS
1.1 "Competitor" means a company, corporation, or other entity that develops,
markets, and/or license software similar in function to PTL's Virtual Chips line
of commercially available products.
1.2 "Contractor(s)" means a company, corporation, or other entity that provides
services for Licensee's Design Group, as set forth in Section 3.1.5 below. No
Competitor will be a Contractor.
1.3 "Core" means PTL's Virtual Chips synthesizable core software product in
source code form and any associated design files, as licensed under this
Agreement.
1.4 "Defect(s)" wil1 mean any mistake, problem, or error which is capable of
reproduction by PTL and which causes (a) an incorrect functioning or
non-functioning of the Software, or (b) renders the Software inoperable, or (c)
causes the Software to fail to meet its specifications.
1.5 "Derivative Work" means a computer program and any subsequent design,
including any resultant integrated circuit, which is a Modification made by
Licensee based on or incorporating material from the Software so that the
Modification, as a whole, represents an original work of authorship.
1.6 "Design Group" means a group within Licensee which is a single design team
designated to design Licensee's IC and/or test Licensee's IC. Such Design Group
will be designated on the Purchase Order. Each such group may have no more than
three locations, anywhere in the world. Each such location will be identified by
Licensee to PTL, in writing. Additional locations must be agreed to, in writing,
by PTL.
1.7 "Licensee's IC" means (a) the device created from integrated circuit designs
by the Design Group, as identified in the Purchase Order accepted by PTL, and
which incorporates the Core; and/or (b) the device created from integrated
circuit designs by the Design Group which is tested using the Test Environment.
l.8 "Modification(s)" means a revision, augmentation, abridgment, upgrade,
addition, adaptation, or other modification to the Software.
1.9 "Purchase Order(s)" means the order form issued to PTL by Licensee stating
the Software, Reuse, New Design Group, training, and/or services Licensee
requests from PTL.
1.10 "Reuse" means use of the Core by the Design Group on a new and functionally
different integrated circuit design. A Reuse occurs at synthesis of Licensee's
IC. Changes to fix functional problems (bugs), timing problems or other errors
in Licensee's IC will not be considered a Reuse.
1.11 "SGN Format" means Core represented in a synthesized gate level net list
format and subsequent formats as part of the process of creating an integrated
circuit.
1.12 "Software" means Core and Test Environment, collectively, as licensed under
this Agreement.
1.13 "Test Environment" means PTL's Virtual Chips simulation and test software
in source code form and any associated design files, as licensed under this
Agreement.
1.14 "Licensee Simulation Model" means a simulation program developed by
Licensee that contains the Core or derivatives thereof.
2.0 QUOTATIONS AND PURCHASE ORDERS
2.1 [**]
2.2 [**]
2.3 [**]
3.0 LICENSE
3.1 [**]
3.1.1 [**]
3.1.2 [**]
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
EXHIBIT, WHICH PORTIONS HAVE BEEN OMITTED AND REPLACED WITH [**] AND FILED
SEPARATELY WITH THE COMMISSION.
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
<PAGE>
Phoenix Technologies Ltd./Confidential Phoenix Agreement Number 14820100
[**]
3.1.3 [**]
3.1.4 [**]
3.1.5 [**]
3.1.6 [**]
3.2 [**]
3.3 [**]
3.4 [**]
3.5 [**]
3.6 [**]
3.7 [**]
4.0 DELIVERY
PTL will deliver the Software and any other deliverables within ten (10)
business days following the acceptance of the Purchase Order by PTL, unless the
parties agree, in writing, to a different delivery schedule.
5.0 ASSOCIATED FEES AND PAYMENT
5.1 [**]
5.2 [**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
Page 2 of 6
<PAGE>
Phoenix Technologies Ltd./Confidential Phoenix Agreement Number 14820100
[**]
5.3 [**]
5.4 [**]
5.5 [**]
6.0 TRAINING
Subject to payment of fees by Licensee to PTL, PTL will provide to licensee
certain training of the Software. Such training will be provided at a regularly
scheduled PTL training class at PTL's San Jose, Ca1ifoniia facility. Licensee
will be solely responsible for all travel, accommodation, and miscellaneous
expenses for Licensee's attendance at such training. Training is subject to an
Official Quotation pursuant to Section 2 above.
7.0 OWNERSHIP
7.1 [**]
7.2 [**]
8.0 LIMITED WARRANT AND REMEDIES
8.1 [**]
8.2 [**]
8.3 [**]
8.4 [**]
8.5 [**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
Page 3 of 6
<PAGE>
Phoenix Technologies Ltd./Confidential Phoenix Agreement Number 14820100
9.0 CONFIDENTIALITY
9.1 [**]
9.2 [**]
10.0 INTELLECTUAL PROPERTY INDEMNIFICATION
10.1 [**]
10.2 [**]
10.3 [**]
10.4 [**]
11.0 LIMITATION OF LIABILITY
11.1 [**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
Page 4 of 6
<PAGE>
Phoenix Technologies Ltd./Confidentia1 Phoenix Agreement Number 14820100
[**]
11.2 [**]
12.0 INDEMNITY OF PTL
[**]
13.0 TERM AND TERMINATION
13.1 [**]
13.2 [**]
13.3 [**]
13.4 [**]
14.0 GENERAL
14.1 Licensee and PTL agree that this Agreement constitutes the complete
Agreement and understanding between the parties with respect to the subject
matter herein. This Agreement supersedes all prior agreements, understandings,
and negotiations, whether written or verbal, with respect to the subject matter
herein. No amendment or modification of this Agreement will be effective unless
it is set forth in a writing which refers to the particular provisions so
amended or modified and is executed by authorized representatives of both
parties.
14.2 Notices will be sent by first class mail or express mail, postage prepaid,
by courier or other personal delivery, or by facsimile (with telephonic
confirmation of receipt) to the parties at the addresses specified at the
beginning of this Agreement or to such other address as a party designates in
writing to the other party. Notices to PTL will be sent to the attention of the
Legal Department.
14.3 Licensee agrees that it will not export any Software or other materials
provided by PTL hereunder in violation of any law, statute or regulation,
including the United States Export Administration Act and regulations
thereunder.
14.4 [**]
14.5 No third party will have any rights under this Agreement. The parties are
independent contractors, and neither party will have any right or power to
create any obligation or responsibility on behalf of the other party.
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
Page 5 of 6
<PAGE>
Phoenix Technologies Ltd./Confidential Phoenix Agreement Number 14820100
14.6 [**]
14.7 [**]
14.8 [**]
14.9 [**]
This Agreement is entered into on behalf of the parties by their duly authorized
representatives.
PTL: Phoenix Technologies, Ltd.
Signature /s/ Stuart J. Nichols
-----------------------------------
Print Name: Stuart J. Nichols
-----------------------------------
Title: V.P. General Counsel, and Secretary
-----------------------------------
Date: 3/5/98
-----------------------------------
Licensee: Maker Communications, Inc.
Signature: /s/ Mitchell Mackoff
-----------------------------------
Print Name: Mitchell Mackoff
-----------------------------------
Title: Vice President & CFO
-----------------------------------
Date: 2/27/98
-----------------------------------
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
Page 6 of 6
<PAGE>
Confidential Phoenix Agreement Number 14820200
PHOENIX TECHNOLOGIES LTD.
SUPPORT AND MAINTENANCE ADDENDUM
This Support and Maintenance Addendum ("Addendum") is entered into and is
effective as of February 12, 1998, ("Effective Date") between Phoenix
Technologies Ltd., a Delaware corporation having its principal place of business
at 411 East Plumeria Drive, San Jose, California 95134 U.S.A. ("Phoenix") and
Maker Communication, Inc., a Delaware corporation having its principal place of
business at 73 Mount Wayte Avenue, Framingham, Massachusetts 01702 ("Licensee").
Phoenix and Licensee have previously entered into a Technology License
Agreement, Phoenix Agreement Number 14820100, dated February 12, 1998
("Controlling Agreement"), where Licensee has licensed certain Phoenix Virtual
Chips software ("Software").
1.0 SUPPORT AND MAINTENANCE
1.1 [**]
1.2 [**]
1.2.1 [**]
1.2.2 [**]
1.3 [**]
1.3.1 [**]
1.3.2 [**]
2.0 TERM AND FEES
2.1 [**]
2.2 [**]
2.3 [**]
3.0 GENERAL
3.1 [**]
3.2 [**]
3.3 [**]
This Addendum is entered into on behalf of the parties by their duly
authorized representatives.
Phoenix: Phoenix Technologies Ltd.
Signature: /s/ Stuart J. Nichols
------------------------------------------------------
Print Name/Title: Stuart J. Nichols, V.P. General Counsel, and Secretary
------------------------------------------------------
Date: 3/5/98
------------------------------------------------------
Licensee: Maker Communications, Inc.
------------------------------------------------------
Signature: /s/ Mitchell Mackoff
------------------------------------------------------
Print Name/Title: Mitchell Mackoff/ V.P. & CFO
------------------------------------------------------
Date: 2/27/98
------------------------------------------------------
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
LOAN AND SECURITY AGREEMENT
$1,000,000 WORKING CAPITAL LINE
$1,000,000 EQUIPMENT LINE
PROVIDED BY
SILICON VALLEY BANK
TO
MAKER COMMUNICATIONS, INC.
February 18, 1997
<PAGE>
This LOAN AND SECURITY AGREEMENT is entered into as of February 18, 1997,
by and between SILICON VALLEY BANK, a California-chartered bank with its
principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with
a loan production office located at Wellesley Office Park, 40 William Street,
Suite 350, Wellesley, MA 02181, doing business under the name Silicon Valley
East ("Bank"), and MAKER COMMUNICATIONS, INC., a Delaware corporation with its
principal place of business at 486 Totten Pond Road, Waltham, Massachusetts
02154 ("Borrower).
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
imitation, the licensing of software and other technology) or the rendering
of services by Borrower, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrowers Books
relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person
that is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, (including fees and
expenses of appeal or review, or those incurred in any Insolvency
Proceeding) whether or not suit is brought
"Borrowers Books" means all of Borrowers books and records including,
without limitation: ledgers; records concerning Borrowers assets or
liabilities, the Collateral, business operations or financial condition;
and all computer programs, or tape files, and the equipment, containing
such information.
"Borrowing Base" means an amount equal to EIGHTY PERCENT (80%) of
Eligible Accounts, as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
<PAGE>
"Committed Revolving Line" means a credit extension of up to ONE
MILLION AND NO/100THS Dollars ($1,000,000).
"Committed Equipment Line" means a credit extension of up to SEVEN
HUNDRED FIFTY THOUSAND AND NO/100THS Dollars ($750,000); provided, however,
that effective the first day of the month following Bank's receipt of
Borrowers financial statements showing that Borrower has received an
additional ONE MILLION Dollars ($1,000,000) in outside equity capital, the
Committed Equipment Line shall be increased to ONE MILLION Dollars
($1,000,000).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to
(i) any indebtedness, lease, dividend, letter of credit or other obligation
of another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business.
The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that
such amount shall not in any event exceed the maximum amount of the
obligations under the guarantee or other support arrangement
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished
and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held.
"Credit Extension" means each Advance, Equipment Advance, Letter of
Credit Term Loan, Exchange Contract or any other extension of credit by
Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such
date.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on
the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding
Credit Extensions made under this Agreement including all Indebtedness that
is payable upon demand or within one year from the date of determination
thereof unless such Indebtedness is renewable or extendable at the option
of Borrower or any Subsidiary to a date more than one year from the date of
determination, but excluding Subordinated Debt
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrowers business that comply with all of Borrowers
representations and warranties to Bank set forth in Section 5.4; provided
that standards of eligibility, with respect to categories of accounts not
described in subparagraphs (a) through (j) immediately below, may be fixed
and revised from time to time by Bank in Bank's reasonable judgment and
upon thirty (30) days prior notification thereof to Borrower in accordance
with the provisions hereof. Unless otherwise agreed to by Bank in writing,
Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within ninety
(90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent (50%) of
whose Accounts the account debtor has failed to pay within ninety (90) days
of invoice date;
2
<PAGE>
(c) Accounts with respect to an account debtor, including Affiliates,
whose total obligations to Borrower exceed thirty percent (30%) of all
Accounts, except with respect to Cisco Systems and Fore Systems, as to
which the percentage shall be forty percent (40%), to the extent such
obligations exceed the aforementioned percentage, except as approved in
writing by Bank;
(d) Accounts with respect to which the account debtor does not have
its principal place of business in the United States or Canada;
(e) Accounts with respect to which the account debtor is a federal,
state, or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which Borrower is liable to the account
debtor, but only to the extent of any amounts owing to the account debtor
(sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional equipment or
with respect to which goods are placed on consignment, guaranteed sale,
sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an Affiliate,
officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim), or
is subject to any insolvency Proceeding, or becomes insolvent or goes out
of business; and
(j) Accounts the collection of which Bank reasonably determines to be
doubtful.
"Equipment" means all present and future machinery, equipment tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in Section 2.1.2.
"Equipment Availability Date" has the meaning set forth in Section
2.1.2.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds
and letters of credit (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement or other relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service,
of every kind and description now or at any time hereafter owned by or in
the custody or possession, actual or constructive, of Borrower, including
such inventory as is temporarily out of its custody or possession or in
transit and including
3
<PAGE>
any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing
and any documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance
or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement
entered into between Borrower and/or for the benefit of Bank in connection
with this Agreement, all as amended, extended or restated from time to
time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan
Documents.
"Equipment Maturity Date" means JUNE 5, 2000.
"Negotiable Collateral" means all of Borrowers present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after
the commencement of an Insolvency Proceeding and including any debt
liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Payment Date" means the FIFTH (5th) calendar day of each month
commencing on the first such date after the Closing Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document,
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Subordinated Debt
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State
thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Corporation or Moody's investors Service, Inc.,
and (iii) certificates of deposit maturing no more than one (1) year from
the date of investment therein issued by Bank.
4
<PAGE>
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrowers Books in accordance with GAAP, provided the same have no priority
over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by Borrower or
any of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition
of such Equipment, or (ii) existing on such equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment; and
(d) Liens on Equipment leased by Borrower or any Subsidiary pursuant
to an operating lease in the ordinary course of business (including
proceeds thereof and accessions thereto) incurred solely for the purpose of
financing the lease of such Equipment (including Liens pursuant to leases
permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement).
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental
agency.
"Prime Rate" means the variable rate of interest per annum, most
recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities
of fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means February 17, 1998.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business
entity of which more than fifty percent (50%) of the voting stock or other
equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication,
(i) the sum of any amounts attributable to (a) goodwill, (b) intangible
items such as unamortized debt discount and expense, patents, trade and
service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from
assets, and (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any date as of
which the amount thereof shall be determined, all obligations that should,
in accordance with GAAP be classified as liabilities on the
5
<PAGE>
consolidated balance sheet of Borrower, including in any event all
Indebtedness, but specifically excluding Subordinated Debt
1.2 Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions of this Agreement, Bank
agrees to make Advances to Borrower in an aggregate outstanding amount not to
exceed the Committed Revolving Line or the Borrowing Base, whichever is less.
Subject to the terms and conditions of this Agreement, amounts borrowed pursuant
to this Section 2.1 may be repaid and reborrowed at any time during the term of
this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on the
Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1 to Borrower's deposit account
(c) The Committed Revolving Line shall terminate on the Revolving Maturity
Date, at which time all Advances under this Section 2.1 and other amounts due
under this Agreement (except as otherwise expressly specified herein) shall be
immediately due and payable.
2.1.2 Equipment Advances.
(a) Subject to and upon the terms and conditions of this Agreement at any
time from the date hereof through December 31, 1997 (the "Equipment Availability
End Date"), Bank agrees to make advances (each an "Equipment Advance" and
collectively, the "Equipment Advances") to Borrower in an aggregate outstanding
amount not to exceed the Committed Equipment Line. To evidence the Equipment
Advance or Equipment Advances, Borrower shall deliver to Bank, at the time of
each Equipment Advance request an invoice for the equipment to be purchased or
financed. The Equipment Advances shall be used only to purchase or finance
Equipment purchased on or after January 1, 1996 and shall not exceed ONE HUNDRED
Percent (100%) of the invoice amount of such equipment approved from time to
time by Bank, excluding taxes, shipping, warranty charges, freight discounts and
installation expense, provided, however, that tooling equipment may constitute
no more than THREE HUNDRED THOUSAND AND NO/100THS Dollars ($300,000) of
aggregate Equipment Advances. Software may constitute up to TWO HUNDRED FIFTY
THOUSAND AND NO/100THS Dollars ($250,000) of aggregate Equipment Advances.
(b) Interest on Equipment Advances made prior to JULY 1, 1997 shall accrue
from the date of each Equipment Advance at the rate specified in Section 2.3(a),
and shall be payable on the Payment Date of each month through JUNE, 1997. Any
Equipment Advances that are outstanding on JUNE 30,
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1997 will be payable in THIRTY SIX (36) equal monthly installments of principal,
plus all accrued and unpaid interest, beginning on the Payment Date of each
month starting JULY, 1997 and ending on the Equipment Maturity Date.
(c) Interest on Equipment Advances made after JUNE 30, 1997 shall accrue
from the date of each Equipment Advance at the rate specified in Section 2.3(a),
and shall be payable on the Payment Date of each month through the Equipment
Availability End Date. Any Equipment Advances made after JUNE 30, 1997 that are
outstanding on the Equipment Availability End Date falls will be payable in
THIRTY (30) equal monthly installments of principal, plus all accrued and unpaid
interest, beginning on the Payment Date of each month following the Equipment
Availability End Date and ending on the Equipment Maturity Date. Equipment
Advances may be repaid at any time, but once repaid, may not be reborrowed.
(d) When Borrower desires to obtain an Equipment Advance, Borrower shall
notify Bank (which notice shall be irrevocable) by facsimile transmission to be
received no later than 3:00 p.m. Pacific time one (1) Business Day before the
day on which the Equipment Advance is to be made. Such notice shall be
substantially in the form of Exhibit B. The notice shall be signed by a
Responsible Officer or its designee and include a copy of the invoice(s) for the
Equipment to be financed.
2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 of this Agreement
is greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. (i) Except as set forth in Section 2.3(b), any Advances
shall bear interest, on the average daily balance thereof at a per annum rate
equal to ONE QUARTER (0.25) percentage points above the Prime Rate.
(ii) Except as set forth in Section 2.3(b), any Equipment Advances shall
bear interest, on the average daily balance thereof, at a per annum rate equal
to ONE (1.0) percentage point above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and after the
occurrence of an Event of Default at a rate equal to five (5) percentage points
above the interest rate applicable immediately prior to the occurrence of the
Event of Default
(c) Payments. Interest hereunder shall be due and payable on each Payment
Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number 700786870 for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to time
hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless
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and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon Pacific time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. (i) A Committed Revolving Line Facility Fee equal to FIVE
THOUSAND AND NO/100THS Dollars ($5,000), which fee shall be due on the Closing
Date and on each anniversary thereof on which Advances are outstanding, and
shall be fully earned and non-refundable;
(ii) An Equipment Line Facility Fee equal to FIVE THOUSAND AND NO/100THS
Dollars ($5,000), which fee shall be due on the Closing Date and shall be fully
earned and non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's customary fees and
out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for each
appraisal of Collateral and financial analysis and examination of Borrower
performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without limitation,
upon the date hereof, all Bank Expenses incurred through the date hereof,
including reasonable attorneys' fees and expenses, and, after the date hereof,
all Bank Expenses, including reasonable attorneys fees and expenses, as and when
they become due.
2.6 Additional Costs. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of principal or
interest or any other amounts payable hereunder by Borrower or otherwise
with respect to the transactions contemplated hereby (except for taxes on
the overall net income of Bank imposed by the United States of America or
any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof Borrower agrees to pay to Bank the
amount of such increase in cost, reduction in income or additional expense as
and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall become
effective on the Closing Date and, subject to Section 12.7, shall continue in
full force and effect for a term ending on the Revolving Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
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3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement, the Revolving Promissory Note and the Equipment
Line Promissory Note each duly executed by Borrower;
(b) a certificate of the Secretary of Borrower with respect to
charter, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) financing statements (Forms UCC-1);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof and
(f) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank
to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in
Section 2.1; and
(b) the representations and warranties contained in Section 5 shall be
true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the
accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall from time
to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of or any other
matter relating to, the Collateral.
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5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound Borrower is
not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof The chief executive office of
Borrower is located at the address indicated in Section 10 hereof
5.7 Litigation. Except as set forth in the Schedule, there are no actions
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.8 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.9 Solvency. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement and Borrower is able to pay its debts (including
trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect Borrower is not an
"investment company" or a company `controlled" by an "investment company within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors
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of the Federal Reserve System). Borrower has complied with all the provisions of
the Federal Fair Labor Standards Act Borrower has not violated any statutes,
laws, ordinances or rules applicable to it violation of which could have a
Material Adverse Effect
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that until payment in full of all outstanding
Obligations, and for so long as Bank may have any commitment to make a Credit
Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet the minimum funding requirements of ERISA with respect to any
employee benefit plans subject to ERISA. Borrower shall comply, and shall cause
each Subsidiary to comply, with all statutes, laws, ordinances and government
rules and regulations to which it is subject, noncompliance with which could
have a Material Adverse Effect or a material adverse effect on the Collateral or
the priority of Bank's Lien on the Collateral.
6.3 Financial Statements Records. Certificates. Borrower shall deliver to
Bank:
(a) as soon as available, but in any event within fifteen (15) days
after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during
such period, in a form and certified by an officer of Borrower reasonably
acceptable to Bank;
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(b) as soon as available, but in any event within ninety (90) days
after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an unqualified opinion on such financial statements
of an independent certified public accounting firm reasonably acceptable to
Bank;
(c) within five (5) days of filing, copies of all statements, reports
and notices sent or made available generally by Borrower to its security
holders or to any holders of Subordinated Debt and all reports on Form
10-K, 10-Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000) or more;
(e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable.
Within fifteen (15) days after the last day of each month, Borrower shall
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.
6.4 Inventory Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement Borrower shall promptly
notify Bank of all returns and recoveries and of all disputes and claims, where
the return, recovery, dispute or claim involves more than Fifty Thousand Dollars
($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is (i) contested in good faith by
appropriate proceedings, (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured against
loss or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where Borrower's business is
conducted on the date hereof. Borrower shall also maintain insurance relating to
Borrower's ownership and use of the Collateral in amounts and of a type that are
customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable endorsement
in a form satisfactory to Bank, showing Bank as an additional loss payee
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thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal depository
and operating accounts with Bank.
6.8 Adjusted Quick Ratio. Borrower shall maintain, as of the last day of
each calendar month, a ratio of (i) Quick Assets to (ii) Current Liabilities
less current deferred revenues of at least 2.0 to 1.0.
6.9 Adjusted Debt-Net Worth Ratio. Borrower shall maintain, as of the last
day of each calendar month, a ratio of (i) Total Liabilities less Subordinated
Debt and deferred revenues to (ii) Tangible Net Worth plus Subordinated Debt of
not more than 1.0 to 1.0.
6.10 Tangible Net Worth. Borrower shall maintain, as of the last day of
each calendar month through December 31,1996, a Tangible Net Worth of not less
than FOUR MILLION AND NO/100THS Dollars ($4,000,000), as of the last day of each
calendar month from January 31, 1997 through March 31, 1997, a Tangible Net
Worth of not less than THREE MILLION TWO HUNDRED FIFTY THOUSAND AND NO/100THS
Dollars ($3,250,000), as of the last day of each calendar month from April 30,
1997 through June 30, 1997, a Tangible Net Worth of not less than TWO MILLION
FIVE HUNDRED THOUSAND AND NO/100THS Dollars ($2,500,000), as of the last day of
each calendar month from July 31, 1997 and thereafter, a Tangible Net Worth of
not less than ONE MILLION FIVE HUNDRED THOUSAND AND NO/100THS Dollars
($1,500,000).
6.11 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business, (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business, or (iv) of worn-out or
obsolete Equipment
7.2 Chances in Business, Ownership, or Management Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a change in Borrower's ownership or management. Borrower will not without
at least thirty (30) days prior written notification to Bank, relocate its chief
executive office or add any new offices or business locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with respect
to any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.
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7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distibutions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or similar
party unless Bank has received a pledge of any warehouse receipt covering such
Inventory. Except for Inventory sold in the ordinary course of business and
except for such other locations as Bank may approve in writing, Borrow& shall
keep the inventory only at the location set forth in Section 10 hereof and such
other locations of which Borrower gives Sank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest
7.11 Compliance. Become an "investment company" or a company controlled by
an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose or purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2 Covenant Default
(a) If Borrower fails to perform any obligation under Sections 6.3, 6.6,
6.7, 6.8, 6.9 or 6.10 or violates any of the covenants contained in Article 7 of
this Agreement or
(b) If Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such
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reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse change
in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations, or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof provided that none of the foregoing shall
constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period often (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to. Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document
8.10 Guaranty Any guaranty of all or a portion of the Obligations ceases
for any reason to be in full force and effect, or any Guarantor fails to perform
any obligation under any guaranty of all or a portion of the Obligations, or any
material misrepresentation or material misstatement exists now or hereafter in
any warranty or representation set forth in any guaranty of all or a portion of
the Obligations or in any certificate delivered to Bank in connection with such
guaranty, or any of the circumstances described in Sections 8.4, 8.5 or 8.8
occur with respect to any Guarantor.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance of
an Event of Default, Bank may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
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(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable
without any action by Bank);
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower
and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to
be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's
premises, Borrower hereby grants Bank a license to enter such premises and
to occupy the same, without charge in order to exercise any of Banks rights
or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(h) Ship, reclaim, recover, store, finish; maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein)
the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section
9.1, to use, without charge, Borrower's labels, patents, copyrights, mask
works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature,
as it pertains to the Collateral, in completing production of, advertising
for sale, and selling any Collateral and, in connection with Bank's
exercise of its rights under this Section 9.1, Borrower's rights under all
licenses and all franchise agreements shall inure to Bank's benefit;
(i) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to
the Obligations in whatever manner or order it deems appropriate;
(j) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(k) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Banks possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrowers policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; provided Bank may exercise such power of attorney to
sign the name of Borrower on any of the documents described in
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Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrowers attorney in fact, and each and every one of
Banks rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully repaid and performed and Bank's
obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not expressly set forth herein as provided
under the Code, by law, or in equity. No exercise by Bank of one right or remedy
shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.
9.7 Demand: Protest Borrower waives demand, protest, notice of protest
notice of default or dishonor, notice of payment and nonpayment notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower Maker Communications, Inc.
486 Totten Pond Road
Waltham, MA 02154
Attn: William Guidice, President
FAX: 617-672-0256
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If to Bank Silicon Valley Bank
40 William Street
Wellesley, MA 02181
Attn: David B. Fischer
FAX: 617-431-9906
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE
The laws of the Commonwealth of Massachusetts shall apply to this Agreement
BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY. THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS. AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement
12.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing Integration. This Agreement cannot be amended or
terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
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12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement
12.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
MAKER COMMUNICATIONS, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ William Guidice By:
---------------------------- -------------------------------
William Guidice, President Gerard F. Benson
By: SILICON VALLEY BANK
----------------------------
By:
------------------------------
Title:
---------------------------
(Signed in Santa Clara County, California)
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LOAN MODIFICATION AGREEMENT
This LOAN MODIFICATION AGREEMENT is entered into as of May 12, 1998, by and
between SILICON VALLEY BANK, a California-chartered bank with its principal
place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02181, doing business under the name "Silicon Valley East
("Bank"), and MAKER COMMUNICATIONS, INC., a Delaware corporation with its
principal place of business at 73 Mount Wayte Avenue, Framingham, Massachusetts
01702 ("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to certain Existing Loan
Documents, as defined below. In consideration of certain financial
accommodations from Bank, and Borrower's continuing obligations under the
Existing Loan Documents, Borrower and Bank agree as follows:
AGREEMENT
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, an Equipment Line Promissory Note dated February 18, 1997 in
the original principal amount of ONE MILLION AND NO/100THS DOLLARS ($1,000,000)
(the "Equipment Note"). The Equipment Note is governed by the terms of a Loan
and Security Agreement dated February 18, 1997 between Borrower and Bank, as
such Loan and Security Agreement may be amended from time to time (the "Loan
Agreement").
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred
to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured
pursuant to the Loan Agreement. Hereinafter, the Loan Agreement and the
Equipment Note, together with all other documents securing payment of the
Indebtedness, shall be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGES IN TERMS.
3.1 Modifications to Definitions. Section 1.1 of the Loan Agreement is
hereby amended by substituting the following definitions for those set forth
therein for the same terms, and in the case of new definitions, by adding those
new definitions to that Section 1.1:
"Committed Revolving Line" means a credit extension of up to TWO
MILLION AND NO/100THS Dollars ($2,000,000).
"Credit Extension" means each Advance, Equipment Advance, 1998
Equipment Advance, Letter of Credit, Term Loan, Exchange Contract
or any other extension of credit by Bank for the benefit of
Borrower hereunder.
Subsection (d) of the definition of Eligible Accounts in the Loan
Agreement is hereby replaced in its entirety with the following:
(d) Accounts with respect to which the account debtor does
not have its principal place of business in the United
States or Canada except for Eligible Foreign Accounts;
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business
in the United States and Canada that Bank approves on a
case-by-case basis.
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"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.4.
"Letter of Credit Reserve" has the meaning set forth in Section
2.1.4.
"1998 Committed Equipment Line" means a credit extension of up to
ONE MILLION FIVE HUNDRED THOUSAND AND NO/100THS Dollars
($1,500,000).
"1998 Equipment Advance" has the meaning set forth in Section
2.1.3.
"Revolving Maturity Date" means May 11, 1999.
3.2 Modifications to Revolving Advance Provisions. Section 2.1 .1(a) of the
Loan Agreement is hereby replaced in its entirety with the following:
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an
aggregate outstanding amount not to exceed (i) the Committed
Revolving Line or the Borrowing Base, whichever is less, minus
(ii) the face amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit). Subject to
the terms and conditions of this Agreement, amounts borrowed
pursuant to this Section 2.1 may be repaid and reborrowed at any
time during the term of this Agreement.
3.3 Addition of 1998 Committed Equipment Line. Section 2.1.3 is hereby
added to the Loan Agreement as follows:
2.1.3 1998 Equipment Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through May 11, 1999,
Bank agrees to make advances (each an "1998 Equipment Advance"
and collectively, the "1998 Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the Committed
Equipment Line. To evidence the 1998 Equipment Advance or 1998
Equipment Advances, Borrower shall deliver to Bank, at the time
of each 1998 Equipment Advance request, an invoice for the
equipment to be purchased or financed. The 1998 Equipment
Advances shall be used only to purchase or finance Equipment
purchased on or after January 1,1997 and prior to January 1,
1999, and shall not exceed ONE HUNDRED Percent (100%) of the
invoice amount of such equipment approved from time to time by
Bank, excluding taxes, shipping, warranty charges, freight
discounts and installation expense, provided, however, that
tooling equipment may constitute no more than ONE HUNDRED
THOUSAND AND NO/100THS Dollars ($100,000) of aggregate 1998
Equipment Advances. Software may constitute up to FOUR HUNDRED
THOUSAND AND NO/100THS Dollars ($400,000) of aggregate 1998
Equipment Advances.
(b) Interest on 1998 Equipment Advances shall accrue from the
date of each 1998 Equipment Advance at a per annum rate equal to
ONE QUARTER (0.25) percentage points above the Prime Rate, and
shall be payable on the Payment Date of each month through MAY
5,1999. Any 1998 Equipment Advances that are outstanding on MAY
11, 1999 will be payable in THIRTY SIX (36) equal monthly
installments of principal, plus all accrued and unpaid interest
beginning on the Payment Date of each month starting JUNE 5, 1999
and ending on MAY 5, 2002.
(c) When Borrower desires to obtain an 1998 Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to
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be received no later than 3:00 p.m. Pacific time one (1) Business
Day before the day on which the 1998 Equipment Advance is to be
made. Such notice shall be substantially in the form of Exhibit
B. The notice shall be signed by a Responsible Officer or its
designee and include a copy of the invoice(s) for the Equipment
to be financed.
3.4 Addition of Letters of Credit Sublimit. Section 2.1.4 is hereby added
to the Loan Agreement as follows:
2.1.4 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an aggregate outstanding face amount not
to exceed (i) the lesser of the Committed Revolving Line or the
Borrowing Base, whichever is less, minus (ii) the then
outstanding principal balance of the Advances; provided that the
face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve)
shall not in any case exceed FIVE HUNDRED THOUSAND AND NO/100THS
Dollars ($500,000). Each Letter of Credit shall have an expiry
date no later than one hundred eighty (180) days after the
Revolving Maturity Date provided that Borrowers Letter of Credit
reimbursement obligation shall be secured by cash on terms
acceptable to Bank at any time after the Revolving Maturity Date
if the term of this Agreement is not extended by Bank. All
Letters of Credit shall be in form and substance acceptable to
Bank in its sole discretion and shall be subject to the terms and
conditions of Banks form of standard Application and Letter of
Credit Agreement.
(b) The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letters of
Credit, under all circumstances whatsoever. Borrower shall
indemnify, defend, protect and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation,
reasonable attorneys' fees, arising out of or in connection with
any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as an Advance to Borrower of the
equivalent of the amount thereof (plus cable charges) in United
States currency at the then prevailing rate of exchange in San
Francisco, California, for sales of that other currency for cable
transfer to the country of which it is the currency.
(d) Upon the issuance of any Letter of Credit payable in a
currency other than United States Dollars, Bank shall create a
reserve under the Committed Revolving Line for letters of credit
against fluctuations in currency exchange rates, in an amount
equal to ten percent (10%) of the face amount of such Letter of
Credit (the "Letter of Credit Reserve"). The amount of such
Letter of Credit Reserve may be amended by Bank from time to time
to account for fluctuations in the exchange rate. The
availability of funds under the Committed Revolving Line shall be
reduced by the amount of such Letter of Credit Reserve for so
long as such Letter of Credit remains outstanding.
3.5 Modifications to Overadvance Provisions. Section 2.2 of the Loan
Agreement is hereby replaced in its entirety with the following:
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2.2 Overadvances. If at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Sections 2.1.1
and 2.1.4 of this Agreement is greater than the lesser of (i) the
Committed Revolving Line or (ii) the Borrowing Base, Borrower
shall immediately pay to Bank, in cash, the amount of such
excess.
3.6 Modifications to Financial Reporting Covenants. Section 6.3 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.3 Financial Statements, Reports, Certificates. (i) Borrower
shall deliver to Bank:
(a) as soon as available, but in any event within twenty-five
(25) days after the end of each month, a company prepared
consolidated balance sheet and income statement covering
Borrowers consolidated operations during such period, in a form
and certified by an officer of Borrower reasonably acceptable to
Bank;
(b) as soon as available, but in any event within one hundred
twenty (120) days after the end of Borrowers fiscal year, audited
consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably
acceptable to Bank;
(c) within five (5) days of filing, copies of all statements,
reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt
and all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof a report of any legal
actions pending or threatened against Borrower or any Subsidiary
that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more;
(e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to
time.
(f) prior to any Advances, and within twenty-five (25) days after
the last day of each month in which any Advances are outstanding,
a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable.
(g) within twenty-five (25) days after the last day of each
month, Borrower shall deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible
Officer in substantially the form of Exhibit D hereto.
(ii) Bank shall have a right from time to time hereafter to audit
Borrowers Accounts at Borrowers expense, provided that such
audits will be conducted no more often than every twelve (12)
months unless an Event of Default has occurred and is continuing.
3.7 Modifications to Adjusted Quick Ratio Covenant. Section 6.8 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.8 Adjusted Quick Ratio. Borrower shall maintain, as of the last
day of each calendar quarter, a ratio of (i) Quick Assets to (ii)
Current Liabilities less current deferred maintenance revenues of
at least 1.25 to 1.0.
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3.8 Modifications to Debt: Net-Worth Ratio. Section 6.9 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.9 Adjusted Debt-Net Worth Ratio. INTENTIONALLY DELETED.
3.9 Modifications to Tangible Net Worth Covenant. Section 6.10 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.10 Tangible Net Worth. Borrower shall maintain, as of the last
day of each calendar quarter a Tangible Net Worth of not less
than THREE MILLION FIVE HUNDRED THOUSAND AND NO/1OOTHS Dollars
($3,500,000), and intraquarterly, as of the last day of each
calendar month, a Tangible Net Worth of not less than THREE
MILLION AND NO/1OOTHS Dollars ($3,000,000).
3.10 Addition of Default Right and Remedy. Section 9.1(b.1) is hereby added
to the Loan Agreement as follows:
(b.1) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining
undrawn, as collateral security for the repayment of any future
drawings under such Letters of Credit, and Borrower shall
forthwith deposit and pay such amounts, and (ii) pay in advance
all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
3.11 Modifications to Exhibits. Exhibits C and D of the Loan Agreement are
hereby replaced in their entirety with Exhibits C and D, respectively, to this
Agreement.
4. FACILITY FEE. Borrower shall pay to Bank a variance fee of FIVE THOUSAND
DOLLARS ($5,000) as well as any out-of-pocket expenses incurred by the Bank
through the date hereof including reasonable attorneys' fees and expenses, and
after the date hereof all Bank Expenses, including reasonable attorneys' fees
and expenses, as and when they become due.
5. CONDITIONS PRECEDENT TO FURTHER ADVANCES. The obligation of Bank to make
further advances to Borrower under this line is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Loan Modification Agreement duly executed by Borrower;
(b) payment of the fees and Bank Expenses then due specified in
Section 4 hereof and
(c) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described in this Loan Modification
Agreement.
7. NO DEFENSES OF BORROWER. Borrower agrees that as of this date, it has no
defenses against any of the obligations to pay any amounts under the
Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that (i) in
modifying the Existing Loan Documents, Bank is relying upon Borrower's
representations, warranties and agreements, as set forth in the Existing Loan
Documents, (ii) except as expressly modified pursuant to this Loan Modification
Agreement (including the effects of Section 6 hereof), the Existing Loan
Documents remain unchanged and in full force and effect, (iii) Bank's agreement
to modify the Existing Loan Documents pursuant to this Loan Modification
Agreement shall in no way obligate Bank to make any future modifications to the
Existing Loan Documents, (iv) it is the
5
<PAGE>
intention of Bank and Borrower to retain as liable parties all makers and
endorsers of the Existing Loan Documents1 unless a party is expressly released
by Bank in writing, (v) no maker, endorser or guarantor will be released by
virtue of this Loan Modification Agreement and (vi) the terms of this Section 8
apply not only to this Loan Modification Agreement but also to all subsequent
loan modification agreements, if any.
9. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER. The laws of the Commonwealth
of Massachusetts shall apply to this Agreement BORROWER ACCEPTS FOR ITSELF AND
IN CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND
AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS AGREEMENT; PROVIDED,
HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION OF THE COURTS AND
VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK EACH HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
10. EFFECTIVENESS. This Agreement shall become effective only when it shall
have been executed by Borrower and Bank (provided, however, in no event shall
this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower' "Bank"
MAKER COMMUNICATIONS, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ William Guidice, President By: [illegible]
------------------------------ -------------------------------
William Guidice, President for Pamela J. Aldsworth, VP
SILICON VALLEY BANK
By: /s/ Michelle D. Giannini
--------------------------------
Title: MICHELLE D. GIANNINI
-----------------------------
ASST. VICE PRES.
EXHIBITS C AND D FOLLOWS
6
SECOND LOAN MODIFICATION AGREEMENT
This Second Loan Modification Agreement is entered into as of February
3,1999, by and between MAKER COMMUNICATIONS, INC., a Delaware corporation with
its principal place of business at 73 Mount Wayte Avenue, Framingham,
Massachusetts 01702 ("Borrower" and SILICON VALLEY BANK, a California-chartered
bank ("Bank"), with its principal place of business at 3003 Tasman Drive, Santa
Clara, CA 95054 and with a loan production office located at Wellesley Office
Park, 40 William Street, Suite 350, Wellesley, MA 02481, doing business under
the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan
arrangement dated as of February 18, 1997, evidenced by, among other documents,
(i) an Equipment Line Promissory Note in the original principal amount of One
Million Dollars ($1,000,000.00) (the "Equipment Note"), and (ii) a Revolving
Promissory Note in the original principal amount of One Million Dollars
($1,000,000.00) (the "Revolving Promissory Note"). The Equipment Note and the
Revolving Note are governed by the terms of a certain Loan and Security
Agreement dated as of February 18, 1997 between Borrower and Bank, as amended by
a certain Loan Modification Agreement dated as of May 12, 1998 (as amended, the
"Loan Agreement"). Capitalized terms used but not otherwise defined herein shall
have the same meaning as in the Loan Agreement
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by the
Collateral as described in the Loan Agreement (together with any other
collateral security granted to Bank, the "Security Documents").
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement.
1. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Committed Revolving Line" means a credit extension of up
to Two Million Dollars ($2,000,000.00)."
and inserting in lieu thereof the following:
""Committed Revolving Line" means a credit extension of up
to Two Million Five Hundred Thousand Dollars
($2,500,000.00)."
2. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Equipment Advance" has the meaning set forth in Section
2.1.2."
and inserting in lieu thereof the following:
""Equipment Advance" or "Equipment Advances" shall mean any
advance made hereunder pursuant to Sections 2.1.2,2.1.3 and
2.1.5."
<PAGE>
3. The Loan Agreement shall be amended by inserting immediately
after the definition of "Material Adverse Effect" appearing in
Section 1.1 thereof the following definition:
""Maturity Date" means, as applicable, (i) the Revolving
Maturity Date for Advances pursuant to Section 2.1.1; (ii)
the Equipment Maturity Date for Equipment Advances pursuant
to Section 2.1.2; (iii) the 1998 Equipment Maturity Date for
1998 Equipment Advances pursuant to Section 2.1.3; and (iv)
the 1999 Equipment Maturity Date for Equipment Advances
pursuant to Section 2.1.5."
4. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""1998 Committed Equipment Line" means a credit extension of
up to One Million Five Hundred Thousand Dollars
($1,500,000.00)."
and inserting in lieu thereof the following:
""1998 Committed Equipment Line" means a credit extension of
up to One Million One Hundred Thirty-Nine Thousand Dollars
($1,139,000.00)."
5. The Loan Agreement shall be amended by inserting immediately
after the definition of "1998 Equipment Advance" appearing in
Section 1.1 thereof the following definitions:
""1999 Committed Equipment Line" means a credit extension of
up to One Million Dollars ($1,000,000.00).
"1999 Equipment Availability End Date" has the meaning set
forth in Section 2.1.5.
"1999 Equipment Maturity Date" means thirty-six (36) months
after the 1999 Equipment Availability End Date."
6. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Revolving Maturity Date" means May 11, 1999."
and inserting in lieu thereof the following:
""Revolving Maturity Date" means February 3, 2000."
7. The outstanding principal balance of all 1998 Equipment Advances
made pursuant to Section 2.1.3, as of January 25, 1999, is Six
Hundred Eighty-Nine Thousand Dollars ($689,000.00).
All Equipment Advances currently amortizing under Section 2.1.2
shall continue to be repaid as provided in Section 2.1.2. The
outstanding principal balance of all Equipment Advances made
pursuant to Section 2.1.2, as of January 25, 1999, is Two Hundred
Forty-Six Thousand Seven Hundred Fifty-Two Dollars ($246,752.00).
-2-
<PAGE>
8. The Loan Agreement shall be amended by deleting the following
text appearing as the first sentence of paragraph (a) of Section
2.1.3 thereof entitled "1998 Equipment Advances":
"Subject to and upon the terms and conditions of this
Agreement, at any time through May 11, 1999, Bank agrees to
make advances (each an "1998 Equipment Advance" and
collectively, the "1998 Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the Committed
Equipment Line."
and inserting in lieu thereof the following:
"Subject to and upon the terms and conditions of this
Agreement, at any time through February 15, 1999 (the "1998
Equipment Availability End Date"), Bank agrees to make
Equipment Advances (each a "1998 Equipment Advance" and
collectively, the "1998 Equipment Advances") to Borrower
under this Section 2.1.3 in an aggregate outstanding amount
not to exceed the 1998 Committed Equipment Line."
9. The Loan Agreement shall be amended by deleting paragraph (b) of
Section 2.1.3 entitled "1998 Equipment Advances" and inserting in
lieu thereof the following:
"(b) Interest shall accrue from the date of each 1998
Equipment Advance made pursuant to this Section 2.1.3 at a
per annum rate equal to the aggregate of Prime Rate, plus
One Quarter of One percent (0.25%), and shall be payable
monthly on the Payment Date of each month through the month
in which the 1998 Equipment Availability End Date falls. Any
1998 Equipment Advances made pursuant to this Section 2.1.3
that are outstanding on the 1998 Equipment Availability End
Date will be payable in thirty-nine (39) equal monthly
installments of principal, plus all accrued interest,
beginning on the Payment Date of each month following the
1998 Equipment Availability End Date and ending on May 5,
2002 (the "1998 Equipment Maturity Date"). Equipment
Advances, once repaid, may not be reborrowed."
10. The Loan Agreement shall be amended by inserting after Section
2.1.4 thereof the following new section entitled "1999 Equipment
Advances".
"2.1.5 1999 Equipment Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time through February 3, 2000 (the "1999
Equipment Availability End Date"), Bank agrees to make Equipment
Advances (each an "Equipment Advance" and collectively, the
"Equipment Advances") to Borrower under this Section 2.1.5 in an
aggregate outstanding amount not to exceed the 1999 Committed
Equipment Line. To evidence the Equipment Advances, Borrower
shall deliver to Bank, at the time of each Equipment Advance
request, an invoice for the equipment to be purchased. The
Equipment Advances shall be used only to purchase or refinance
Equipment purchased after November 30, 1998 and shall not exceed
One Hundred Percent (100%) of the invoice amount of such
equipment approved from time to time by Bank, excluding taxes,
shipping, warranty charges, freight discounts and installation
expense. Software may only constitute up to twenty-five percent
(25%) of aggregate Equipment Advances under this Section 2.1.5.
-3-
<PAGE>
(b) Interest shall accrue from the date of each Equipment Advance
made pursuant to this Section 2.1.5 at a per annum rate equal to
the aggregate of the Prime Rate, plus One Quarter of One percent
(0.25%), and shall be payable monthly on the Payment Date of each
month through the month in which the 1999 Equipment Availability
End Date falls. Any Equipment Advances made pursuant to this
Section 2.1.5 that are outstanding on the 1999 Equipment
Availability End Date will be payable in thirty-six (36) equal
monthly installments of principal, plus all accrued interest,
beginning on the Payment Date of each month following the 1999
Equipment Availability End Date and ending on the 1999 Equipment
Maturity Date. Equipment Advances, once repaid, may not be
reborrowed.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m.
Eastern time one (1) Business Day before the day on which the
Equipment Advance is to be made, Such notice shall be
substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a
copy of the invoice for the Equipment to be financed."
11. The Loan Agreement shall be amended by deleting the following
text appearing as the first sentence of Section 2.7 thereof
entitled "Term":
"Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect for a term
ending on the Revolving Maturity Date."
and inserting in lieu thereof the following:
"Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect for a term
ending on the Maturity Date."
12. The Loan Agreement shall be amended by deleting paragraph (f) of
Section 6.3 thereof entitled "Financial Statements, Reports,
Certificates" and inserting in lieu thereof the following:
"(f) Within twenty-five (25) days after the last day of each
month with respect to which either (i) Obligations are
outstanding, or (ii) Credit Extensions were made, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by
a Responsible Officer in substantially the form of Exhibit C
hereto, together with aged listings of accounts receivable."
13. The Loan Agreement shall be amended by deleting in its entirety
Section 6.8 thereof entitled "Adjusted Quick Ratio".
14. The Loan Agreement shall be amended by deleting the following
text appearing as Section 6.10 thereof entitled "Tangible Net
Worth" and inserting in lieu thereof the following:
"6.10 Tangible Net Worth. Borrower shall maintain, as of the
last day of each calendar month, a Tangible Net Worth of not
less than: (i) Seven Million Dollars ($7,000,000.00) for
each month through the month ending June 30, 1999, and (ii)
Four Million Five Hundred Thousand Dollars ($4,500,000.00)
for each month thereafter."
-4-
<PAGE>
15. The Borrower shall execute and deliver to the Bank
contemporaneously with the execution of this Loan Modification
Agreement each of the following instruments in form and substance
acceptable to the Bank: (i) an Amended and Restated Revolving
Promissory Note in the original principal amount of Two Million
Five Hundred Thousand Dollars ($2,500,000.00), (ii) an Equipment
Line Promissory Note in the original principal amount of One
Million Dollars ($1,000,000.00), and (iii) an Equipment Line
Promissory Note dated as of May 12, 1998 in the original
principal amount of One Million Five Hundred Thousand Dollars
($1,500,000.00).
16. The Borrowing Base Certificate appearing as Exhibit C to the Loan
Agreement is hereby replaced with the Compliance Certificate
attached as Exhibit A hereto.
17. The Compliance Certificate appearing as Exhibit D to the Loan
Agreement is hereby replaced with the Compliance Certificate
attached as Exhibit B hereto.
4. FEE. Borrower shall pay to Bank a modification fee equal to Eleven Thousand
Two Hundred Fifty Dollars ($11,250.00), which fee shall be due on the date
hereof and shall be deemed fully earned as of the date hereof.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.
7. NO DEFENSE OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker will be
released by virtue of this Loan Modification Agreement.
9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
-5-
<PAGE>
This Loan Modification Agreement is executed as a sealed instrument under
the laws of the Commonwealth of Massachusetts as of the date first written
above.
BORROWER: BANK:
MAKER COMMUNICATIONS, INC. SILICON VALLEY BANK, doing business as
S1LICON VALLEY EAST
By: /s/ WILLIAM N. GIUDICE By:______________________________________
Name: William N. Giudice Name:____________________________________
Title: President Title:___________________________________
/s/ MICHAEL RUBINO SILICON VALLEY BANK
Michael Rubino By:______________________________________
VP & CFO Name:____________________________________
Title:___________________________________
(signed in Santa Clara County, California)
TCP/
56120/148
-6-
MAKER COMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
1. Purpose of the Plan.
--------------------
This stock option plan (the "Plan") is intended to encourage ownership of
the stock of Maker Communications, Inc. (the "Company") by employees and
advisors of the Company and its subsidiaries, to induce qualified personnel to
enter and remain in the employ of the Company or its subsidiaries and otherwise
to provide additional incentive for optionees to promote the success of its
business.
2. Stock Subject to the Plan.
--------------------------
(a) The total number of shares of the authorized but unissued or Treasury
shares of the common stock, $.01 par value, of the Company ("Common Stock") for
which options may be granted under the Plan shall not exceed 3,876,000 shares,
subject to adjustment as provided in Section 12 hereof.
(b) If an option granted hereunder shall expire or terminate for any reason
without having vested fully or having been exercised in full, the unvested
and/or unpurchased shares subject thereto shall again be available for
subsequent option grants under the Plan.
(c) Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors or Committee.
<PAGE>
3. Administration of the Plan.
----------------------------
(a) The Plan shall be administered by the Board of Directors of the
Company. No member of the Board of Directors shall act upon any matter
exclusively affecting any option granted or to be granted to himself or herself
under the Plan. A majority of the members of the Board of Directors shall
constitute a quorum, and any action may be taken by a majority of those present
and voting at any meeting. The decision of the Board of Directors as to all
questions of interpretation and application of the Plan shall be final, binding
and conclusive on all persons. The selection of persons for participation in the
Plan and all decisions concerning the timing, pricing and amount of any grant or
award under the Plan shall be made solely by the Board of Directors. The Board
shall have authority, subject to the express provisions of the Plan, to construe
the respective option agreements and the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan, to determine the terms and
provisions of the respective option agreements, which may but need not be
identical, and to make all other determinations in the judgment of the Board
necessary or desirable for the administration of the Plan. The Board may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any option agreement in the manner and to the extent it shall deem expedient
to carry the Plan into effect and shall be the sole and final judge of such
expediency. No director shall be liable for any action or determination made in
good faith.
(b) The Board of Directors may, in its discretion, delegate its powers,
duties and responsibilities to a committee (the "Committee") consisting of two
or more directors of the Board of Directors to whom the Board (except as
provided in Section 5 hereof) may delegate its authority hereunder. The
selection of persons for participation in the Plan and all decisions
-2-
<PAGE>
concerning the timing, pricing and amount of any grant or award under the Plan
shall be made solely by the Committee, if so appointed. The Board may at any
time and from time to time appoint a member or members of the Committee in
substitution for or in addition to the member or members then in office and may
fill vacancies on the Committee however caused. The Committee shall choose one
of its members as Chairman and shall hold meetings at such times and places as
it shall deem advisable. A majority of the members of the Committee shall
constitute a quorum and any action may be taken by a majority of those present
and voting at any meeting. Any action may also be taken without the necessity of
a meeting by a written instrument signed by a majority of the Committee. The
decision of the Committee as to all questions of interpretation and application
of the Plan shall be final, binding and conclusive on all persons. The Committee
shall have the authority to adopt, amend and rescind such rules and regulations
as, in its opinion, may be advisable in the administration of the Plan. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement granted hereunder in the
manner and to the extent it shall deem expedient to carry the Plan into effect
and shall be the sole and final judge of such expediency. No Committee member
shall be liable for any action or determination made in good faith. If a
committee is so appointed, all references to the Board of Directors herein shall
mean and relate to such committee, unless the context otherwise requires.
4. Type of Options.
----------------
Options granted pursuant to the Plan shall be authorized by action of the
Board of Directors and may be designated as either incentive stock options
meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or non-qualified options which
-3-
<PAGE>
are not intended to meet the requirements of such Section 422 of the Code, the
designation to be in the sole discretion of the Board of Directors. The Plan
shall be administered by the Board of Directors in such manner as to permit
options to qualify as incentive stock options under the Code.
5. Eligibility.
------------
Options designated as incentive stock options shall be granted only to key
employees (including officers and directors who are also employees) of the
Company and its subsidiaries. Options designated as non-qualified options may be
granted to officers, key employees, consultants and advisors of the Company or
of any of its subsidiaries. "Subsidiary" or "subsidiaries" shall be as defined
in Section 424 of the Code and the Treasury Regulations promulgated thereunder
(the "Regulations").
The maximum number of shares of the Company's Common Stock with respect to
which an option or options may be granted to any employee in any one taxable
year of the Company shall not exceed 1,000,000 shares, taking into account
shares granted during such taxable year under options that are terminated.
Option grants to directors who are not otherwise employees of the Company
shall be made only by the Board of Directors.
The Board of Directors shall, from time to time, at its sole discretion,
select from such eligible persons those to whom options shall be granted and
shall determine the number of shares to be subject to each option. In
determining the eligibility of a person to be granted an option, as well as in
determining the number of shares to be granted to any person, the Board of
Directors in its sole discretion shall take into account the position and
responsibilities of the person being
-4-
<PAGE>
considered, the nature and value to the Company or its subsidiaries of his or
her or its service and accomplishments, his or her or its present and potential
contribution to the success of the Company or its subsidiaries, and such other
factors as the Board of Directors may deem relevant.
No option designated as an incentive stock option shall be granted to any
employee of the Company or any subsidiary if such employee owns, immediately
prior to the grant of an option, stock representing more than 10% of the voting
power or more than 10% of the value of all classes of stock of the Company or a
parent or a subsidiary, unless the purchase price for the stock under such
option shall be at least 110% of its fair market value at the time such option
is granted and the option, by its terms, shall not be exercisable more than five
years from the date it is granted. In determining the stock ownership under this
paragraph, the provisions of Section 424(d) of the Code shall be controlling. In
determining the fair market value under this paragraph, the provisions of
Section 7 hereof shall apply.
6. Option Agreement.
------------------
Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Board of Directors, provided that options designated as incentive stock
options shall meet all of the conditions for incentive stock options as defined
in Section 422 of the Code. The date of grant of an option shall be as
determined by the Board of Directors. More than one option may be granted to an
individual.
-5-
<PAGE>
7. Option Price.
--------------
The option price or prices of shares of the Company's Common Stock for
options designated as non-qualified stock options shall be determined based upon
the fair market value of such Common Stock as determined by the Board of
Directors, but in no event shall the option price of a non-qualified stock
option be less than 50% of the fair market value of such Common Stock at the
time the option is granted, as determined by the Board of Directors. The option
price or prices of shares of the Company's Common Stock for incentive stock
options shall be the fair market value of such Common Stock at the time the
option is granted as determined by the Board of Directors in accordance with the
Regulations promulgated under Section 422 of the Code. If such shares are then
listed on any national securities exchange, the fair market value shall be the
mean between the high and low sales prices, if any, on the largest such exchange
on the business day immediately preceding the date of the grant of the option
or, if none, shall be determined by taking a weighted average of the means
between the highest and lowest sales prices on the nearest date before and the
nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the shares are not then listed on any such exchange, the
fair market value of such shares shall be the mean between the high and low
sales prices, if any, as reported in the National Association of Securities
Dealers Automated Quotation National Market ("NASDAQ/NM") for the business day
immediately preceding the date of the grant of the option, or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales on the nearest date before and the nearest date after the date of
grant in accordance with Treasury Regulations Section 25.2512-2. If the shares
are not then either listed on any such exchange or quoted in NASDAQ/NM, the fair
market value shall be the mean
-6-
<PAGE>
between the average of the "Bid" and the average of the "Ask" prices, if any, as
reported in the National Daily Quotation Service for the business day
immediately preceding the date of the grant of the option, or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales prices on the nearest date before and the nearest date after the
date of grant in accordance with Treasury Regulations Section 25.2512-2. If the
fair market value cannot be determined under the preceding three sentences, it
shall be determined in good faith by the Board of Directors.
8. Manner of Payment; Manner of Exercise.
---------------------------------------
(a) Options granted under the Plan may provide for the payment of the
exercise price, as determined by the Board of Directors, by delivery of (i) cash
or a check payable to the order of the Company in an amount equal to the
exercise price of such options, (ii) shares of Common Stock of the Company owned
by the optionee having a fair market value equal in amount to the exercise price
of the options being exercised, or (iii) any combination of (i) and (ii),
provided, however, that payment of the exercise price by delivery of shares of
Common Stock of the Company owned by such optionee may be made only if such
payment does not result in a charge to earnings for financial accounting
purposes as determined by the Board of Directors. The fair market value of any
shares of the Company's Common Stock which may be delivered upon exercise of an
option shall be determined by the Board of Directors in accordance with Section
7 hereof.
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the
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<PAGE>
number of shares with respect to which the option is being exercised,
accompanied by payment in full for such shares as provided in subparagraph (a)
above. Upon such exercise, delivery of a certificate for paid-up non-assessable
shares shall be made at the principal office of the Company to the person or
persons exercising the option at such time, during ordinary business hours,
after seven (7) but not more than thirty (30) days from the date of receipt of
the notice by the Company, as shall be designated in such notice, or at such
time, place and manner as may be agreed upon by the Company and the person or
persons exercising the option. Upon exercise of the option and payment as
provided above, the optionee shall become a shareholder of the Company as to the
Shares acquired upon such exercise.
9. Exercise of Options.
--------------------
Each option granted under the Plan shall, subject to Section 10(b) and
Section 12 hereof, be exercisable at such time or times and during such period
as determined by the Board of Directors which shall be set forth in the
Agreement; provided, however, that no option granted under the Plan shall have a
term in excess of ten (10) years from the date of grant.
To the extent that an option to purchase shares is not exercised by an
optionee when it becomes initially exercisable, it shall not expire but shall be
carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be made for less than
one hundred (100) full shares of Common Stock.
Notwithstanding the foregoing, the Board of Directors may in its discretion
(i) specifically provide for another time or times of exercise or (ii)
accelerate the exercisability of any option subject to such terms and conditions
as the Board of Directors deems necessary and appropriate.
Notwithstanding any other provisions of this Plan, an optionee may, at any
time after the date of grant, exercise all of the Options granted hereunder,
whether vested or unvested; provided that (i) the Board of Directors shall have
specifically provided the optionee with the right to so exercise all of the
Options, either in the resolution granting the Options or otherwise, and (ii)
such optionee enters into a Stock Repurchase Agreement and any other
documentation requested by the Company providing for the repurchase by the
Company of unvested Shares at the original option exercise price upon the
termination of the optionee's employment with the Company, all as is more fully
set forth in said Stock Repurchase Agreement.
If the optionee becomes obligated to sell any Shares to the Company under
the preceding paragraph and fails to deliver such Shares in accordance with the
terms thereof, the Company may, at its option, in addition to all other remedies
it may have, send to the optionee the purchase price for such Shares as is
herein specified. Thereupon, the Company, upon written notice to the optionee,
shall cancel on its books the certificate or certificates representing the
Shares to be sold, and thereupon all of the optionee rights in and to such
Shares shall terminate.
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<PAGE>
10. Term of Options; Exercisability.
--------------------------------
(a) Term.
(1) Each option shall expire not more than ten (10) years from
the date of the granting thereof, but shall be subject to earlier termination as
herein provided.
(2) Except as otherwise provided in this Section 10, an option
granted to any employee optionee who ceases to be an employee of the Company or
one of its subsidiaries shall terminate on the last day of the first month after
the date such optionee ceases to be an employee of the Company or one of its
subsidiaries, or on the date on which the option expires by its terms, whichever
occurs first.
(3) If such termination of employment is because of dismissal for
cause or because the employee is in breach of any employment agreement, such
option will terminate on the date the optionee ceases to be an employee of the
Company or one of its subsidiaries.
(4) If such termination of employment is because the optionee has
become permanently disabled (within the meaning of Section 22(e)(3) of the
Code), such option shall terminate on the last day of the sixth month from the
date such optionee ceases to be an employee, or on the date on which the option
expires by its terms, whichever occurs first.
(5) In the event of the death of any optionee, any option granted
to such optionee shall terminate on the last day of the twelfth month from the
date of death, or on the date on which the option expires by its terms,
whichever occurs first.
(6) Notwithstanding subparagraphs (2), (3), (4) and (5) above,
the Board shall have the authority to extend the expiration date of any
outstanding option in circumstances in which it deems such action to be
appropriate, provided that no such extension shall extend the term of an
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<PAGE>
option beyond the date on which the option would have expired if no termination
of the optionee's employment had occurred.
(b) Exercisability.
---------------
(1) An option granted to an employee optionee who ceases to be an
employee of the Company or one of its subsidiaries shall be exercisable only to
the extent that the right to purchase shares under such option has accrued and
is in effect on the date such optionee ceases to be an employee of the Company
or one of its subsidiaries.
(2) In the event of the death of any optionee, the option granted to
such optionee may be exercised by the estate of such optionee, or by any person
or persons who acquired the right to exercise such option by bequest or
inheritance or by reason of the death of such optionee.
11. Options Not Transferable.
-------------------------
The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and distribution, or (solely with respect to
non-qualified stock options) pursuant to a qualified domestic relations order,
as defined by the Code or Title I of the Employee Retirement Income Security
Act, or the rules thereunder, and any such option shall be exercisable during
the lifetime of such optionee only by him. Any option granted under the Plan
shall be null and void and without effect upon the bankruptcy of the optionee to
whom the option is granted, or upon any attempted assignment or transfer, except
as herein provided, including without limitation any purported assignment,
whether voluntary or by operation of law, pledge, hypothecation or other
disposition, attachment, divorce, except as provided above with respect to
non-qualified stock options, trustee process or similar process, whether legal
or equitable, upon such option.
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<PAGE>
12. Recapitalizations, Reorganizations and the Like.
------------------------------------------------
(a) In the event that the outstanding shares of the Common Stock of the
Company are changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which options may be granted under the Plan and as to which outstanding options
or portions thereof then unexercised shall be exercisable, to the end that the
proportionate interest of the optionee shall be maintained as before the
occurrence of such event; such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of such
options and with a corresponding adjustment in the option price per share.
(b) In addition, unless otherwise determined by the Board of Directors in
its sole discretion, in the case of any (i) sale or conveyance to another entity
of all or substantially all of the property and assets of the Company,
including, without limitation, by way of merger or consolidation, or (ii) Change
in Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the shareholders of
the Company as a result of such sale, conveyance
-11-
<PAGE>
or Change in Control, or the Board of Directors may cancel all outstanding
options in exchange for consideration in cash or in kind which consideration in
both cases shall be equal in value to the value of those shares of stock or
other securities the optionee would have received had the option been exercised
(to the extent then exercisable) and no disposition of the shares acquired upon
such exercise been made prior to such sale, conveyance or Change in Control,
less the option price therefor. Upon receipt of such consideration by the
optionee, his or her option shall immediately terminate and be of no further
force and effect. The value of the stock or other securities the optionee would
have received if the option had been exercised shall be determined in good faith
by the Board of Directors of the Company, and in the case of shares of the
Common Stock of the Company, in accordance with the provisions of Section 7
hereof. The Board of Directors shall also have the power and right to accelerate
the exercisability of any options, notwithstanding any limitations in this Plan
or in the Agreement upon such a sale, conveyance or Change in Control, and in
any event the exercisability of options due to vest during the following twelve
(12) month period shall automatically be accelerated. Upon such acceleration,
any options or portion thereof originally designated as incentive stock options
that no longer qualify as incentive stock options under Section 422 of the Code
as a result of such acceleration shall be redesignated as non-qualified stock
options. A "Change in Control" shall be deemed to have occurred if any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time owned less than twenty percent (20%) of the
then outstanding Common Stock of the Company, shall acquire, whether by
purchase, exchange, tender offer, merger, consolidation or otherwise, such
additional shares of the Company's Common Stock in one or more transactions, or
series of transactions, such that following such transaction or transactions,
such person or group and affiliates beneficially own fifty percent (50%) or more
of the Company's Common Stock outstanding.
(c) Upon dissolution or liquidation of the Company, all options granted
under this Plan shall terminate, but each optionee (if at such time in the
employ of or otherwise associated with
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<PAGE>
the Company or any of its subsidiaries) shall have the right, immediately prior
to such dissolution or liquidation, to exercise his or her option to the extent
then exercisable.
(d) No fraction of a share shall be purchasable or deliverable upon the
exercise of any option, but in the event any adjustment hereunder of the number
of shares covered by the option shall cause such number to include a fraction of
a share, such fraction shall be adjusted to the nearest smaller whole number of
shares.
13. No Special Employment Rights.
-----------------------------
Nothing contained in the Plan or in any option granted under the Plan shall
confer upon any option holder any right with respect to the continuation of his
or her employment by the Company (or any subsidiary) or interfere in any way
with the right of the Company (or any subsidiary), subject to the terms of any
separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the option holder from
the rate in existence at the time of the grant of an option. Whether an
authorized leave of absence, or absence in military government service, shall
constitute termination of employment shall be determined by the Board of
Directors at the time.
14. Withholding.
------------
The Company's obligation to deliver shares upon the exercise of any option
granted under the Plan shall be subject to the option holder's satisfaction of
all applicable Federal, state and local income, excise, employment and any other
tax withholding requirements.
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<PAGE>
15. Restrictions on Issue of Shares.
--------------------------------
(a) Notwithstanding the provisions of Section 8, the Company may delay the
issuance of shares covered by the exercise of an option and the delivery of a
certificate for such shares until one of the following conditions shall be
satisfied:
(i) The shares with respect to which such option has been exercised are
at the time of the issue of such shares effectively registered or qualified
under applicable Federal and state securities acts now in force or as hereafter
amended; or
(ii) Counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that such shares are exempt
from registration and qualification under applicable Federal and state
securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be effective, and
the Company shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that the Company shall be under no
obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any option may be
exercised, except as otherwise agreed to by the Company in writing.
16. Purchase for Investment; Rights of Holder on Subsequent Registration.
---------------------------------------------------------------------
Unless the shares to be issued upon exercise of an option granted under the
Plan have been effectively registered under the Securities Act of 1933, as now
in force or hereafter amended, the Company shall be under no obligation to issue
any shares covered by any option unless the person who exercises such option, in
whole or in part, shall give a written representation and
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<PAGE>
undertaking to the Company which is satisfactory in form and scope to counsel
for the Company and upon which, in the opinion of such counsel, the Company may
reasonably rely, that he or she is acquiring the shares issued pursuant to such
exercise of the option for his or her own account as an investment and not with
a view to, or for sale in connection with, the distribution of any such shares,
and that he or she will make no transfer of the same except in compliance with
any rules and regulations in force at the time of such transfer under the
Securities Act of 1933, or any other applicable law, and that if shares are
issued without such registration, a legend to this effect may be endorsed upon
the securities so issued. In the event that the Company shall, nevertheless,
deem it necessary or desirable to register under the Securities Act of 1933 or
other applicable statutes any shares with respect to which an option shall have
been exercised, or to qualify any such shares for exemption from the Securities
Act of 1933 or other applicable statutes, then the Company may take such action
and may require from each optionee such information in writing for use in any
registration statement, supplementary registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers and
directors and controlling persons from such holder against all losses, claims,
damages and liabilities arising from such use of the information so furnished
and caused by any untrue statement of any material fact therein or caused by the
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made.
-15-
<PAGE>
17. Loans.
------
The Company may not make loans to optionees to permit them to exercise
options. If loans are made, the requirements of all applicable Federal and state
laws and regulations regarding such loans must be met.
18. Modification of Outstanding Options.
------------------------------------
The Board of Directors may authorize the amendment of any outstanding
option with the consent of the optionee when and subject to such conditions as
are deemed to be in the best interests of the Company and in accordance with the
purposes of this Plan.
19. Approval of Stockholders.
-------------------------
The Plan shall be subject to approval by the vote of stockholders holding
at least a majority of the voting stock of the Company present, or represented,
and entitled to vote at a duly held stockholders' meeting, or by written consent
of the stockholders as provided for under applicable state law, within twelve
(12) months after the adoption of the Plan by the Board of Directors and shall
take effect as of the date of adoption by the Board of Directors upon such
approval. The Board of Directors may grant options under the Plan prior to such
approval, but any such option shall become effective as of the date of grant
only upon such approval and, accordingly, no such option may be exercisable
prior to such approval.
20. Termination and Amendment.
--------------------------
Unless sooner terminated as herein provided, the Plan shall terminate ten
(10) years from the date upon which the Plan was duly adopted by the Board of
Directors of the Company. The Board of Directors may at any time terminate the
Plan or make such modification or amendment thereof as it deems advisable;
provided, however, that except as provided in this Section 20, the
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<PAGE>
Board of Directors may not, without the approval of the stockholders of the
Company obtained in the manner stated in Section 19, increase the maximum number
of shares for which options may be granted or change the designation of the
class of persons eligible to receive options under the Plan, or make any other
change in the Plan which requires stockholder approval under applicable law or
regulations. The Board of Directors may grant options to persons subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, after an
amendment to the Plan by the Board of Directors requiring stockholder approval
under Section 20, but any such option shall become effective as of the date of
grant only upon such approval and, accordingly, no such option may be
exercisable prior to such approval. The Board of Directors may terminate, amend
or modify any outstanding option without the consent of the option holder,
provided, however, that, except as provided in Section 12, without the consent
of the optionee, the Board of Directors shall not change the number of shares
subject to an option, nor the exercise price thereof, nor extend the term of
such option.
21. Reservation of Stock.
---------------------
The Company shall at all times during the term of the Plan reserve and keep
available such number of shares of stock as will be sufficient to satisfy the
requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
22. Limitation of Rights in the Option Shares.
------------------------------------------
An optionee shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the options except to the extent that the option
shall have been exercised with respect thereto and, in addition, a certificate
shall have been issued theretofore and delivered to the optionee.
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<PAGE>
23. Notices.
--------
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
- 18 -
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Agreement (this "Agreement") is made as of December 22, 1998 by
and among Maker Communications, Inc., a Delaware corporation (the "Company"),
the investors listed on Exhibit A hereto (the "Investors") and the other parties
which are signatories hereto.
WHEREAS, the Company, the several holders of the Company's Class A
Preferred Stock, $0.01 par value per share (the "Class A Shares") and the
several holders of the Company's Class B Preferred Stock, $0.01 par value per
share (the "Class B Shares"), are parties to an Amended and Restated
Registration Rights Agreement dated as of October 16, 1997 (the "Prior
Agreement"), which may be amended by those persons holding or having the right
to acquire a majority of the Registrable Shares then outstanding;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company and the Investors have entered into a Class C Preferred
Stock Purchase Agreement dated as of even date herewith (as in effect from time
to time, the "Purchase Agreement") in connection with the issuance and sale by
the Company to the Investors of certain shares of the Company's Class C
Preferred Stock, par value $0.01 per share (the "Class C Shares); and
WHEREAS, it is a condition to the obligations of the Investors
pursuant to the Purchase Agreement that this Agreement be executed by the
parties hereto in order to amend and restate the Prior Agreement, and the
parties are willing to execute this Agreement and be bound by the provisions
hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, the parties hereto hereby amend and
restate the Prior Agreement in its entirety as follows:
1. Registration Rights.
1.1. Definitions.
(a) The terms "Form S-l," "Form S-3," "Form S-4" and "Form S-8"
mean such respective forms under the Securities Act of 1933, as amended (the
"1933 Act") as in effect on the date hereof or any successor registration forms
to Form S-1, Form S-3, Form S-4 and Form S-8, respectively, under the 1933 Act
subsequently adopted by the Securities and Exchange Commission (the "SEC").
(b) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof.
<PAGE>
(c) The terms "register", "registered", and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the automatic
effectiveness or the declaration or ordering of effectiveness of such
registration statement or document.
(d) The term "Registrable Securities" means (i) all shares of
Common Stock issuable upon conversion of the Class B Shares or the Class C
Shares; (ii) the shares of the Company's Common Stock owned by an Investor;
(iii) any Common Stock issued as a dividend or other distribution with respect
to, in exchange for, or in replacement of any Investor's shares of Common Stock
(including the Common Stock referred to in (d)(i) above); (iv) any other shares
of Common Stock acquired after the date hereof by any Investor; provided,
however, that any shares previously sold to the public pursuant to a registered
public offering or pursuant to an exemption from the registration requirements
of the 1933 Act shall cease to be Registrable Securities.
1.2. Request for Registration.
(a) At any time after the earlier of (i) December 31, 1999 or
(ii) the date six (6) months after the closing date of the first registered
public offering of securities of the Company, if the Company shall receive a
written request from any Holder(s) of Registrable Securities then outstanding
and entitled to registration rights under this Section 1 (the "Initiating
Holders") that the Company effect the registration under the 1933 Act of
Registrable Securities, then the Company shall, within five (5) business days of
the receipt thereof, give written notice of such request to all Holders and
shall, subject to the limitations of this Section 1.2, use its best efforts to
effect such a registration as soon as practicable and in any event to file
within sixty (60) days of the receipt of such request a registration statement
under the 1933 Act covering all the Registrable Securities which the Holders
shall in writing request (within twenty (20) days of receipt of the notice given
by the Company pursuant to this Section 1.2(a)) to be included in such
registration and to use its best efforts to have such registration statement
become effective; provided, however, that the Company will not be required to
effect the registration of Registrable Securities unless either (i) at least an
aggregate of 1,000,000 shares of Registrable Securities (as adjusted to reflect
stock splits, stock combinations, stock dividends and recapitalizations) are
offered or (ii) Registrable Securities are offered at a proposed offering price
net of underwriting commissions of not less than $3,000,000.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as part of their request made pursuant to this
Section 1.2 and the Company shall include such information in the written notice
referred to in Section 1.2. In such event, the right of any Holder to include
its Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their
- 2 -
<PAGE>
securities through such underwriting shall (together with the Company as
provided in Section 1.4(d)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company and reasonably acceptable to a majority in interest of the Initiating
Holders; provided, however, that if the underwriter is not reasonably acceptable
to a majority in interest of the Initiating Holders, such Initiating Holders may
select an underwriter or underwriters which shall be reasonably acceptable to
the Company. Notwithstanding any other provision of this Section 1.2, if, in the
case of a registration requested pursuant to Section 1.2(a), the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders shall so advise the Company and all Holders of Registrable Securities
which would otherwise be underwritten pursuant hereto, and all the securities
other than Registrable Securities sought to be included in the underwriting
shall first be excluded. To the extent that further limitation is required, the
number of Registrable Securities that may be included in the underwriting shall,
subject to the last sentence of this paragraph, be allocated pro rata among all
Holders thereof desiring to participate in such underwriting (according to the
number of Registrable Securities then held by each such Holder). No Registrable
Securities requested by any Holder to be included in a registration pursuant to
Section 1.2(a) shall be excluded from the underwriting unless all securities
other than Registrable Securities are first excluded. If the registration
pursuant to this Section 1.2(a) requires exclusion of securities requested to be
registered and is subsequent to the Company's first registered public offering
of securities, then the Company shall include in such registration, in
preference to other Registrable Securities, the Registrable Securities which
represent shares of Common Stock issued upon conversion of Class C Shares, up to
an amount not to exceed each such requesting Holder's initial aggregate purchase
price for the Class C Shares as set forth on Exhibit B hereto (the "Preferential
Amount"); and any amounts so registered shall reduce the Preferential Amount and
when the Preferential Amount equals zero, this last sentence of Section 1.2(b)
shall be of no further force or effect.
(c) The Company is obligated to effect only three (3)
registrations pursuant to Section 1.2(a); provided, however, that no
registration pursuant to Section 1.2(a) shall be deemed to be a registration for
any purpose of this sentence if (i) the number of Registrable Securities
included in the underwriting does not equal or exceed fifty percent (50%) of the
number of Registrable Securities proposed by the Holders to be distributed
through such underwriting and (ii) the Holders pay the expenses of such
registration in accordance with Section 1.6; and provided, further, that no
registration of Registrable Securities which shall not have become and remained
effective in accordance with Section 1.4 shall be deemed to be a registration
for any purpose of this sentence.
(d) Notwithstanding the foregoing provisions of this Section
1.2, in the event that the Company is requested to file any registration
statement pursuant to this Section 1.2, (i) the Company shall not be obligated
to effect the filing of such registration statement:
- 3 -
<PAGE>
(A) during the one hundred eighty (180) days following
the effective date of any other registration statement
pertaining to an underwritten public offering of securities for
the account of the Company or any Holder;
(B) during the six (6) months following the effective
date of any other registration statement which the Company has
filed pursuant to the request under Section 1.2(a);
(C) if, in the case of the initial public offering of
the Company's securities, the Company and the Initiating Holders
are unable to obtain the commitment of the underwriter selected
pursuant to Section 1.2(b) to underwrite the offering on a firm
commitment basis;
(D) if the Holders propose to dispose of shares of
Registrable Securities all of which may be immediately
registered on Form S-3 pursuant to Section 1.11 below; or
(E) for a period of up to sixty (60) days after the date
of a request for registration pursuant to this Section 1.2 if at
the time of such request (1) the Company is engaged, or has
fixed plans to engage, within sixty (60) days of the time of
such request, in a firm commitment underwritten public offering
of Common Stock in which the holders of Registrable Securities
include Registrable Securities pursuant to Section 1.3; or (2)
the Company is currently engaged in a self-tender or exchange
offer and the filing of a registration statement would cause a
violation of the Securities and Exchange Act of 1934, as amended
(the "1934 Act");
or (ii) if the Company shall furnish to the Holders requesting such registration
statement a certificate signed by the Chief Executive Officer of the Company
stating that, in the good faith judgment of the Board of Directors, it would not
be in the best interests of the Company and its stockholders generally for such
registration statement to be filed, the Company shall have the right to defer
such filing for a period of not more than ninety (90) days after receipt of the
request of the relevant Initiating Holders; provided, however, that the Company
may not utilize the right set forth in this Section 1.2(d)(ii) more than once in
any twelve (12) month period.
(e) Each registration requested pursuant to Section 1.2(a) shall
be effected by the filing of a registration statement on Form S-1 (or if such
form is not available, any other form which includes substantially the same
information (other than information which is incorporated by reference) as would
be required to be included in a registration statement on such form as currently
constituted), unless the use of a different form is consented to by Initiating
Holders holding a majority of the Registrable Securities held by all Initiating
Holders or unless another form would be equally effective, as determined by the
Initiating Holders at their sole discretion.
- 4 -
<PAGE>
1.3. Company Registration. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
capital stock or other securities under the 1933 Act in connection with the
public offering of such securities solely for cash (other than a registration on
Form S-8 relating solely to the sale of securities to participants in a Company
stock plan or a registration on Form S-4 or any successor form), the Company
shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of any Holder given within twenty (20)
days after mailing of such notice by the Company, the Company shall, subject to
the provisions of Section 1.8, use its best efforts to cause a registration
statement covering all of the Registrable Securities that each such Holder has
requested to be registered to become effective under the 1933 Act. The Company
shall be under no obligation to complete any offering of its securities it
proposes to make and shall incur no liability to any Holder for its failure to
do so.
1.4. Obligations of the Company. Whenever required under this Section
1 to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible, prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for up to one hundred eighty (180) days or until such Holders have
informed the Company in writing that the distribution of their securities has
been completed. In addition, the Company shall:
(a) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement, and use its best efforts to cause each such
amendment and supplement to become effective, as may be necessary to comply with
the provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(b) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(c) Use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such states and jurisdictions as shall be reasonably requested by the
Holders, except that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business, subject itself to taxation
or file a general consent to service of process in any such state or
jurisdiction.
(d) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into
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and perform its obligations under such an underwriting agreement, including
furnishing any opinion of counsel or entering into a lock-up agreement
reasonably requested by the managing underwriter.
(e) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the 1933 Act,
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing and promptly file such amendments and supplements
which may be required pursuant to Section 1.4(b) on account of such event and
use its best efforts to cause each such amendment and supplement to become
effective.
(f) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion or opinions, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given by company counsel
to the underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities and (ii) a letter dated such date, from the independent certified
public accountant of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
(g) Apply for listing and use its best efforts to list the
Registrable Securities being registered on any national securities exchange on
which a class of the Company's equity securities is listed or, if the Company
does not have a class of equity securities listed on a national securities
exchange, apply for qualification and use its best efforts to qualify the
Registrable Securities being registered for inclusion on the automated quotation
system of the National Association of Securities Dealers, Inc.
(h) Without in any way limiting the types of registrations to
which this Section 1 shall apply, in the event that the Company shall effect a
"shelf registration" under Rule 415 promulgated under the 1933 Act, the Company
shall take all necessary action, including, without limitation, the filing of
post-effective amendments, to permit the Investors to include their Registrable
Securities in such registration in accordance with the terms of this Section 1.
1.5. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 in
respect of the Registrable Securities of
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any selling Holder that such selling Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of its Registrable Securities and such other information as the
Company may reasonably request or may be reasonably required in connection with
any registration, qualification or compliance referred to in this Section 1 or
otherwise required under applicable state and federal securities laws.
1.6. Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions relating to Registrable Securities
incurred in connection with each registration, filing or qualification pursuant
to Section 1.2(a) and each registration, filing or qualification pursuant to
Section 1.11, including (without limitation) all registration, filing and
qualification fees, printing and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel for the selling Holders, shall be borne by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 1.2(a) if the registration
request is subsequently withdrawn at any time at the request of the Holders of a
majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one (1)
demand registration pursuant to Section 1.2(a); and provided, further, that if
at the time of any withdrawal described in the foregoing clause the Holders have
learned of a material adverse change in the condition, business, or prospects of
the Company from that known to the Holders of a majority of the Registrable
Securities then outstanding at the time of their request that makes the proposed
offering unreasonable in the good faith judgment of a majority in interest of
the Holders of the Registrable Securities, then the Holders shall not be
required to pay any of such expenses and the right to one (1) demand
registration pursuant to Section 1.2(a) shall not be forfeited. Subject to
Section 1.12, all underwriting discounts and commissions relating to Registrable
Securities included in any registration effected pursuant to Section 1.2(a) or
1.11 will be borne and paid ratably by the Holders of such Registrable
Securities, and, if participating, the Company and any other stockholders of the
Company.
1.7. Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to any registration
pursuant to Section 1.3 for each Holder, including, without limitation, all
registration, filing and qualification fees, printing and accounting fees, fees
and disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the selling Holders. Underwriting discounts and
commissions relating to Registrable Securities included in any registration
effected pursuant to Section 1.3 will be borne and paid ratably by the Holders
of such Registrable Securities, the Company, and, if participating, any other
stockholders of the Company.
1.8. Underwriting Requirements. In connection with any offering
involving an underwriting of securities being issued by the Company, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless such
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Holders accept the terms of the underwriting as agreed upon between the Company
and the underwriters selected by it, and then only in such quantity, if any, as
in the opinion of the underwriters, marketing factors allow. If the managing
underwriter for the offering shall advise the Company in writing that the total
amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities to
be sold other than by the Company that marketing factors allow, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the managing underwriter
believes marketing factors allow (the securities so included to be reduced as
follows: (a) all securities which stockholders other than the Company and the
Holders seek to include in the offering shall be excluded from the offering to
the extent limitation on the number of shares included in the underwriting is
required, (b) if further limitation on the number of shares to be included in
the underwriting is required, then the number of shares held by Holders that may
be included in the underwriting shall, subject to clause (c) below, be reduced
so that the number of shares included in the underwriting are pro rata in
accordance with the number of shares of Registrable Securities held by each such
Holder and (c) if the registration requires exclusion of securities requested to
be registered and is subsequent to the Company's first registered public
offering of securities, then the Company shall include in such registration, in
preference to other Registrable Securities, the Registrable Securities which
represent shares of Common Stock issued upon conversion of Class C Shares, up to
an amount not to exceed each such requesting Holder's Preferential Amount) but
in no event shall the amount of securities of the selling Holders included in
the offering be reduced below twenty-five percent (25%) of the total amount of
securities included in such offering, unless such offering is the initial public
offering of the Company's securities in which case the selling Holders may be
excluded if the managing underwriter makes the determination described above and
no securities other than those of the Company are included. For purposes of the
preceding parenthetical concerning apportionment, for any selling stockholder
which is a Holder of Registrable Securities and which is a partnership or a
corporation, the partners, retired partners and stockholders of such Holder, or
the estates and family members of such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall collectively be
deemed to be a "selling Holder," and any pro rata reduction with respect to such
"selling Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling Holder," as defined in this sentence.
1.9. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) The Company will indemnify and hold harmless each Holder,
the officers, directors, partners, agents and employees of each Holder, any
underwriter (as defined in the 1933 Act) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933 Act
or the 1934 Act, against any losses, claims, damages or liabilities (joint or
several) to which they may become subject under the 1933 Act, the 1934 Act or
any other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations
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<PAGE>
(each a "Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or (iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any state securities law or any rule or regulation promulgated under
the 1933 Act, the 1934 Act or any state securities law in connection with any
matter relating to such registration statement. The Company will reimburse each
such Holder, officer, director, partner, agent, employee, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action. The indemnity agreement contained in this Section 1.9(a)
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable to a Holder in any such case for any such loss, claim, damage,
liability or action (1) to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
or on behalf of such Holder, underwriter or controlling person or (2) in the
case of a sale directly by a Holder of Registrable Securities (including a sale
of such Registrable Securities through any underwriter retained by such Holder
engaging in a distribution solely on behalf of such Holder), such untrue
statement or alleged untrue statement or omission or alleged omission was
contained in a preliminary prospectus and corrected in a final or amended
prospectus, and such Holder failed to deliver a copy of the final or amended
prospectus at or prior to the confirmation of the sale of the Registrable
Securities to the person asserting any such loss, claim, damage or liability in
any case in which such delivery is required by the 1933 Act.
(b) Each Holder which includes any Registrable Securities in any
registration statement will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the 1933 Act, any
underwriter for the Company, and any other Holder selling securities in such
registration statement or any person who controls such Holder or such
underwriter, against any losses, claims, damages, or liabilities (joint or
several) to which the Company or any of the foregoing persons may become
subject, under the 1933 Act, the 1934 Act or other federal or state law, insofar
as such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by or on behalf of such Holder
expressly for use in connection with such registration, and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such person indemnified pursuant to this Section 1.9(b) in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the liability of any Holder hereunder shall be limited
to the amount of net proceeds (after deduction of all underwriters' discounts
and commissions paid by such Holder in connection with the registration in
question) received by such Holder, in the offering giving rise
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to the Violation; and provided, further, that the indemnity agreement contained
in this Section 1.9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld nor,
in the case of a sale directly by the Company of its securities (including a
sale of such securities through any underwriter retained by the Company to
engage in a distribution solely on behalf of the Company), shall the Holder be
liable to the Company in any case in which such untrue statement or alleged
untrue statement or omission or alleged omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus, and the Company
failed to deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the securities to the person asserting any such
loss, claim, damage or liability in any case in which such delivery is required
by the 1933 Act. The obligations of the Holders hereunder are several, not
joint.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume and control the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests, as reasonably determined by
either party, between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9 to the extent of such prejudice, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.9.
(d) The obligations of the Company and the Holders under this
Section 1.9 shall survive the conversion, if any, of the Registrable Securities
and the completion of any offering of Registrable Securities in a registration
statement whether under this Section 1 or otherwise.
1.10. Reports Under the 1934 Act. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the 1933 Act ("Rule 144")
and any other rule or regulation of the SEC that may at any time permit a Holder
to sell securities of the Company to the public without registration, and with a
view to making it possible for Holders to register the Registrable Securities
pursuant to a registration on Form S-3, the Company agrees to:
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(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at all times
after ninety (90) days after the effective date of the first registration
statement filed by the Company for the offering of its securities to the general
public;
(b) as soon as practicable, take such action, including the
voluntary registration of its Common Stock under Section 12 of the 1934 Act or
compliance with the reporting requirements of Section 15(d) of the 1934 Act, as
is necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities.
(c) use its best efforts, after the first registered public
offering, to file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (1) a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for the offering of the securities to the general
public), the 1933 Act and the 1934 Act (at any time after it has become subject
to such reporting requirements), or as to its qualification as a registrant
whose securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (2) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (3)
such other documents as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
1.11. Form S-3 Registration.
(a) In case the Company shall receive from any Holder or
Holders a written request or requests that the Company effect a registration on
Form S-3 (or on any successor form to Form S-3 regardless of its designation)
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(i) promptly give written notice of the proposed
registration, and any related qualification or compliance, to
all other Holders;
(ii) use all its best efforts to effect, as soon as
practicable, such registration, qualification or compliance as
may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such
request as are specified in a written request given within ten
(10)
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days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance,
pursuant to this Section 1.11 if: (1) Form S-3 (or any
successor form to Form S-3 regardless of its designation) is
not available for such offering by the Holders; (2) the
aggregate net offering price (after deduction of underwriting
discounts and commissions) of the Registrable Securities
specified in such request is not at least $500,000; (3) the
Company has already effected one (1) registration on Form S-3
or pursuant to Section 1.2 hereof within the previous six-month
period; or (4) the Company shall furnish to the Holders a
certificate signed by the president of the Company stating
that, in the good faith judgment of the Board of Directors, it
would not be in the best interests of the Company and its
stockholders for such Form S-3 registration to be effected at
such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration for a period of
not more than ninety (90) days after receipt of the request of
the Holder or Holders under this Section 1.11; provided,
however, that the Company shall not utilize this right more
than once in any twelve (12) month period; and
(iii) If the underwriter in connection with the
registration pursuant to this Section 1.11 advises the Company
or the Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the
securities other than Registrable Securities sought to be
included in the underwriting shall first be excluded. To the
extent that further limitation is required, the number of
Registrable Securities that may be included in the underwriting
shall, subject to the last sentence of this paragraph, be
allocated pro rata among all Holders thereof desiring to
participate in such underwriting (according to the number of
Registrable Securities then held by each such Holder). No
Registrable Securities requested by any Holder to be included
in a registration pursuant to this Section 1.11 shall be
excluded from the underwriting unless all securities other than
Registrable Securities are first excluded. If the registration
pursuant to this Section 1.11 requires exclusion of securities
requested to be registered and is subsequent to the Company's
first registered public offering of securities, then the
Company shall include in such registration, in preference to
other Registrable Securities, the Registrable Securities which
represent shares of Common Stock issued upon conversion of
Class C Shares, up to an amount not to exceed each such
requesting Holder's Preferential Amount; and any amounts so
registered, and registered pursuant to Section 1.2(b) hereof,
shall reduce the Preferential Amount and when the Preferential
Amount equals zero, this last sentence of Section 1.11(a)(iii)
shall be of no further force or effect.
(b) In the event that the Company consummates the initial
public offering of its securities, then as soon as reasonably possible following
a written request from a majority in interest of the Registrable Securities, and
in any event not before 366 days after the effective date
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of the registration statement filed in connection with such initial public
offering, the Company shall file a shelf registration statement on Form S-3 (or
on any successor form to Form S-3 regardless of its designation) which would
permit or facilitate the sale and distribution of the Holders' Registrable
Securities, and the Company shall use best efforts to keep such shelf
registration effective in accordance with applicable regulations.
1.12. Lock-up Agreements. If reasonably requested by the Company and
the managing underwriter, the Holders agree to enter into lock-up agreements
pursuant to which they will not, for a period of one hundred eighty (180) days
following the effective date of the first registration statement for a public
offering of the Company's securities, offer, sell or otherwise dispose of the
Registrable Securities, except the Registrable Securities sold pursuant to such
registration statement, without the prior consent of the Company and the
underwriter, provided that the officers, directors and all holders of more than
five percent (5%) of the shares of Common Stock (calculated for the purpose as
if all securities convertible into or exercisable for Common Stock, directly or
indirectly, are so converted or exercised) of the Company and all holders of
registration rights enter such lock-up agreements for the same period and on the
same terms. In order to enforce the Agreement, the Company may impose stop
transfer instruments with respect to the Registrable Securities of each Holder.
1.13. Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned by any Holder to a permitted transferee, and by such transferee to a
subsequent permitted transferee, but only if such rights are transferred (a) to
an affiliate, subsidiary, partner or stockholder of such Holder or transferee or
an account managed or advised by the manager or adviser of such Holder or
transferee or (b) in connection with the sale or other transfer of not less than
an aggregate of 250,000 Registrable Securities (as adjusted for stock splits,
combinations, stock dividends and recapitalizations) or some lesser number, if
such lesser number represents all the Registrable Securities then held by such
Holder. Any transferee to whom rights under this Agreement are transferred shall
(i) as a condition to such transfer, deliver to the Company a written instrument
by which such transferee agrees to be bound by the obligations imposed upon
Holders under this Agreement to the same extent as if such transferee were a
Holder under this Agreement and (ii) be deemed to be a Holder hereunder.
1.14. Limitation on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company relating to registration rights unless such
agreement includes (a) to the extent such agreement would allow such holder or
prospective holder to include such securities in any registration filed under
Section 1.2, 1.3 or 1.11 hereof, a provision that such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of its securities will not reduce the amount of the
Registrable Securities of the Holders which would otherwise be included and (b)
no provision which would allow such holder or prospective holder to make a
demand registration which could
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result in such registration statement being declared effective prior to the
earlier of the dates set forth in Section 1.2(a) and (c) a provision which
permits the Holders to include in such registration and in any underwriting
involved therewith, Registrable Securities pro rata with the sellers of
securities in such registration based on the number of equivalent shares of
Common Stock held by each person (where an equivalent share is either a share of
Common Stock held directly or the number of shares of Common Stock receivable
upon conversion or exercise of securities held directly). No Holder shall be
entitled to exercise any right provided in Sections 1.1 through 1.10 and 1.12
through 1.13 hereof if at any time the aggregate number of outstanding
Registrable Securities held by such Holder is less than the maximum number of
securities that would be permitted to be sold under Rule 144 within three (3)
consecutive months (or any other applicable time period under any amendment to
Rule 144 or any successor thereto).
2. Miscellaneous.
2.1. Legend. Each certificate representing Registrable Securities
shall state therein:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF AN AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
DATED AS OF _______________, 1998 BY AND AMONG THE CORPORATION AND
THE INVESTORS NAMED THEREIN, A COPY OF WHICH IS ON FILE AT THE
OFFICES OF THE CORPORATION.
2.2. Notices. All notices, requests, consents and demands shall be in
writing and shall be personally delivered, mailed, postage prepaid, or
transmitted by facsimile or delivered by any nationally recognized overnight
delivery service to the Company at:
Maker Communications, Inc.
73 Mount Wayte Avenue
Framingham, MA 01702
Attn: Chief Executive Officer
Fax No: (508) 628-0256
with a copy to: Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110-1800
Attn: Richard M. Stein, Esq.
Fax No: (617) 951-1295
to each Investor at its address set forth on Exhibit A hereto with a copy to
each of:
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Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attn: Warren T. Lazarow, Esq.
Fax No: (650) 496-2885
and
Ropes & Gray
One International Place
Boston, MA 02110
Attn: Gregory E. Moore, Esq.
Fax No: (617) 951-7050
or such other address as may be furnished in writing to the other parties
hereto. All such notices, requests, demands and other communication shall, when
personally delivered or mailed (registered or certified mail, return receipt
requested, postage prepaid) and addressed properly or delivered by any
nationally recognized overnight delivery service and addressed properly be
effective upon actual receipt. All such notices, requests, demands and other
communication, when transmitted by facsimile, shall be effective when
transmitted and electronically confirmed.
2.3. Entire Agreement. This Agreement and the other Transaction
Documents (as defined in the Purchase Agreement) constitute the entire
understanding of the parties with respect to the subject matter hereof and
thereof and supersede any and all prior understandings and agreements, whether
written or oral, with respect to such subject matter, including the Prior
Agreement.
2.4. Amendments, Waivers and Consents. Any provision in this
Agreement to the contrary notwithstanding, modifications or amendments to this
Agreement may be made, and compliance with any covenant or provision herein set
forth may be omitted or waived, if the Company (a) shall obtain consent thereto
in writing from persons holding or having the right to acquire in the aggregate
a majority of the Registrable Securities then outstanding and (b) shall, in each
such case, deliver copies of such consent in writing to any Holders who did not
execute the same; provided, however, that no Holder shall, without its consent,
be adversely affected by any such modification, amendment or waiver in any
manner in which the other Holders are not likewise adversely affected; provided,
further, that no amendment may be made to the rights of the holders of the Class
B Shares or Class C Shares set forth in the last sentence of Section 1.2(b),
Section 1.8 or the last sentence of Section 1.11(a)(iii) hereof without consent
of the holders of a majority in interest of each of the then outstanding Class B
Shares and Class C Shares.
2.5. Binding Effect, Assignment. This Agreement shall be binding upon
and inure to the benefit of the personal representatives, successors and
permitted assigns of the respective parties hereto. The Company shall not have
the right to assign its obligations hereunder or any
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<PAGE>
interest herein without obtaining the prior written consent of the Holders
holding a majority of the Registrable Securities then outstanding, provided in
accordance with Section 2.4.
2.6. General. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural includes the singular, and the masculine gender includes the
neuter, masculine and feminine genders. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of Massachusetts.
2.7. Severability. If any provision of this Agreement shall be found
by any court of competent jurisdiction to be invalid or unenforceable, the
parties hereby waive such provision to the extent that it is found to be invalid
or unenforceable. Such provision shall, to the maximum extent allowable by law,
be modified by such court so that it becomes enforceable, and, as modified,
shall be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
2.8. Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one and the same instrument.
2.9. Specific Performance. The Company recognizes that the rights of
the Holders under this Agreement are unique, and, accordingly, the Holders
shall, in addition to such other remedies as may be available to them at law or
in equity, have the right to enforce their rights hereunder by actions for
injunctive relief and specific performance to the extent permitted by law. This
Agreement is not intended to limit or abridge any rights of the Holders which
may exist apart from this Agreement.
IN WITNESS WHEREOF, the Company and the Investors have executed this
Agreement as of the date and year first above written.
MAKER COMMUNICATIONS, INC.
By:
------------------------------
Name:
Title: Chief Executive Officer
- 16 -
Subsidiary
Maker Securities Corporation Massachusetts
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 11, 1999
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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