As filed with the Securities and Exchange Commission on May 6, 1999
Registration No. 333-74293
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Amendment No. 4
to
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.
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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. [ ]
--------------
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 May 6, 1999
PROSPECTUS
3,000,000 Shares
[MAKER LOGO]
Maker Communications, Inc.
Common Stock
- --------------------------------------------------------------------------------
Maker is offering shares of common stock in its initial public offering.
Maker will list the shares on the Nasdaq National Market under the symbol
"MAKR."
Anticipated Price Range: $9.00 to $11.00 per share
Conditioned upon the sale of the shares in the initial public offering,
Maker will sell to Cisco Systems, Inc. in a concurrent private placement,
500,000 shares of common stock, at the initial public offering price
net of the underwriting discount.
Investing in the shares involves risks. Risk Factors begin on page 7.
<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 525,000
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
BT ALEX.BROWN
SALOMON SMITH BARNEY
, 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>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary ............................ 4
Risk Factors .................................. 7
Use of Proceeds ............................... 14
Dividend Policy ............................... 14
Capitalization ................................ 15
Dilution ...................................... 16
Selected Consolidated Financial Data .......... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................. 18
Business ...................................... 24
Management .................................... 36
</TABLE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Principal Shareholders ........................ 44
Certain Transactions with Executive
Officers, Directors and Principal
Shareholders ............................... 46
Description of Capital Stock .................. 47
Shares Eligible for Future Sale ............... 50
Underwriting .................................. 52
Legal Matters ................................. 53
Experts ....................................... 54
Where You Can Find More Information ........... 54
Index to Consolidated Financial
Statements ................................. F-1
</TABLE>
ABOUT THIS PROSPECTUS
Investors should 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. 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.
<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, 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 and the issuance of 500,000
shares of common stock in the concurrent private placement, all of which will
occur simultaneously with the closing of this offering, as well as the
conversion into common stock of a convertible note prior to the closing of this
offering.
Maker
Maker is a semiconductor company that develops and markets
high-performance programmable processors, development tools and application
software for use in communications systems equipment. Our processors are
optimized for processing and switching data, voice and video in high-capacity
networks. Our processors perform complex tasks such as managing network traffic
and interconnecting networks that are based on advanced networking
technologies, such as Asynchronous Transfer Mode (ATM) and Internet Protocol
(IP) packet switching. 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 and local area networks and
the increased use of technology that enables networks to be accessed remotely
are creating a rapidly expanding and increasingly complex communications
network infrastructure. Network service providers are adding capacity and
offering enhanced services that require new equipment with much higher
performance and the flexibility to support rapidly evolving industry standards.
This equipment traditionally has incorporated fixed-function integrated
circuits, called 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, called RISC and CISC
processors, that are programmable but have limited performance.
Our communications processors are optimized for networks based on advanced
technologies and have performance levels equivalent to fixed-function
integrated circuits and superior to general purpose processors. Unlike
fixed-function integrated circuits, 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 functionality in managing network
traffic and performing translation functions used to interconnect different
networks and protocols. Our MXT3010 Cell Processor and related software target
the high-performance segment of the Asynchronous Transfer Mode equipment market.
We believe that we have become a leading provider in the market for Segmentation
and Reassembly (SAR) devices that operate at OC-12 (622 Mbps) rates, an
industry-standard measurement of speed. Currently OC-12 is the fastest speed at
which commercial Asynchronous Transfer Mode Segmentation and Reassembly devices
operate. We recently announced the introduction of our MXT4000 Traffic Stream
Processor family and related software to address the opportunity for Internet
Protocol-based services in addition to Asynchronous Transfer Mode. These devices
will support sophisticated traffic management and internetworking at rates up to
OC-48 (2.5 Gbps), or four times faster than OC-12/622Mbps. 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.
4
Prospectus Summary
<PAGE>
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 as Maker Communications Equipment
Corporation and reincorporated in Delaware in 1996 as Maker Communications,
Inc.
The Offering
<TABLE>
<S> <C>
Common Stock Offered by Maker .......... 3,000,000 shares
Common Stock Offered in the Concurrent 500,000 shares
Private Placement .....................
Common Stock to be Outstanding after the
Offering and the Concurrent Private 17,536,983 shares
Placement .............................
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."
Nasdaq National Market Symbol .......... "MAKR"
</TABLE>
Common stock to be outstanding after the offering and the concurrent
private placement excludes 2,633,190 shares issuable upon exercise of currently
outstanding stock options.
5
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(c) 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:
Revenues ................................. $-- $-- $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
<CAPTION>
Three Months
Ended March 31,
-----------------------------
1998 1999
------------- --------------
(In thousands, except share
and per share
amounts)
<S> <C> <C>
Consolidated Statement of Operations Data:
Revenues ................................. $1,019 $3,162
Gross profit ............................. 533 2,119
Loss from operations ..................... (1,316) (131)
Net loss ................................. (1,193) (12)
Basic and diluted net loss per share ..... $(0.22) $(0.00)
Basic and diluted weighted average
common shares outstanding ............... 5,418,506 5,967,190
Pro forma basic and diluted
net loss per share ...................... $(0.00)
Pro forma basic and diluted weighted
average common shares outstanding ....... 13,651,760
</TABLE>
The following table summarizes our balance sheet data as of March 31,
1999. The pro forma column reflects 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, as well as the conversion into
common stock of a convertible note prior to the closing of this offering. The
pro forma as adjusted column reflects the sale of 3,000,000 shares of common
stock offered by Maker at an assumed initial public offering price of $10.00
per share, after deducting the estimated underwriting discount and offering
expenses, 500,000 shares issued in the concurrent private placement at a per
share price equal to the assumed initial public offering price net of the
estimated underwriting discount, the redemption of all outstanding shares of
Class A Redeemable Preferred Stock for $8,635,000 which will occur
simultaneously with the closing of this offering and the repayment of bank debt
(approximately $1,328,000 at March 31, 1999). See "Use of Proceeds" and
"Capitalization".
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ----------- ------------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents .................... $ 14,275 $14,275 $35,862
Working capital .............................. 12,527 12,527 34,639
Total assets ................................. 17,263 17,263 38,587
Long-term debt, less current portion ......... 1,303 803 --
Redeemable preferred stock ................... 23,890 8,635 --
Stockholders' equity (deficit) ............... (11,226) 4,529 36,079
</TABLE>
6
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 1997. 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
may not be able to achieve profitability on a quarterly or an annual basis.
We Experience Fluctuations in Our Operating Results Due to a Number of
Frequently Changing Business Conditions
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.
7
Risk Factors
<PAGE>
These and other factors could materially and adversely affect us. You
should be aware that we cannot accurately forecast all of the above factors. 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 Which May Increase Our Exposure to
Customer Cancellations or Similar Risks
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. This lengthy sales cycle
creates risks related to customer decisions to cancel or change product plans,
which could result in the loss of anticipated sales. 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. We derive revenue from this process only if our
design is selected. 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 a customer may cancel orders even after we have achieved a design win.
We 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.
Our Revenues Could Decrease If There Is a Slowdown in the Growth in Demand for
Communications Systems
We derive all of our revenues 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, they
may not continue to grow and a significant slowdown in these markets may occur.
In addition, a substantial majority of our revenues has been, and is
expected to continue to be, derived from sales of products for Asynchronous
Transfer Mode equipment. We have announced new products directed at
communications systems that are based on other technologies. 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, we will be materially and adversely affected.
Our Success Depends upon Our Customers' Acceptance of Our Processors as an
Alternative to Traditional Solutions
Our future prospects depend on the acceptance of programmable
communications processors as an alternative to fixed-function devices and
general purpose processors traditionally used by communications systems
vendors. We 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; or
o we are otherwise unable to develop strong relationships with
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
8
Risk Factors
<PAGE>
to develop fixed-function components and to program general purpose processors
used in their products. In the future, these customers may continue to use
internally-developed fixed-function 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.
Our Failure to Introduce New Products on a Timely Basis Could Diminish Our
Ability to Attract and Maintain Customers
The communications systems industry is characterized by rapidly changing
technology, frequent product introductions and evolving industry standards. Our
products are based on these 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. Specifically, 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.
Our Future Success is Dependent on the Release and the Acceptance of Our New
MXT4400 Processor
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
assure you that the MXT4400 will perform as anticipated and there may 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 us. 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.
Products as complex as those such as the MXT4400 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.
Our Revenues and Profits May Decrease if We Lose Any of Our Major Customers
Historically, a relatively small number of customers has accounted for a
significant portion of our total revenues in any particular period. The loss of
any such single customer would have a material adverse effect on us. Maker's
top three customers in 1998, Ascend, Cisco and Fore, accounted for 29%, 16% and
13% of revenues, respectively. No other customer accounted for greater than 10%
of revenues in 1998. 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
9
Risk Factors
<PAGE>
five customers are in the process of completing a consolidation. This
consolidation may result in the cancellation of current product orders. This
industry may experience further consolidation in the future which may result in
product duplication and cancellation of current projects, which may materially
and adversely affect us. Furthermore, Lucent, who is one of our top five
customers, is also a competitor of ours. It is possible that Lucent could
change its purchase patterns because of this relationship.
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 assure you 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.
Our Limited Resources Make Us More Susceptible to Competitive Pressures in the
Marketplace
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) early versions of technology incorporated into our MXT3010 Cell
Processor, MXT3020 Co-Processor and related software applications. Our
agreement with Level One does not permit this technology to be incorporated in
a product that competes with us.
In addition, many of our existing and potential customers internally
develop 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.
Our failure to compete successfully as to any of these or other factors
could materially and adversely affect us. To the extent that our competitors
offer sales representatives more favorable terms or a higher volume of
business, our sales representatives may decline to carry, or discontinue
carrying, our products.
10
Risk Factors
<PAGE>
The Loss of Any of Our Key Personnel or the Failure to Hire Additional
Personnel Could Impact Our Ability to Meet Customer and Technological
Demands
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. 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 us. In particular, the loss of either of our founders, William Giudice,
President and Chief Executive Officer, and Paul Bergantino, Vice President and
Chief Technology Architect, could reduce our future success. We have neither
employment contracts with, nor key person life insurance on, any of our key
personnel.
Competition for highly skilled managerial, engineering, sales and
marketing, finance and manufacturing personnel is intense and there can be no
assurance that we will be successful in attracting and retaining such
personnel.
We Depend on Outside Manufacturers to Make Our Products
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, who is also a competitor. 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 us.
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 us.
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 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. In particular, the rapidly evolving nature of
the semiconductor industry requires that companies continually seek and
11
Risk Factors
<PAGE>
maintain patent protection of their technology. To that end, we have obtained
several domestic patents and have several foreign patent applications on file.
We 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
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.
Rapid Growth Could Strain Our Resources
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 assure you that our systems, procedures, controls
and existing space will be adequate to support our operations.
The Price of Our Common Stock May Fluctuate Significantly
The market for securities of high technology companies in the
semiconductor and communications systems industries 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, provisions that could have the effect of delaying, deferring
or preventing a change in control of our Company on terms which you may deem
advantageous. These provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock. These provisions:
12
Risk Factors
<PAGE>
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 proposing matters that can be
acted upon by stockholders at a meeting.
A Limited Number of Stockholders Will Have the Ability to Influence Our
Policies Following the Offering and the Concurrent Private Placement
A substantial majority of our capital stock is held by a limited number of
stockholders. After completion of this offering and the concurrent private
placement, our officers and directors and parties affiliated with or related to
such persons or to Maker will own approximately 69% 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.
The Price of Our Stock Could Decrease as a Result of Shares Being Sold in the
Market After the Offering
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 17,536,983 shares of common stock outstanding immediately
after the offering and the concurrent private placement. 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 14,536,983 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 could also be sold.
The holders of the shares of common stock issued upon conversion of Class B
Convertible Preferred Stock and Class C Convertible Preferred Stock and Cisco
will also have registration rights allowing them to cause us to register their
shares under the Securities Act.
In connection with the offering, Maker's executive officers, directors and
stockholders owning, in the aggregate, 13,907,782 shares have agreed that,
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.
Additionally, these stockholders will not sell more than one-third of their
shares of common stock for at least 180 days after the date of this prospectus.
Finally, these stockholders 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.
In addition, Cisco has agreed that it will not sell any shares of common stock
for at least 180 days after the concurrent private placement. Maker has agreed
not to sell or otherwise dispose of any shares of common stock for a period of
180 days, except as consideration for the acquisition of businesses.
13
Risk Factors
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $26,900,000, or $31,782,500 if the underwriters exercise their
over-allotment option in full, assuming an initial public offering price of
$10.00 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 (which will
occur simultaneously with the closing of this offering), to repay bank debt
(approximately $1,328,000 at March 31, 1999), and for other general corporate
purposes. Borrowings under the bank debt bear interest at the prime rate plus
.25% to 1.0% and mature in May 2002. Pending these uses, we intend to invest
the proceeds in investment-grade, interest-bearing investments.
The principal purposes of this offering are to increase our capitalization
and financial flexibility, to provide a public market for our common stock and
to facilitate access to public equity markets. As of the date of this
prospectus we cannot specify with certainty all of the particular uses for the
remaining net proceeds we will have upon completion of the offering.
Accordingly, our management will have broad discretion in the application of
net proceeds.
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.
14
Use of Proceeds/Dividend Policy
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999.
Our capitalization is presented:
o on an actual basis;
o on a pro forma basis to give effect to the automatic conversion of all
outstanding shares of Junior Convertible Preferred Stock, Class B
Convertible Preferred Stock, Class C Convertible Preferred Stock which
will occur upon the closing of this offeing and the conversion into
common stock of a convertible note prior to the closing of this offering
into an aggregate of 7,833,433 shares; and
o on a pro forma as adjusted basis to reflect our receipt of the estimated
net proceeds from the sale of 3,000,000 shares of common stock in this
offering at an assumed initial public offering price of $10.00 per share
after deducting the estimated underwriting discount and offering
expenses, 500,000 shares of common stock in the concurrent private
placement at a per share price equal to the initial public offering
price net of estimated underwriting discount, the redemption of all
outstanding shares of Class A Redeemable Preferred Stock for $8,635,000
and the repayment of bank debt (approximately $1,328,000 at March 31,
1999).
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------------------
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 ..................................... $ 525 $ 525 $ --
======= ======= =======
Long-term debt, less current portion .................................. $ 1,303 $ 803 $ --
Redeemable preferred stock:
Class A preferred stock ............................................. 8,635 8,635 --
Class B convertible preferred stock ................................. 10,249 -- --
Class C convertible preferred stock ................................. 5,006 -- --
------- ------- -------
Total redeemable preferred stock .................................... 23,890 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,
6,098,800 shares issued and outstanding actual; 100,000,000 shares
authorized, 13,932,233 shares issued and outstanding, pro forma and
100,000,000 shares authorized, 17,432,233 shares issued and
outstanding, pro forma as adjusted .................................. 61 139 174
Additional paid-in capital .......................................... 198 15,907 47,422
Accumulated deficit ................................................. (11,517) (11,517) (11,517)
------- ------- -------
Total stockholders' equity (deficit) ............................ (11,226) 4,529 36,079
------- ------- -------
Total capitalization ............................................ $13,967 $13,967 $36,079
======= ======= =======
</TABLE>
Common stock to be outstanding after the offering and the concurrent
private placement excludes 2,633,190 shares issuable upon exercise of currently
outstanding stock options.
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.
15
Capitalization
<PAGE>
DILUTION
The pro forma net tangible book value of the common stock as of March 31,
1999 was $4,266,000, or $.31 per share, after giving effect to 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, as well as the conversion into common stock of a
convertible note on or prior to 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 $10.00 per share, assuming that the
underwriters' over-allotment option is not exercised, and after deducting the
estimated underwriting discount and expenses of the offering and the concurrent
private placement at the assumed initial offering price net of the estimated
underwriting discount, the adjusted pro forma net tangible book value at March
31, 1999, would have been $36,079,000, or $2.07 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 March 31, 1999. The offering will result in an increase in pro
forma net tangible book value per share of $1.76 to existing stockholders and
dilution in pro forma net tangible book value per share of $7.93 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 $10.00 per share. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price ................................................. $ 10.00
Pro forma net tangible book value per share at March 31, 1999 ........................ $ .31
Increase attributable to sale of common stock in the offering (1) .................... 1.76
-------
Pro forma net tangible book value per share after the offering ........................ 2.07
-------
Dilution of net tangible book value per share to persons who purchase shares in the
offering ............................................................................. $ 7.93
=======
</TABLE>
- ------------
(1) After deduction of the estimated underwriting discount and offering
expenses totaling $3,100,000.
If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after the offering would be $2.28 per
share, the increase in net tangible book value per share to existing
stockholders would be $1.97 per share and the dilution to persons who purchase
shares in the offering would be $7.72 per share.
The following table summarizes, on a pro forma basis as of March 31, 1999,
the differences between the total consideration paid and the average price per
share paid by the existing shareholders, the new shareholders from the
concurrent private placement 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 $10.00 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 ............................. 3,000,000 17% $30,000,000 59% $10.00
Shares purchased in the concurrent private placement ......... 500,000 3 4,650,000 9 $ 9.30
Shares owned by existing stockholders ........................ 13,932,233 80 16,015,000 32 1.15
---------- -- ----------- ---
Total ........................................................ 17,432,233 100% $50,665,000 100%
</TABLE>
These tables do not assume exercise of stock options outstanding at March
31, 1999. At March 31, 1999, there were 2,635,940 shares of common stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $1.98 per share. To the extent that outstanding options are
exercised in the future, there will be further dilution to new investors.
16
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 selected financial data as of March
31, 1999 and for the three months ended March 31, 1998 and 1999 are derived
from Maker's unaudited Consolidated Financial Statements which are included
elsewhere in this prospectus and which include, in the opinion of Maker, all
adjustments (consisting only of normal recurring adjustments) that are
necessary for a fair presentation of its financial position and the results of
its operations for those periods. Operating results for the three months ended
March 31, 1999 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1999. The pro forma basic and
diluted net loss per share is described in Note 2(e) of Notes to Consolidated
Financial Statements. The pro forma March 31, 1999 balance sheet data reflects
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, as well as the conversion into common stock of a convertible note
prior to 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:
Revenues:
Product ..................................... $ -- $ -- $ 101 $ 1,231 $ 6,309
Software and maintenance .................... -- -- 241 543 1,385
----------- --------- --------- --------- ----------
Total revenues ............................. -- -- 342 1,774 7,694
Cost of revenues ............................. -- -- 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
<CAPTION>
Three Months
Ended March 31,
----------------------------
1998 1999
------------- --------------
(in thousands, except share
and per share amounts)
<S> <C> <C>
Consolidated Statements of Operations Data:
Revenues:
Product ..................................... $ 758 $ 2,723
Software and maintenance .................... 261 439
--------- ----------
Total revenues ............................. 1,019 3,162
Cost of revenues ............................. 486 1,043
--------- ----------
Gross profit ................................. 533 2,119
--------- ----------
Operating expenses:
Research and development ................... 894 1,341
Selling and marketing ...................... 443 515
General and administrative ................. 341 394
Litigation ................................. 171 --
--------- ----------
Total operating expenses ................. 1,849 2,250
--------- ----------
Loss from operations ......................... (1,316) (131)
Interest income .............................. 133 160
Interest expense ............................. (10) (41)
--------- ----------
Net loss ..................................... $ (1,193) $ (12)
========= ==========
Basic and diluted net loss per share ......... $ (0.22) $ (0.00)
Basic and diluted weighted average common
shares outstanding .......................... 5,418,506 5,967,190
Pro forma basic and diluted net loss
per share ................................... $ (0.00)
Pro forma basic and diluted weighted
average common shares outstanding ........... 13,651,760
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of March 31, 1999
------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 Actual Pro forma
--------- ----------- ---------- ---------- ----------- ------------ ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents ................ $ 3 $ 93 $4,591 $10,865 $13,615 $14,275 $14,275
Working capital (deficit) ................ (4) (16) 4,631 10,649 12,228 12,527 12,527
Total assets ............................. 25 363 5,204 12,397 15,957 17,263 17,263
Long-term debt, less current portion ..... 26 1,260 35 290 1,142 1,303 803
Redeemable preferred stock ............... -- -- 8,601 18,795 23,440 23,890 8,635
Stockholders' equity (deficit) ........... (13) (1,016) (3,671) (7,634) (11,346) (11,226) 4,529
</TABLE>
17
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. Software license
agreements may 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.
Maker's sales cycle typically includes a three to six month evaluation and
test period, a twelve to eighteen month development period by its customers and
an additional three to six month period before a customer commences volume
production of equipment incorporating its 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. New design wins with existing customers who have
previously licensed Maker's software generally do not result in additional
software licensing revenue. Since software revenues have no material direct
cost, 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 the United States. In its latest fiscal
year, sales in the United States accounted for approximately 92% of Maker's
revenues.
Maker's top five customers in 1998 were Ascend, Cisco, Fore, Lucent and
Nortel. Maker expects that these five customers will continue to account for a
significant portion of Maker's total 1999 revenues. 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 revenues to fluctuate
significantly from period to period.
18
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
Results of Operations
Three Months Ended March 31, 1998 and 1999
Total Revenues. Total revenues increased from $1.0 million for the three
months ended March 31, 1998 to $3.2 million for the three months ended March
31, 1999. The increase in total revenues primarily reflects an increased number
of customers reaching volume production.
Cost of Revenues. Cost of revenues increased from $486,000 for the three
months ended March 31, 1998 to $1.0 million for the three months ended March
31, 1999. Approximately 60% of the increase was due to an increase in direct
product costs which is associated with the increase in product revenues. The
remainder of the increase was due to an increase in personnel and related
overhead costs to support Maker's customers. The gross margin increased from
52% for the three months ended March 31, 1998 to 67% for the three months ended
March 31, 1999. The increase in gross margin reflects lower product cost as a
result of Maker meeting volume purchase commitments and the absorption of fixed
costs over higher revenues. Cost of revenues 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 associated with
supporting Maker's customers. Cost of revenues also includes software costs
consisting of the costs of the media in which it is delivered; these costs are
not significant.
Research and Development Expenses. Research and development expenses
increased from $894,000 for the three months ended March 31, 1998 to $1.3
million for the three months ended March 31, 1999. Approximately 70% of the
increase was due to an increase in personnel and related costs and the
remainder of the increase was primarily due to an increase in recruiting and
outside consulting costs. 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 $443,000 for the three months ended March 31, 1998 to $515,000 for the
three months ended March 31, 1999. Substantially all of the increase reflects
an increase in personnel to support Maker's product marketing activities which
included the introduction of the MXT4400 Traffic Stream Processor in March
1999. 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 $341,000 for the three months ended March 31, 1998 to $394,000
for the three months ended March 31, 1999. Substantially all of the increase
reflects increased personnel and related costs incurred in expanding the human
resource and accounting functions. General and administrative expenses consist
substantially of expenses to support the business, including, corporate,
accounting, legal, information technology systems and human resources.
Litigation. In July 1998, Maker settled a lawsuit with LSI Logic
Corporation. Costs associated with the litigation and settlement of the lawsuit
were $171,000 for the three months ended March 31, 1998.
Interest Income. Interest income increased from $133,000 for the three
months ended March 31, 1998 to $160,000 for the three months ended March 31,
1999. The increase reflects interest earned on higher balances of cash and cash
equivalents.
Interest Expense. Interest expense increased from $10,000 for the three
months ended March 31, 1998 to $41,000 for the three months ended March 31,
1999. The increase was due to the increased borrowing under Maker's equipment
line of credit to finance the purchase of capital equipment.
Years Ended December 31, 1996, 1997 and 1998
Total Revenues. Total revenues 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 revenues reflects certain customers
reaching volume production and increased software revenues from new customer
design wins.
19
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
Cost of Revenues. Cost of revenues increased from $329,000 in 1996 to $1.0
million in 1997 to $3.2 million in 1998. Approximately 60% of the increase in
cost of revenues in 1997 and 1998 was due to increases in direct product costs
and the remainder of the increase was due to increases in pre-production costs
and support and documentation costs associated with the increase in revenues.
The gross margin increased from 4% in 1996 to 42% in 1997 to 58% in 1998. The
increase in gross margin reflects the absorption of fixed costs such as
production related expenses and personnel costs associated with supporting
Maker's customers due to a greater sales volume.
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. Approximately 70% of the increase in 1997 was due to increases in
personnel and related costs and the remainder was primarily due to increases in
engineering supplies and prototype costs. 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.
Approximately 50% of the increase in 1998 was due to increases in personnel and
related costs and the remainder was primarily due to increases in outside
consulting services and depreciation of computer equipment. 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.
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 in 1998.
Approximately 80% and 70% of the increases in 1997 and 1998, respectively, were
due to increases in salaries and related costs. The remainder of the increases
in both 1997 and 1998 were due to increased public relation costs and marketing
materials.
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.
Approximately 60% and 35% of the increases in 1997 and 1998, respectively, were
primarily due to the hiring of additional personnel, including senior level
management. The remainder of the increase was due to increases in costs
associated with supporting the business including increases in legal and
professional fees and human resource activities of approximately 35% and 50% in
1997 and 1998, respectively.
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 and cash equivalents 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.
20
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 and the first quarter of 1999, as well as such data
expressed as a percentage of Maker's revenues 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 Due to a Number of Frequently Changing
Business Conditions."
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
----------- ------------ --------------- -------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Product ............................ $ 758 $ 1,463 $ 1,714 $2,374 $2,723
Software and maintenance ........... 261 212 502 410 439
-------- -------- -------- ------ ------
Total revenues .................... 1,019 1,675 2,216 2,784 3,162
Cost of revenues .................... 486 845 946 961 1,043
-------- -------- -------- ------ ------
Gross profit ........................ 533 830 1,270 1,823 2,119
-------- -------- -------- ------ ------
Operating expenses:
Research and development ........... 894 976 932 1,369 1,341
Selling and marketing .............. 443 548 480 607 515
General and administrative ......... 341 330 275 353 394
Litigation ......................... 171 232 715 -- --
-------- -------- -------- ------ ------
Total operating expenses .......... 1,849 2,086 2,402 2,329 2,250
-------- -------- -------- ------ ------
Loss from operations ................ (1,316) (1,256) (1,132) (506) (131)
Interest income ..................... 133 138 136 131 160
Interest expense .................... (10) (15) (29) (28) (41)
-------- -------- -------- ------ ------
Net loss ............................ $ (1,193) $ (1,133) $ (1,025) $ (403) $ (12)
======== ======== ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
------------- ------------ --------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Product ............................ 74% 87% 77% 85% 86%
Software and maintenance ........... 26 13 23 15 14
-- -- -- -- --
Total revenues .................... 100 100 100 100 100
Cost of revenues .................... 48 50 43 35 33
--- --- --- --- ---
Gross margin ........................ 52 50 57 65 67
--- --- --- --- ---
Operating expenses:
Research and development ........... 88 58 42 49 43
Selling and marketing .............. 43 33 22 22 16
General and administrative ......... 33 20 12 12 12
Litigation ......................... 17 14 32 0 0
--- --- --- --- ---
Total operating expenses .......... 181 125 108 83 71
--- --- --- --- ---
Loss from operations ................ (129) (75) (51) (18) (4)
Interest income ..................... 13 8 6 5 5
Interest expense .................... (1) (1) (1) (1) (1)
------ ----- ----- ----- ---
Net loss ............................ (117%) (68%) (46%) (14%) 0%
====== ===== ===== ===== ===
</TABLE>
21
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
During 1998 and the first quarter of 1999, revenues increased each
quarter, due primarily to growth in sales of communications processors. Over
the course of this period, several significant customers commenced shipment of
communications systems using Maker's communications processors. Gross margin
improved from 52% in the first quarter of 1998 to 67% in the first quarter of
1999, due primarily to Maker achieving volume shipments of the MXT3010 Cell
Processor which enabled Maker to absorb fixed costs over greater revenues.
Research and development expenses generally increased during this period due to
the addition of personnel and related costs. The increase in selling and
marketing expenses during this period 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. In the first quarter of 1999, operating
activities generated $264,000 primarily from increases in accrued expenses of
$404,000 and depreciation and amortization expenses of $132,000, partially
offset by an increase in inventory of $206,000. The increase in accrued
expenses was primarily a result of increased accrued professional fees and the
increase in inventory was sales volume related. At March 31, 1999, Maker had
$14.3 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 31, 1999, Maker had not made any borrowings under
either facility. In addition, at March 31, 1999, Maker had $1.3 million
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. See Note 5 of Notes to Consolidated Financial Statements.
From inception through March 31, 1999, Maker acquired $2.1 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 at least the
next 12 months. In addition, concurrent with this offering, Maker will sell
500,000 shares of common stock to Cisco at a per share price equal to the
assumed initial offering price net of estimated underwriting discount for
assumed gross proceeds to Maker of $4,650,000. Thereafter, Maker's future
capital requirements will depend on many factors, including the level of
investment Maker makes in new technologies and improvements to existing
technologies, the production levels Maker maintains and the level of monthly
expenses required to launch new products. To the extent that the funds generated
by this offering, together with proceeds from the concurrent private placement,
existing resources and future earnings are insufficient to fund Maker's future
activities, Maker may need to raise additional funds through public or private
financing. Additional funds may not be available or, if available, Maker may not
be able to obtain them on terms favorable to it and its stockholders. In
addition, Maker could seek to raise additional capital if it identified
acquisitions or investments in complementary business, technologies or product
lines.
22
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
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, 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 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 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 through 1999 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.
Additionally, Maker has not yet begun to assess the Year 2000 readiness of its
material customers.
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.
23
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:
o the explosive growth of the Internet;
o the increase in demand for higher speed interconnectivity between wide
area networks and local area networks; and
o 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 on a cost effective basis
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:
o guaranteed Internet access;
o virtual private networks;
o videoconferencing;
o service level agreements; and
o Internet Protocol 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
and Class of Service. Quality of Service guarantees a specific level of
end-to-end service across the network, while Class of Service prioritizes
service levels for different classes of users and applications.
In order to provide improvements in capacity 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 Asynchronous Transfer Mode and
Internet Protocol. Asynchronous Transfer
24
Business
<PAGE>
Mode is based on fixed-sized packets, called cells, and is designed to
efficiently integrate voice, data and video and easily scale in capacity.
Internet Protocol is a packet-based protocol that is generally accepted as the
industry standard for local area network data transfer and is being
increasingly used in wide area network data transfer. Neither packet nor
Asynchronous Transfer Mode switching requires end-to-end fixed bandwidth for
dedicated circuits and therefore have inherent benefits over circuit switching
in terms of bandwidth utilization. Both Asynchronous Transfer Mode and Internet
Protocol packet switching network technologies are being deployed over optical
networks based on the complementary SONET/SDH standards, known as Asynchronous
Transfer Mode over SONET (Synchronous Optical Network) and Packet over SONET.
SONET is a cabling and signaling standard that is widely used in wide area
networks for carrying circuit switched, cell or packet-based traffic.
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 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, cell or packet processing, because
of its broad functionality, 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
Application Specific Integrated Circuits or 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. Fixed-function integrated circuits can be
designed to achieve high performance. However, fixed-function integrated
circuits cannot be adapted to changing functional requirements and must be
redesigned if errors are found in their implementation. Furthermore, developing
fixed-function integrated circuits 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
computing-intensive) communications processing. Maker's communications
processors are based on proprietary cores which are optimized for cell and
packet processing to enable high-speed performance that is superior to
general-purpose processors and equivalent to fixed-function integrated
circuits. Unlike fixed-function integrated circuits, 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.
25
Business
<PAGE>
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 Asynchronous Transfer Mode equipment market. Maker
believes it is a leading provider of SARs, an internetworking device, that
operate at OC-12 (622 Mbps) rates, which is an industry-standard measurement of
speed. 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 Internet Protocol-based services, to provide lower customer
system costs through higher levels of integration and to support more
sophisticated traffic management and internetworking functions.
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 Asynchronous Transfer Mode SARing, traffic shaping for
Asynchronous Transfer Mode or Packet over SONET networks and multi-service wide
area network 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 Asynchronous Transfer Mode 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 wide area network
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
Internet Protocol-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 wide area network 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. By using outside manufacturers to
manufacture its processors, Maker seeks to leverage the flexibility of this
"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.
26
Business
<PAGE>
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.
Asynchronous Transfer Mode and Internet Protocol networks are two markets
with significant traffic management and internetworking requirements.
Asynchronous Transfer Mode is based on fixed-sized packets, called cells, and
is designed to efficiently integrate voice, data and video and to easily scale
in capacity. Internet Protocol is a packet-based protocol that is generally
accepted as the industry standard for local area network data transfer and is
being increasingly used in wide area network data transfer. Maker's
high-intensity communications processing products are well suited for the high-
capacity and evolving functional requirements of Asynchronous Transfer Mode and
Internet Protocol networks. Maker's products address internetworking
applications, including Asynchronous Transfer Mode SARing, and a variety of
traffic management functions including traffic shaping, traffic policing and
queue management required by these markets.
High-Performance SARing. SARing or Segmentation and Reassembly is an
internetworking function for translating between fixed-sized-packet
Asynchronous Transfer Mode networks and variable-sized-packet 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 Asynchronous Transfer Mode
connection is required, or in Asynchronous Transfer Mode-based systems such as
multi-service wide area network 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 Asynchronous Transfer Mode 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.
Asynchronous Transfer Mode 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 Asynchronous Transfer Mode switches, typically located
at the edge between enterprise, carrier or service provider networks, and in
Asynchronous Digital Subscriber Line access multiplexers.
Asynchronous Transfer Mode 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 Asynchronous Transfer Mode switches, typically located at the edge
between enterprise, carrier or service provider networks.
Multi-Service Wide Area Network Access. Multi-Service wide area network
access applications allow service providers to supply a variety of Asynchronous
Transfer Mode, 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
wide area network 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 wide area network edge switches, Asynchronous
Transfer Mode access multiplexers, SONET add/drop multiplexers and wireless
base station equipment.
Packet Over SONET Link Management. This emerging application supports
traffic management, including policing, shaping and queue management and
internetworking functions such as Multi-Protocol Label Switching (MPLS) for
Packet Over SONET ports in Internet routers and enterprise
27
Business
<PAGE>
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 Asynchronous Transfer Mode SARing market. The MXT3010 Cell
Processor and the MXT3020 Circuit Co-Processor, together with the Company's
AccessMaker software, target multi-service wide area network access
applications. Maker recently announced the introduction of the MXT4000 Traffic
Stream Processor family and the related PortMaker software application
targeting sophisticated traffic management and internetworking for Asynchronous
Transfer Mode 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
- ---------------------------------------------------------------------------------------------------------
MXT3010 OC-12 SAR
Cell Processor CellMaker-622 4-Port OC-3 SAR Production
<S> <C> <C> <C>
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 Asynchronous Transfer Mode 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 wide area network access.
MXT3020 Circuit Co-processor. The MXT3020 Circuit Co-processor is a device
that works in conjunction with the MXT3010 to connect Asynchronous Transfer
Mode 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 Asynchronous Transfer Mode and Time Division
Multiplexed internetworking functions.
28
Business
<PAGE>
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 Internet Protocol
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.
CellMaker. CellMaker is SARing software that runs on the MXT3010 Cell
Processor. This application supports internetworking between Asynchronous
Transfer Mode 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 Asynchronous Transfer Mode networks.
AccessMaker allows customers to design a single piece of hardware that can
support many common T1/E1 services such as Frame Relay, Asynchronous Transfer
Mode, 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 Asynchronous Transfer Mode 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 Packet Over SONET and Asynchronous Transfer Mode
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
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<PAGE>
assurance that a particular design win will result in production revenue. The
following is a list of Maker's customers:
<TABLE>
<S> <C>
3Com Lucent Technologies
Alcatel nCUBE
Ascend Communications Netcom Systems
Cabletron Systems Newbridge Networks
Cisco Systems Nexabit Networks
Ennovate Nortel Networks
Fore Systems Premisys
GTE Siemens
General Datacom Sonoma Systems
Hewlett-Packard Sonus Networks
Hitachi Visual Networks
Juniper Networks Xylan
</TABLE>
Maker's top five customers in 1998 were Ascend, Cisco, Fore, Lucent and
Nortel. Ascend, Cisco and Fore each accounted for more than 10% of 1998
revenues. Ascend and Lucent recently announced that they have entered into a
definitive agreement pursuant to which they will combine their operations. See
"Risk Factors--Our Revenues and Profits May Decrease If We Lose Any of Our
Major Customers."
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.
In its latest fiscal year, sales in the United States accounted for
approximately 92% of Maker's revenues. Although Maker achieved a number of
design wins with customers outside of the United States, 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.
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Business
<PAGE>
Technology
Maker has developed proprietary communications processors that combine
high-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.
Below is an overview of Maker's solution architecture:
[CHART]
Maker Application Programming Interface
Communications Processing Applications
<TABLE>
<S> <C> <C> <C> <C> <C>
Maker Maker Customized Customer ------ Network
Development Applications Maker Applications ------ Function
Environment Applications Library
------------------------------------------------- Software
Light-Weight Kernel
------------------------------------------------------------------------------------
Communications Processor Integrated
Circuits
</TABLE>
Maker's Solution Architecture
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 Asynchronous Transfer Mode
cell. The processor must gather all of the context information that is
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<PAGE>
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 Asynchronous Transfer Mode networks, for
example, new Asynchronous Transfer Mode 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.
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
Asynchronous Transfer Mode 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 31, 1999, Maker had 35 employees and
full-time contractors engaged in research and development, of which 15 are
involved in the development of development tools and applications software and
20 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 Outside Manufacturers to Make Our Products."
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Business
<PAGE>
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 processors. In the OC-3 SAR market, Maker has a
relatively small market share and 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, in which Maker believes there is currently
little competition, Maker expects to compete in the future with several of the
foregoing companies and others. In the Asynchronous Transfer Mode traffic
policing market, a targeted future market for Maker, there are a number of
competitors, including Lucent and PMC-Sierra. In Asynchronous Transfer Mode
markets for programmable integrated circuits, LSI Logic and Motorola currently
offer programmable cell processing capability; Maker believes it competes
effectively at the high-end (integrated circuits which run at rates greater
than OC-3) of this market.
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 quality 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 fixed-function integrated devices, 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--Our Limited Resources Make Us More Susceptible
to Competitive Pressures in the Marketplace."
Intellectual Property
Maker's future success and ability to compete are dependent, in part, upon
its proprietary technology. Maker has numerous technology and software licenses
which entitle it to use software and technology of other companies. Maker has
one technology license agreement which it believes to be material. This
agreement provides synthesizable core software product and is terminable only
upon breach by one of the parties. Maker has been granted four patents in the
United States in the field of cell processors. These patents expire on May 9,
2016. 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
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<PAGE>
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. Not all of Maker's proprietary technology is
patented.
In addition, Maker claims copyright protection for proprietary software
and documentation used in its products and software. 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
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. Third parties may
assert infringement claims against Maker in the future, which may result in
costly litigation. Maker may not prevail in any such litigation or may not 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.
In addition, competitors of Maker, many of which have substantially
greater resources than Maker and have made substantial investments in competing
technologies, may have, or may 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. Maker may
also become subject to patent infringement claims and litigation or
interference proceedings to determine the priority of inventions due to the
significant number of patents in the industry. This large volume of patented
technology makes infringement difficult to assess. 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. See
"Risk Factors--We Need to Protect Our Intellectual Property and Avoid
Infringement of the Intellectual Property of Others."
Backlog
Maker does not believe that the amount of its backlog is material. This
backlog is subject to continued fluctuations and is not necessarily indicative
of future sales. Customers purchase Maker's products pursuant to short term
purchase orders which may be canceled without charge if notice is given within
an agreed upon period. The Company's design wins are solely an expression of
interest by customers and are not supported by binding contracts of any nature.
Therefore, there can be no assurance that any design win will result in
purchase orders for the Company's products.
34
Business
<PAGE>
Employees
As of March 31, 1999, Maker had 60 full-time employees and 3 contract
employees. Of the total number of full-time employees and contract employees,
35 were in research and development, 17 were in sales, marketing and technical
support and 11 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--The Loss of Any of Our Key Personnel or the Failure to Hire Additional
Personnel Could Impact Our Ability to Meet Customer and Technological Demands."
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.
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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
Paul R. Low ................. 66 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, a semiconductor
company, 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., a communications systems vendor, 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, a networking software
vendor.
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, a communications systems company, 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., a communications systems vendor, 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., a semiconductor company. 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.
36
Management
<PAGE>
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., a communications system vendor, and
several privately held companies.
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.
Paul R. Low. Paul R. Low, Ph.D., has been a director of Maker since March
1999. Dr. Low has been President and Chief Executive Officer of PRL Associates,
a technology consulting company, since June 1992. Previously Dr. Low was Vice
President and General Manager of IBM Microelectronics, IBM's silicon design and
fabrication group, and was a member of the IBM Corporate Management Board from
June 1990 to June 1992. Dr. Low is a member of the Board of Directors of
Applied Materials, Network Computing Devices, Solectron, Veeco Instruments,
VLSI Technology and Xionics.
Board Committees
The compensation committee of the board of directors of Maker is comprised
of Roger Evans, Rob Soni 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 in
connection with this offering, Maker's Amended and Restated 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. Mr. Evans and Mr. Soni will initially serve as Class I Directors
and Mr. Giudice, Mr. Low and Mr. Tomasetta will initially serve as Class II
directors. 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 15.1% of Maker's common stock
after the offering. Rob Soni is a member of Deer IV & Co. LLC, which will
beneficially own 15.1% 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.
37
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 ................................... 1998 115,321 $25,000 -- 180,000
Vice President, Finance and Operations,
Chief Financial Officer and Treasurer
Commenced employment with Maker in February 1998
Paul Bergantino .................................. 1996 102,500 -- -- --
Vice President and Chief Technology Architect 1997 120,000 -- -- --
1998 127,500 -- -- 260,000
Thomas J. Medrek ................................. 1997 54,057 25,000 -- 337,000
Vice President, Marketing 1998 125,000 -- -- --
Commenced employment with Maker in July 1997
Jon Sherburne .................................... 1997 27,484 16,390 -- 168,000
Vice President, Sales 1998 125,000 65,013 -- --
Commenced employment with Maker in October 1997
</TABLE>
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>
Percent of Total
Number of Securities Option/SARs
Underlying Granted to Exercise or
Option/SARs Employees in Base Price
Name Granted Fiscal Year (per share)
- ---------------------------- ---------------------- ----------------- -------------
<S> <C> <C> <C>
William N. Giudice ......... 510,000(3) 28.9% $ 2.75
Michael Rubino ............. 180,000(4) 10.2 0.30
Paul Bergantino ............ 260,000(3) 14.7 2.75
Thomas J. Medrek ........... -- -- --
Jon Sherburne .............. -- -- --
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price Appreciation
Fair for Option
Value on Term (1)
Date of Grant Expiration -----------------------------
Name (per share) (2) Date 5% 10%
- ---------------------------- ----------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
William N. Giudice ......... $ 2.75 9/17/08 $6,905,400 $11,826,900
Michael Rubino ............. 0.30 3/12/08 2,878,200 4,615,200
Paul Bergantino ............ 2.75 9/17/08 3,520,400 6,029,400
Thomas J. Medrek ........... -- -- -- --
Jon Sherburne .............. -- -- -- --
</TABLE>
- ------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based on the initial public offering price. These
assumptions are not intended to forecast future appreciation of our stock
price. The potential realizable value computation does not take into
account federal or state income tax consequences of option exercises or
sales of appreciated stock.
(2) The grant date valuation is determined by the board of directors and is
consistent with the value used by Maker for accounting purposes to
determine if any compensation expense related to option grants is
reportable.
(3) The options become 20% vested on September 17, 1999. The remainder of the
options vest evenly on a quarterly basis over the next four years.
(4) The options became 20% vested on March 12, 1999. The remainder of the
options vest evenly on a quarterly basis over the next four years.
38
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 Vested Unvested (2) Exercisable Unexercisable (2)
- ---------------------------- ------------- ------------- -------- -------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
William N. Giudice ......... -- -- -- 510,000 -- $3,697,500
Michael Rubino ............. -- -- -- 180,000 -- 1,746,000
Paul Bergantino ............ -- -- -- 260,000 -- 1,885,000
Thomas J. Medrek ........... 206,400 (3) $2,030,976 -- 130,600 -- 1,285,104
Jon Sherburne .............. 67,200 (4) 661,248 -- 100,800 -- 991,872
</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 $10.00;
exercise prices range from $0.16 to $2.75.
(2) Options granted to executive officers under the 1996 Stock Option Plan are
generally immediately exercisable, but subject to an optional right of
repurchase by Maker at cost pursuant to the vesting schedule of each such
grant. Accordingly, these options are exercisable but would be subject to
repurchase since since they have not yet vested.
(3) Includes 114,275 shares which are subject to repurchase at cost by Maker
pursuant to stock repurchase agreements.
(4) Includes 33,600 shares which are subject to repurchase at cost 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 has the authority to take the following
actions:
(a) interpret and apply the 1996 Plan;
(b) determine the eligibility of an individual to participate in the 1996
Plan;
(c) approve 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) determine and allocate 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. Upon the effectiveness of the Company's 1999 Incentive Stock Plan, no
further options shall be granted under the 1996 Plan.
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 one of
the following:
(a) cash or a check payable to Maker in an amount equal to the exercise
price of the vested options;
(b) shares of Maker's common stock owned by the optionholder having a fair
market value equal in amount to the exercise price of the options being
exercised;
39
Management
<PAGE>
(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; or
(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 option holder or cancellation of shares covered by the option may be made
only with the consent of the Board if the payment or cancellation 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 the shares for which the option has been exercised have been
registered or qualified under the applicable federal or state securities laws,
or counsel for Maker has opined that the shares are exempt from the
registration requirements of applicable federal or state securities laws.
Under the 1996 Plan, at the option of the board of directors, options
granted may be designated as immediately exercisable but subject to a right of
repurchase pursuant to the vesting schedule of each specific grant.
The term of any option granted under the Plan is limited to ten years.
Upon the termination of an optionholder's employment with Maker, his or her
options shall terminate between 30 days and 12 months after that optionholder
leaves the employ of Maker.
As of March 31, 1999, 2,635,940 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 $8.50 per share.
1999 Non-employee Director Stock Option Plan
The 1999 Non-employee Director Stock 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 125,000 shares of common stock have been reserved for
issuance under the Director Plan, plus annual increases such that the total
number of shares subject to issuance shall be 125,000 shares, or 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 that he or she first becomes a non-employee director, unless
immediately prior to becoming a non-employee director, he or she was an
employee director of Maker. 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 at
that time 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
shall 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 shall
become immediately exercisable. Additionally, outstanding options 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 option holder's tenure as a director of Maker, or within 12
months after a 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 option holder other than by will or the
laws of descent and distribution, and each option is exercisable, during the
lifetime of the option holder, only by that option holder.
1999 Stock Incentive Plan
Maker's 1999 Stock Incentive 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
40
Management
<PAGE>
Incentive Plan is 2,600,000 shares plus annual cumulative increases on each
January 1 beginning in 2000 equal to 5% of Maker's issued and outstanding
common stock, calculated on a fully diluted basis, or a lesser amount as
determined by the board of directors. The maximum number of shares available
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 rules and regulations
which, 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 that 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 that option is at
least 110% of 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 500,000 shares, taking into account shares subject to options
granted and terminated, or repriced, during that 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 following twelve month period are automatically
accelerated.
The right of any option holder to exercise an option granted to him or her
shall not be assignable or transferable by the option holder other than by will
or the laws of descent and distribution, except that an option holder may
transfer options that are not incentive stock options to the option holder's
spouse or children or to a trust for the benefit of the option holder or the
option holder's spouse or children. Incentive stock options are exercisable
during the lifetime of the option holder only by the option holder.
An option granted to any employee option holder who ceases to be an
employee of Maker or one of its subsidiaries shall terminate on the seventh day
following the date on which that option holder ceases to be an employee of
Maker or one of its subsidiaries. If that termination of employment is because
of dismissal for cause or because the employee is in breach of any employment
agreement, the option will terminate immediately on the date the option holder
ceases to be an employee of Maker or one of its subsidiaries. If that
termination of employment is because the option holder has become permanently
disabled, the option shall terminate on the last day of the twelfth month from
the date that option holder ceases to be an employee. In the event of the death
of the option holder, 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 option holder 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 the option has accrued and is in
effect on the date the option holder ceases to be an employee of Maker or one
of its subsidiaries. In the event of the death of any option holder, the option
may be exercised by the estate of the option holder, or by any person or
persons who acquired the right to exercise the option by bequest or inheritance
or by reason of the death of the option holder.
The board of directors or 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 board of directors or
committee, in its sole discretion, shall determine and establish.
41
Management
<PAGE>
1999 Employee Stock Purchase Plan
The Maker 1999 Employee Stock Purchase Plan (Stock Purchase Plan) is
intended to provide a means whereby eligible employees may purchase common
stock of Maker through payroll deductions. Four hundred thousand (400,000)
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 persons whose customary
employment is less than twenty hours per week or five months or less per year
and 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
authority to make, administer and interpret 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 three month purchase periods within each year, with
each commencing on the first day of each three month period beginning February
1, May 1, August 1 and November 1 and continuing through the final day of such
three month period. The initial purchase period shall begin on a date
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. These 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 these funds for the purchase of shares of
Maker's common stock in accordance with the Stock Purchase Plan, Maker may use
these 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 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 eighty-five percent (85%) of this 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 750
shares or 3,000 shares annually, 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.
42
Management
<PAGE>
Limitation of Liability; Indemnification of Directors and Officers
In connection with the consummation of this offering, Maker will adopt and
file an Amended and Restated Certificate of Incorporation and Amended and
Restated By-Laws. As permitted by the Delaware General Corporation Law, Maker
has included in its Amended and Restated Certificate of Incorporation a
provision to eliminate the personal liability of its directors for monetary
damages for breach of their fiduciary duties as directors, subject to certain
exceptions. In addition, the Amended and Restated 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.
43
Management
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of Maker's common stock after the offering by each person who
beneficially owns more than 5% of the common stock; by each of our executive
officers and directors; and by all executive officers and directors as a group.
The number of shares outstanding after the offering assumes the consummation of
the concurrent private placement. 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 60 days of April 30, 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. Unless otherwise
indicated, the address of each of the beneficial owners identified is 73 Mount
Wayte Avenue, Framingham, MA 01702.
<TABLE>
<CAPTION>
Amount and Nature of Shares Beneficially Owned as of April 30,
1999
--------------------------------------------------------------
Percent of Total
Outstanding Shares
Shares of Common Beneficially Owned (1)
Outstanding Stock Issuable --------------------------
Shares of Upon Exercise Before the After the
Name Common Stock of Options Offering Offering
- ----------------------------------------------- -------------- ----------------- ------------ ----------
<S> <C> <C> <C> <C>
William N. Giudice (2) ........................ 1,243,112 510,000 12.1% 9.7%
Paul Bergantino (3) ........................... 1,122,619 260,000 9.7 7.8
Michael Rubino ................................ 20,000 160,000 1.3 1.0
Thomas J. Medrek .............................. 271,700 65,300 2.4 1.9
Jon Sherburne ................................. 67,200 100,800 1.2 *
Louis Tomasetta (4) ........................... 112,531 -- * *
Paul Low ...................................... -- 20,000 * *
Greylock Equity Limited Partnership ........... 2,643,378 -- 18.8 15.1
755 Page Hill Road, Suite A-100
Palo Alto, CA 94304
Roger Evans (5) ............................... 2,643,378 23,500 19.0 15.2
Bessemer Venture Partners (6) ................. 2,643,379 -- 18.8 15.1
1400 Old Country Road, Suite 407
Westbury, NY 11590
Rob Soni (7) .................................. 2,643,379 23,500 19.0 15.2
Bessemer Venture Partners
83 Walnut Street
Wellesley Hills, MA 02181
Level One Communications, Incorporated 1,209,103 -- 8.6 6.9
9750 Goethe Road
Sacramento, CA 95827
Norwest Venture Partners VI, L.P. ............. 1,471,140 -- 10.5 8.4
40 William Street, Suite 305
Wellesley, MA 02181
Weiss, Peck & Greer Venture Partners (8)
555 California Street, Suite 3130 1,378,984 -- 9.8 7.9
San Francisco, CA 94104
All directors and officers as a group
(10 persons) (2) (3) (4) (5) (7) (9) ......... 8,123,919 1,413,100 61.7 50.3
</TABLE>
- ------------
* Less than one percent
44
Principal Shareholders
<PAGE>
NOTES
(1) Includes shares from Column 1 and Column 2.
(2) Includes 197,234 shares of common stock owned by Tecumseh Limited
Partnership-I of which Mr. Giudice is the general partner. Also includes
150,000 shares held by the Piedmont 1999 Trust and 150,000 shares held by
the Acadia 1999 Trust. Mr. Giudice disclaims beneficial ownership of all
shares held by these two trusts.
(3) Includes 100,000 shares held by the Bergantino 1999 Grantor Retained
Annuity Trust and 100,000 shares held by the 1999 Irrevocable Trust. Mr.
Bergantino disclaims beneficial ownership of all shares held by these two
trusts.
(4) Includes 78,031 shares of common stock owned by the Tomasetta Trust of
which Dr. Tomasetta is the general partner.
(5) Includes shares owned by Greylock Equity Limited Partnership as indicated
above. 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 and the other general partners of
Greylock Equity Limited Partnership, Henry F. McCance, Howard E. Cox, Jr.,
David N. Strohm, William W. Helman and William S. Kaiser, share 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.
(6) Bessemer Venture Partners is the name used to refer to a group of
affiliated investment partnerships. Shares reflected 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). The general partner of the three
partnerships is Deer IV & Co. LLC. Also reflected in the Bessemer Venture
Partners shares are 387,895 shares owned by members of Deer IV & Co. LLC
and employees of entities related to the funds. Under certain
circumstances, Bessemer Venture Partners IV L.P. can direct their voting
on corporate matters. The members of Deer IV & Co. LLC are William T.
Burgin, Robert H. Buescher, Christopher Gabrieli, David J. Cowan, G. Felda
Hardymon and Rob L. Soni.
(7) 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.
(8) Weiss, Peck & Greer Venture Partners is the name used to refer to a group
of related investment entities. Shares reflected include 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) and WPG Information
Sciences Entrepreneur Fund, L.P. (29,285 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. are Gill Cogan, Barry
Eggers, Amal Johnson, Peter Nieh, Phillip Greer, Chris Schaepe and Geani
Delagardelle; these members have shared voting power over the funds named
herein.
(9) 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.
Except as otherwise specified above, 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.
45
Principal Shareholders
<PAGE>
CERTAIN TRANSACTIONS WITH AND STOCK ISSUANCES TO EXECUTIVE OFFICERS, DIRECTORS
AND PRINCIPAL SHAREHOLDERS
Registration Rights Agreement
The registration rights agreement among Maker and the holders of Class B
Convertible Preferred Stock and Class C Convertible Preferred Stock of Maker
provides that the Class B and Class C stockholders may require Maker to effect
the registration of shares of common stock held by such stockholders as a
result of the conversion of the preferred stock 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 limitations on
resale. 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
specific conditions and limitations. The holders of registrable shares have
waived their rights to include their shares in this offering. 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.
Redemption of Class A Preferred Stock
All of the outstanding shares of Class A Preferred Stock shall be redeemed
by Maker upon the closing of this offering. The following related parties hold
shares of Class A Preferred Stock which will be redeemed; these related parties
will receive amounts payable as indicated.
<TABLE>
<S> <C>
Bessemer Venture Partners IV, L.P. .......... $1,469,519
BVP IV Special Situations, L.P. ............. $ 133,710
Bessec Ventures IV, L.P. .................... $1,469,519
Greylock Equity Limited Partnership ......... $3,577,709
William Giudice ............................. $ 33,490
Tecumseh Limited Partnership-I .............. $ 168,949
</TABLE>
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. The
purchasers of such shares 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 employee benefit plan arrangements maintained by Maker and its
subsidiaries. The executive officers participate in employee benefit plans
under the same terms generally made available to other similarly situated
employees of Maker or its subsidiary 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".
46
Certain Transactions with and Stock Issuances to
Executive Officers, Directors and Principal Shareholders
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the offering and the concurrent private placement, the
authorized capital stock of Maker will consist of 100,000,000 shares of common
stock, $.01 par value per share, of which 17,536,983 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 Amended and Restated 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 Amended and Restated
Certificate of Incorporation does not provide for cumulative voting for the
election of directors. If shares of preferred stock are issued by Maker's board
of directors, the Amended and Restated Certificate of Incorporation eliminates
the rights of the holders of common stock to vote as a class on an increase or
decrease in the number of authorized shares of common stock. Holders of common
stock are entitled to receive ratably 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 holders of common stock upon liquidation. Holders
of common stock have no preemptive, subscription or redemption rights. There
are approximately 90 record holders of common stock.
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.
Registration Rights of Holders of Preferred Stock
Under the terms of the registration rights agreement among Maker and the
holders of Class B Convertible Preferred Stock and Class C Convertible
Preferred Stock, 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 4,554,433 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 conditions and
limitations affecting the ability to resell shares. See "Certain
Transactions--Registration Rights Agreement."
Concurrent Private Placement
In May 1999, Maker entered into a stock purchase agreement with Cisco.
Maker has agreed to sell 500,000 shares of common stock to Cisco at the initial
public offering price net of the underwriting discount. The stock purchase
agreement provides the following:
47
Description of Capital Stock
<PAGE>
Transfer Restrictions
Cisco has agreed not to sell, transfer, encumber or otherwise dispose of
any of the common stock acquired in the concurrent private placement in a
public or private sale for a period of 180 days following the closing of the
concurrent private placement.
Registration Rights
During the period between the ten month anniversary and two year
anniversary of the closing of the concurrent private placement, Cisco may
require Maker to register all but not less than all of its shares of common
stock under the Securities Act.
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 "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 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 66-2/3% 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.
48
Description of Capital Stock
<PAGE>
Director Liability
The Amended and Restated 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 Amended and Restated 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 Amended and Restated 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.
The 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.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be BankBoston,
N.A.
49
Description of Capital Stock
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering and the concurrent private placement,
Maker will have 17,536,983 outstanding shares of common stock. Of these shares,
the 3,000,000 shares offered hereby (3,525,000 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 14,536,983 shares of common stock outstanding upon closing of the
offering are "restricted securities" as that term is defined in Rule 144. Of
the remaining 14,536,983 shares, 13,907,782 shares are subject to lock-up
agreements (described below) and 500,000 shares will be subject to a lock-up
period of 180 days pursuant to the stock purchase agreement entered into with
Cisco in connection with the concurrent private placement.
Beginning 90 days after commencement of the offering, approximately
12,870,000 shares will become eligible for sale pursuant to Rule 144 or Rule
701 under the Securities Act ("Rule 701"). Upon expiration of the restricted
periods set forth in the lock-up agreements, an aggregate of 13,809,711 shares
will become immediately eligible for sale subject to the timing, volume, and
manner of sale restrictions of Rule 144. Commencing on January, 2001, all
outstanding shares not owned by affiliates of Maker (currently 1,684,531
shares) will be freely eligible for sale pursuant to Rule 144(k). In addition,
143,627 additional shares of common stock subject to outstanding vested stock
options 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
one percent of the number of shares of common stock then outstanding,
approximately 175,370 shares immediately after the completion of the offering
and the concurrent private placement or 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 stockholders owning upon completion of the offering, in the aggregate,
approximately 13,907,782 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 these 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 99,630 shares of
common stock are subject to these lock-up agreements. Maker has agreed not to
sell or otherwise dispose of any shares of common stock, other than options to
purchase common stock under existing stock option or stock purchase plans and
except for the issuance of common stock by Maker asconsideration for the
acquisition of businesses for a period of 180 days after the date of this
prospectus without the prior written consent of Lehman Brothers Inc.
50
Shares Eligible for Future Sale
<PAGE>
The holders of an aggregate of 5,054,433 shares of common stock or their
transferees are entitled to rights with respect to the registration of such
shares under the Securities Act. See "Description of Capital Stock-Registration
Rights of Holders of Preferred Stock," "Certain Transactions--Registration
Rights Agreement" and "Description of Capital Stock--Concurrent Private
Placement."
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.
51
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 .........
Salomon Smith Barney Inc. ........... ---------
Total .............................. 3,000,000
=========
</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 $1,000,000. 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 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 525,000 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
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
3,000,000 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.
Each of the officers and directors of Maker, and certain shareholders of
Maker, have agreed not to offer, sell or otherwise dispose of any shares of
common stock, directly or indirectly, or engage in hedging transactions with
respect to the common stock, for a period of 210 days with respect to one-third
of the shares, 180 days with respect to two-thirds of the shares, and 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 13,907,782 shares of
common stock and options to purchase an aggregate of 99,630 shares of common
stock. Maker has agreed not to sell or otherwise dispose of any shares of
common stock for a period of 180 days, subject to exceptions such as the
issuance of stock as consideration for the acquisition of businesses. 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. In
addition the 500,000 shares to be owned by Cisco following the concurrent
private placement will be subject to a lock-up arrangement for a period of 180
days. 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
52
Underwriting
<PAGE>
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
The common stock has been 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 specified 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 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 underwriters 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.
53
Underwriting/Legal Matters
<PAGE>
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.
WHERE YOU CAN FIND MORE 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. The SEC's toll free investor information service can be
reached at 1-800-SEC-0330.
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.
54
Experts/Where You Can Find More Information
<PAGE>
MAKER COMMUNICATIONS, INC. AND SUBSIDIARY
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 and March 31, 1999
(unaudited) ....................................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999
(unaudited) ....................................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended
December 31, 1996, 1997 and 1998 and the three months ended March 31, 1999
(unaudited) ....................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999
(unaudited) ....................................................................... 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.
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, March 31, 1999
----------------------- -------------------------
Pro forma
1997 1998 Actual (Note 2(c))
---------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ....................................... $ 10,865 $ 13,615 $ 14,275 $ 14,275
Accounts receivable, net of reserve of $90,000 at
December 31, 1998, March 31, 1999 and pro forma
March 31, 1999 ................................................ 330 932 923 923
Inventory ....................................................... 150 296 502 502
Prepaid expenses and other current assets ....................... 250 106 123 123
-------- --------- --------- ---------
Total current assets .......................................... 11,595 14,949 15,823 15,823
Property and equipment, less accumulated depreciation
and amortization ................................................ 703 952 1,121 1,121
Other assets ..................................................... 99 56 319 319
-------- --------- --------- ---------
Total assets .................................................. $ 12,397 $ 15,957 $ 17,263 $ 17,263
======== ========= ========= =========
Liabilities, Redeemable Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of note payable to a bank ....................... $ 145 $ 308 $ 525 $ 525
Accounts payable ................................................ 203 412 377 377
Accrued expenses ................................................ 544 1,820 2,224 2,224
Deferred revenue ................................................ 54 181 170 170
-------- --------- --------- ---------
Total current liabilities ...................................... 946 2,721 3,296 3,296
Note payable to a bank, less current portion ..................... 290 642 803 803
Convertible note payable (Note 6) ................................ -- 500 500 --
Commitments and contingencies (Note 9)
Redeemable preferred stock, at redemption value (Note 7) ......... 18,795 23,440 23,890 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 and March 31, 1999; no shares pro forma
Issued and outstanding--3,154,000 shares at December 31,
1997 and 1998 and March 31, 1999; no shares pro forma 32 32 32 --
Common stock, $.01 par value--
Authorized--15,195,710, 17,174,670, 17,174,670 and
100,000,000 shares at December 31, 1997 and 1998,
March 31, 1999 and pro forma March 31, 1999,
respectively
Issued and outstanding--5,402,400, 5,882,490, 6,098,800 and
13,932,233 shares at December 31, 1997 and 1998,
March 31, 1999 and pro forma March 31, 1999,
respectively ................................................. 54 59 61 139
Additional paid-in capital ...................................... 1 68 198 15,907
Accumulated deficit ............................................. (7,721) (11,505) (11,517) (11,517)
-------- --------- --------- ---------
Total stockholders' equity (deficit) .......................... (7,634) (11,346) (11,226) 4,529
-------- --------- --------- ---------
Total liabilities, redeemable preferred stock and
stockholders' equity (deficit) ............................. $ 12,397 $ 15,957 $ 17,263 $ 17,263
======== ========= ========= =========
</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>
Three Months Ended
Year Ended December 31, March 31,
----------------------------------------- ---------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Product ............................ $ 101 $ 1,231 $ 6,309 $ 758 $ 2,723
Software and maintenance ........... 241 543 1,385 261 439
--------- --------- ---------- --------- ----------
Total revenues ................... 342 1,774 7,694 1,019 3,162
Cost of revenues .................... 329 1,031 3,238 486 1,043
--------- --------- ---------- --------- ----------
Gross profit ........................ 13 743 4,456 533 2,119
--------- --------- ---------- --------- ----------
Operating expenses:
Research and development ........... 1,198 2,727 4,171 894 1,341
Selling and marketing .............. 332 883 2,078 443 515
General and administrative ......... 373 751 1,299 341 394
Litigation ......................... -- 462 1,118 171 --
--------- --------- ---------- --------- ----------
Total operating expenses ......... 1,903 4,823 8,666 1,849 2,250
--------- --------- ---------- --------- ----------
Loss from operations ................ (1,890) (4,080) (4,210) (1,316) (131)
Interest income ..................... 51 212 538 133 160
Interest expense .................... (132) (33) (82) (10) (41)
--------- --------- ---------- --------- ----------
Net loss ......................... $ (1,971) $ (3,901) $ (3,754) $ (1,193) $ (12)
========= ========= ========== ========= ==========
Net loss per share (Note 2(e)):
Basic and diluted
net loss per share ............... $ (1.30) $ (0.72) $ (0.66) $ (0.22) $ (0.00)
Basic and diluted
weighted average common shares
outstanding ...................... 1,515,998 5,383,080 5,646,822 5,418,506 5,967,190
Pro forma net loss per share
(Note 2(e)):
Pro forma basic and diluted
net loss per share ......................................... $ (0.31) $ (0.00)
Pro forma basic and diluted
weighted average common shares outstanding ................. 12,229,795 13,651,760
</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
Exercise of employee stock options
(unaudited) ........................... -- -- 216,310 2
Net loss (unaudited) ................... -- -- -- --
--------- ----- ---------- -----
Balance, March 31, 1999 (unaudited) ..... 3,154,000 32 6,098,800 61
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
Conversion of convertible note
payable into common stock
(unaudited) ........................... -- -- 125,000 1
---------- ----- ---------- -----
Pro forma balance, March 31, 1999
(unaudited) (Note 2(c)) ................. -- $ -- 13,932,233 $ 139
========== ===== ========== =====
<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)
Exercise of employee stock options
(unaudited) ........................... -- -- 130 -- 132
Net loss (unaudited) ................... -- -- -- (12) (12)
------ --- ------- -------- -------
Balance, March 31, 1999 (unaudited) ..... -- -- 198 (11,517) (11,226)
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) ..................... -- -- -- -- --
Conversion of convertible note
payable into common stock
(unaudited) ........................... -- -- 499 -- 500
------ --- ------- -------- -------
Pro forma balance, March 31, 1999
(unaudited) (Note 2(c)) ................. -- $-- $15,907 $(11,517) $ 4,529
====== === ======= ======== =======
</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>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------------- ------------------------
1996 1997 1998 1998 1999
------------ -------------- ------------ ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ...................................................... $ (1,971) $(3,901) $(3,754) $(1,193) $ (12)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities--
Depreciation and amortization ................................. 132 211 410 98 132
Issuance of convertible note payable in settlement of
litigation .................................................. -- -- 500 -- --
Changes in operating assets and liabilities--
Accounts receivable ......................................... (205) (125) (602) (10) 9
Inventory ................................................... (54) (96) (146) (82) (206)
Prepaid expenses and other current assets ................... (11) (229) 144 166 (17)
Accounts payable ............................................ 58 119 209 144 (35)
Accrued expenses ............................................ 5 445 1,276 145 404
Deferred revenue ............................................ 58 (4) 127 110 (11)
-------- ------- ------- ------- -------
Net cash (used in) provided by operating activities ......... (1,988) (3,580) (1,836) (622) 264
-------- ------- ------- ------- -------
Cash Flows from Investing Activities:
Purchase of property and equipment ............................ (206) (587) (659) (246) (301)
(Increase) decrease in other assets ........................... -- (93) 43 46 (263)
-------- ------- ------- ------- -------
Net cash used in investing activities ....................... (206) (680) (616) (200) (564)
-------- ------- ------- ------- -------
Cash Flows from Financing Activities:
Borrowings under note payable to a bank ....................... -- 436 689 -- 450
Payments on note payable to a bank ............................ -- -- (174) (44) (72)
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 -- 450
Proceeds from exercise of stock options ....................... 1 -- 72 2 132
-------- ------- ------- ------- -------
Net cash (used in) provided by financing activities ......... 6,692 10,534 5,202 (42) 960
-------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents ........... 4,498 6,274 2,750 (864) 660
Cash and cash equivalents, beginning of period ................. 93 4,591 10,865 10,865 13,615
-------- ------- ------- ------- -------
Cash and cash equivalents, end of period ....................... $ 4,591 $10,865 $13,615 $10,001 $14,275
======== ======= ======= ======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest ........................ $ 176 $ 129 $ 65 $ 10 $ 32
======== ======= ======= ======= =======
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
(including data applicable to unaudited periods)
(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) Interim Financial Statements
The accompanying consolidated balance sheet as of March 31, 1999, and the
statements of operations and cash flows for the three months ended March 31,
1998 and 1999, and the statement of stockholders' equity (deficit) for the
three months ended March 31, 1999 are unaudited, but in the opinion of
management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of results for these interim
periods. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although Maker believes that the disclosures
included are adequate to make the information presented not misleading. The
results of operations for the three months ended March 31, 1999, are not
necessarily indicative of the results to be expected for the entire fiscal
year.
(c) Unaudited Pro Forma Presentation
The unaudited pro forma consolidated balance sheet as of March 31, 1999
and the pro forma net loss per share for the three months ended March 31, 1999
reflect 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 and the conversion of the convertible
note payable into 125,000 shares of common stock to occur prior to or upon the
closing of the proposed initial public offering (see Note 6).
(d) 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.
(e) 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
F-7
<PAGE>
Maker Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Continued)
(including data applicable to unaudited periods)
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 weighted total of 71,585, 491,772,
1,502,553, 1,045,690 and 1,930,358 common shares have been excluded from the
computation of diluted weighted average shares outstanding for the years ended
December 31, 1996, 1997 and 1998 and the three months ended March 31, 1998 and
1999, 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. In accordance with the SEC Staff
Accounting Bulletin No. 98, Earnings Per Share in an Initial Public Offering,
the Company determined that there were no nominal issuances of the Company's
common stock prior to the Company's planned initial public offering.
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) Cost of Revenues
Cost of revenues 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 associated with supporting Maker's
customers. Cost of revenues also includes software costs, consisting of the
cost of the media on which it is delivered, which amounts are not significant.
(g) 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.
(h) Inventory
Inventory, which consists of finished goods, is stated at the lower of
cost (first-in, first-out) or market.
(i) 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 and March 31, 1999
consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
-------------------- ----------
1997 1998 1999
-------- --------- ----------
<S> <C> <C> <C>
Computer equipment ............... $ 634 $1,236 $1,420
Computer software ................ 372 422 455
Furniture and fixtures ........... 51 53 84
Leasehold improvements ........... 43 48 101
------ ------ ------
1,100 1,759 2,060
Less--accumulated depreciation and
amortization .................... (397) (807) (939)
------ ------ ------
$ 703 $ 952 $1,121
====== ====== ======
</TABLE>
F-8
<PAGE>
Maker Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Continued)
(including data applicable to unaudited periods)
(j) 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 to Maker's financial position or results of operations.
Therefore, Maker charges all research and development expenses to operations in
the period incurred.
(k) 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.
(l) 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.
(m) 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 $90,000 in allowances for estimated losses at December
31, 1998 and March 31, 1999.
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%
March 31, 1999 ............ 2 44%
</TABLE>
F-9
<PAGE>
Maker Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Continued)
(including data applicable to unaudited periods)
(n) 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.
(o) 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 consolidated statement of operations or disclosed in the notes to
consolidated 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.
(p) 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 and March 31, 1999
consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------ March 31,
1997 1998 1999
------ --------- ----------
<S> <C> <C> <C>
Payroll and related costs ......... $204 $ 520 $ 658
Production costs .................. -- 231 234
Warranty .......................... 16 140 140
Other ............................. 324 929 1,192
---- ------ ------
$544 $1,820 $2,224
==== ====== ======
</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.
F-10
<PAGE>
Maker Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Continued)
(including data applicable to unaudited periods)
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 4,057
Valuation allowance ......................... (2,302) (4,057)
-------- --------
$ -- $ --
======== ========
</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 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 and March 31, 1999.
(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. As of March 31, 1999, Maker had $1,000,000 available under the
modified equipment 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 and March 31, 1999, Maker was in compliance with all such
covenants.
The maturities under the capital expenditure lines of credit as of March
31, 1999 are as follows:
<TABLE>
<CAPTION>
(In thousands)
---------------
<S> <C>
1999 (nine months) .......... $ 393
2000 ........................ 438
2001 ........................ 351
2002 ........................ 146
------
$1,328
======
</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
F-11
<PAGE>
Maker Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Continued)
(including data applicable to unaudited periods)
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. In April 1999, LSI notified Maker of
its intention to convert the note to 125,000 shares of Maker's common stock.
Such conversion will occur prior to or upon the closing of the proposed initial
public offering.
(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 and March
31, 1999, 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.
(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 and March 31, 1999, the
preference in liquidation and redemption value 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
F-12
<PAGE>
Maker Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Continued)
(including data applicable to unaudited periods)
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 and March 31, 1999, the preference in liquidation and
redemption value was approximately $4,556,000 and $5,006,000, respectively.
Class C 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.
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 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 Convertible
Preferred Stock .................. -- -- 29,900 89 -- -- 89
Issuance of Class C 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
Issuance of Class C Convertible
Preferred Stock .................. -- -- -- -- 102,272 450 450
--------- ------ --------- ------- --------- ------ -------
Balance, March 31, 1999 ............ 5,380,000 $8,635 3,416,575 $10,249 1,137,858 $5,006 $23,890
========= ====== ========= ======= ========= ====== =======
</TABLE>
(8) Stockholders' Equity (Deficit)
(a) Common Stock
In 1998, Maker increased the authorized shares of common stock to
17,174,670. Upon completion of the proposed initial public offering, the
authorized capital stock will be 100,000,000 shares of common stock and
1,000,000 shares of preferred stock. As of March 31, 1999, Maker had reserved
3,416,575, 1,137,858 and 3,154,000 shares of common stock for the conversion of
Class B convertible preferred stock, Class C 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 convertible preferred stock and Class C
convertible preferred stock and superior to common
F-13
<PAGE>
Maker Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Continued)
(including data applicable to unaudited periods)
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 Plans
1996 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 issued under the 1996 Plan may
be either incentive stock options or nonqualified stock options at the
discretion of the Board of Directors. 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. Under
the 1996 Plan, at the option of the Board of Directors, certain option grants
may be immediately exercisable but subject to a right of repurchase at cost at
the option of the Board of Directors, pursuant to the vesting schedule of such
grant. In addition, upon a change in control of Maker, as defined, the
exercisability of options due to vest during the following twelve month period
are automatically accelerated. Upon the effectiveness of the Company's 1999
Incentive Stock Plan, no further options shall be granted under the 1996 Plan.
1999 Incentive Stock Plan
In April 1999, the Board of Directors approved the 1999 Incentive Stock
Plan (1999 Plan) permitting the grant of stock options, which may be either
incentive stock or nonqualified options and stock awards. This plan will be
effective upon the successful closing of Maker's proposed initial public
offering. The maximum number of shares of Maker's common stock available for
stock options and stock awards granted under the 1999 Plan is 2,600,000 plus
annual cumulative increases on each January 1, beginning in 2000 equal to (a)
5% of Maker's issued and outstanding common stock calculated on a fully diluted
basis or (b) a lesser amount as determined by the Board of Directors.
Options designated as incentive stock options may be granted only to
employees of Maker. Non-qualified options may be granted to any officer,
employee, consultant or director of Maker. 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, unless the purchase price for the stock under such option is at least
110% of 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 500,000 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. Upon a change in control of Maker, the exercisability of options due
to vest during the twelve month period following the change in control are
automatically accelerated.
1999 Non-Employee Director Option Plan
In January 1999, the Board of Directors adopted a Director Option Plan
(Director Plan) pursuant to which 125,000 shares of common stock have been
reserved for future issuance, plus annual increases such
F-14
<PAGE>
Maker Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Continued)
(including data applicable to unaudited periods)
that the total number of shares subject to issuance shall be (i) 125,000 on
January 1 of each 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 in the Director Plan, all unvested options shall vest immediately.
Options granted to directors will be accounted for in accordance with SFAS No.
123 based upon the guidance provided in the exposure draft dated March 31, 1999
for the proposed interpretation, Accounting for Certain Transactions Involving
Stock Compensation, of APB No. 25. The fair value of directors' grants will be
measured and included in the consolidated statement of operations.
1999 Employee Stock Purchase Plan
In April 1999, the Board of Directors approved the Maker 1999 Employee
Stock Purchase Plan (the Stock Purchase Plan). This plan will be effective upon
the successful closing of Maker's proposed initial public offering. The Stock
Purchase Plan is intended to provide a means whereby eligible employees may
purchase, on a quarterly basis, common stock of Maker through payroll
deductions. Such payroll deductions cannot amount to less than 1% nor more than
10% of the participant's regular compensation and cannot exceed $25,000 or
3,000 shares per year. The purchase price of shares of Maker common stock under
the Stock Purchase Plan is the lower of 85% of the fair market value of a share
of common stock for the first business day of the relevant purchase period or
85% of such value for the relevant exercise date. 400,000 shares of Maker
common stock have been reserved for issuance under the Stock Purchase Plan.
Maker will account for the Stock Purchase Plan in accordance with APB No. 25
and accordingly, no compensation cost will be recognized under the Stock
Purchase Plan. Maker will elect the "disclosure only" alternative under SFAS
No. 123.
The following table summarizes option activity under the stock plans:
<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
Granted ................................ 249,000 4.40-8.50 6.61
Exercised .............................. (216,310) .05-4.40 .61
Canceled ............................... (15,000) .30 .30
--------- ----------- -------
Outstanding, March 31, 1999 ............ 2,635,940 $ .05-8.50 $ 1.98
========= =========== =======
Exercisable, March 31, 1999 ............ 294,578 $ .05-8.50 $ 1.32
========= =========== =======
</TABLE>
F-15
<PAGE>
Maker Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Continued)
(including data applicable to unaudited periods)
The following table summarizes information relating to currently
outstanding and exercisable options as of March 31, 1999.
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------------- -----------------------
Weighted Average Weighted Weighted
Remaining Average Average
Range of Number of Contractual Exercise Number of Exercise
Exercise Prices Shares Life (Years) Price Shares Price
- ----------------- ----------- ------------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .05 333,290 7.54 $ .05 154,840 $ .05
.16 326,850 8.27 .16 43,538 .16
.30 383,050 8.95 .30 31,200 .30
.75 270,000 9.23 .75 -- --
2.00 - 2.75 818,000 9.46 2.74 -- --
3.75 - 4.40 370,750 9.61 3.92 45,000 4.33
8.50 134,000 6.58 8.50 20,000 8.50
--------- -------
2,635,940 294,578
========= =======
</TABLE>
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 and
three months ended March 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------------------------- ---------------------------
1996 1997 1998 1998 1999
-------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Risk-free interest rates .......................... 6.09% 5.89-6.46% 4.47-5.49% 5.59% 4.90%
Expected dividend yield ........................... -- -- -- -- --
Expected life ..................................... 4 years 4 years 4 years 4 years 4 years
Expected volatility ............................... 60% 60% 60% 60% 60%
Weighted average fair value of options granted .... $.04 $.09 $1.02 $.15 $2.87
Weighted-average remaining contractual life of
options outstanding ............................. 9.81 years 9.27 years 9.13 years 9.14 years 8.85 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>
Three Months Ended
Year Ended December 31, March 31,
-------------------------------------- ------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net loss:
As reported ......................... $ (1,971) $ (3,901) $ (3,754) $ (1,193) $ (12)
Pro forma ........................... (1,974) (3,929) (3,967) (1,201) (308)
Basic and diluted net loss per share:
As reported ......................... $ (1.30) $ (0.72) $ (0.66) $ (0.22) $ (0.00)
Pro forma ........................... (1.30) (0.73) (0.70) (0.22) (0.05)
</TABLE>
(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
F-16
<PAGE>
Maker Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Continued)
(including data applicable to unaudited periods)
currently involved in any litigation which, in management's opinion, would have
a material adverse effect on its business, operating results or financial
condition.
(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, $278,000, $67,000 and $95,000 for the years ended December 31, 1996,
1997 and 1998 and three months ended March 31, 1998 and 1999, 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 or the three months
ended March 31, 1999.
(11) Segment, Significant Customer and Supplier Information
Maker operates in one industry segment, communications processors and
derives substantially all of its revenues from US customers. Maker had a total
of three customers whose revenue represented a significant percentage of total
revenue in certain or all years or periods as follows:
<TABLE>
<CAPTION>
For the year For the three
ended months
December 31, ended March 31,
--------------- ---------------
1997 1998 1998 1999
------ ------ ------ -----
<S> <C> <C> <C> <C>
Customer A ......... 32% 29% 17% 36%
Customer B ......... 23 16 17 15
Customer C ......... -- 13 -- 12
</TABLE>
Maker currently outsources substantially all manufacturing, assembly and
test of communications processors to one outside foundry.
F-17
<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 ................................... $ 12,310
NASD filing fee ........................................ 4,928
Nasdaq National Market fee ............................. 95,000
Printing expenses ...................................... 200,000
Legal fees and expenses ................................ 200,000
Accounting fees and expenses ........................... 200,000
Transfer agent and registrar fees and expenses ......... 25,000
Miscellaneous .......................................... 262,762
----------
Total .......................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law, Maker's Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws 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 Amended
and Restated Certificate of Incorporation and Amended and Restated Bylaws 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
For the three year period ending March 31, 1999, Maker has issued the
following securities, none of which has 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 accredited investors. 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 accredited investors. In October 1997, Maker
issued an additional 20,866 shares of Class A Redeemable Preferred Stock at
$1.605 per share and 20,866 shares of common stock at $0.01 per share to a
stockholder who was an accredited investor in exchange for the conversion of a
note payable 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
II-1
<PAGE>
Maker, for an aggregate purchase price of approximately $9,000,000, or $3.00
per share, to a total of six accredited investors. On November 24, 1997 Maker
issued and sold an aggregate of 386,673 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 $1,160,000, or
$3.00 per share, to a total of 24 accredited and 17 non-accredited investors.
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 12
accredited and 25 non-accredited investors. 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 accredited investors.
5. Upon conversion of a convertible note, Maker will issue 125,000 shares
of common stock to LSI.
6. From October 15, 1996 to March 31, 1999, Maker issued to its employees,
officers, directors and consultants (Maker's public relations and executive
search firms) options to purchase an aggregate of 4,026,340 shares of its
common stock, at exercise prices ranging from $.05 per share to $8.50 per
share, pursuant to Maker's 1996 Stock Option Plan and 1999 Non-Employee
Director Plan.
7. From October 22, 1996 to March 31, 1999, Maker issued an aggregate of
718,800 shares of its common stock upon the exercise of options at exercise
prices ranging from $.05 per share to $4.40 per share.
The sales of securities set forth in paragraphs 1-7 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 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. The sale of securities set forth in paragraph 7 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.
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 Maker
+3.2 Form of Amended and Restated Bylaws of Maker
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
[dag]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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibits
No. Description of Documents
- --- ------------------------
<S> <C>
+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
+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
+10.10 1999 Stock Incentive Plan
+10.11 1999 Employee Stock Purchase Plan
+10.12 1999 Non-Employee Director Stock Option Plan
+10.13 Form of Indemnification Agreement executed by the Directors and certain officers of Maker
+10.14 Severance Agreement with Michael Rubino, dated January 30, 1998
10.15 Stock Purchase Agreement between Maker and Cisco Systems, Inc., dated as of May 5, 1999
+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 for Paul Low
+27.1 Financial Data Schedule
+27.2 Financial Data Schedule
</TABLE>
- ------------
[dag]Confidential treatment requested as to certain portions, which portions
have been omitted and filed separately with the Commission.
+ Previously filed
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 amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in Framingham, Massachusetts, on May 6, 1999.
MAKER COMMUNICATIONS, INC.
By: /s/ William N. Giudice
---------------------------
William N. Giudice, President and
Chief Executive Officer
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. Giudice President, Chief Executive
- ------------------------- Officer and Director
William N. Giudice (principal executive officer) May 6, 1999
/s/ Michael Rubino Vice President, Finance and
- ------------------------- Operations, Chief Financial Officer,
Michael Rubino Treasurer and Secretary (principal
financial and accounting officer) May 6, 1999
*
- -------------------------
Roger Evans Director May 6, 1999
*
- -------------------------
Rob Soni Director May 6, 1999
*
- -------------------------
Louis Tomasetta Director May 6, 1999
*
- -------------------------
Paul R. Low Director May 6, 1999
* /s/ William N. Giudice
-----------------------
William N. Giudice, as
attorney-in-fact May 6, 1999
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description of Documents
- --- ------------------------
<S> <C>
1.1 Form of Underwriting Agreement
+3.1 Amended and Restated Certificate of Incorporation of the Registrant
+3.2 Amended and Restated Bylaws of the Registrant
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
+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
+10.10 1999 Stock Incentive Plan
+10.11 1999 Employee Stock Purchase Plan
+10.12 1999 Non-Employee Director Stock Option Plan
+10.13 Form of Indemnification Agreement executed by the Directors and certain officers of Maker
+10.14 Severance Agreement with Michael Rubino, dated January 30, 1998
10.15 Stock Purchase Agreement between Maker and Cisco Systems, Inc., dated as of May 5, 1999
+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 for Paul Low
+27.1 Financial Data Schedule
+27.2 Financial Data Schedule
</TABLE>
- ------------
[dag]Confidential treatment requested as to certain portions, which portions
have been omitted and filed separately with the Commission.
+ Previously filed
3,000,000 Shares
MAKER COMMUNICATIONS, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
May__, 1999
LEHMAN BROTHERS INC.
BT ALEX. BROWN INCORPORATED
SALOMON SMITH BARNEY INC.
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 3,000,000 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 525,000 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"). You are acting as representatives
(the "Representatives") of the Underwriters and represent that the Underwriters
have authorized you to sign this Agreement on their behalf and to act in the
manner set forth in this Agreement.
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, as amended (the "Securities Act"), and the rules and
regulations (the "Rules 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 the
Representatives. (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
<PAGE>
statement, or the most recent post-effective amendment thereto, if any, was
declared effective by the Commission; "Effective Date" means the date of
the 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 and to the extent that certain
information has been deleted therefrom pursuant to a request for
confidential treatment under the Rules and Regulations.
(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 corporate power and authority
necessary to own or hold their respective properties and to conduct the
businesses in which they are engaged; and none of
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the subsidiaries of the Company is a "significant subsidiary", as such term
is defined in Rule 405 of the Rules and Regulations.
(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) Except as described in the Registration Statement, there are no
contracts, agreements or understandings between the Company and any person
granting such person
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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.
(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
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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.
(o) Except as described in the Registration Statement, 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 by governmental authorities or 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 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.
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<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 3,000,000 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 forth 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 525,000 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 to a bank account designated by the Company. 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
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<PAGE>
Option Stock as to which the option is being exercised and the date and time, as
determined by the 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)
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<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;
(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
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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 (i) the
Stock, (ii) shares of Common Stock 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 and (iii) shares of Common Stock issued as consideration for the
acquisition of one or more businesses provided that such Common Stock
issued as consideration for the acquisition of one or more businesses
may not be resold prior to the expiration of the 180-day period
referenced above), 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 without the prior
written consent of Lehman Brothers Inc., for a period of 150 days after
the date of the final prospectus at which time the foregoing
restrictions shall not apply to one-third of such shares of Common
Stock, and upon the expiration of 180 days after the date of the final
prospectus the foregoing restrictions shall not apply to an additional
one-third of the shares of Common Stock so owned as of the date of the
final prospectus, and upon the expiration of 210 days after the date of
the final prospectus the foregoing restrictions shall expire as to all
such shares of Common Stock;
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(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;
(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 5(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.
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(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.
(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, a Professional Corporation,
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; the Company is duly
qualified to do business and is in good standing as a
foreign corporation in the State of California; and the
Company and each of its subsidiaries 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) Except as set forth in the Registration Statement,
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;
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(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 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 and other financial
information 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 material 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
12
<PAGE>
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 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, except as described in the Registration
Statement.
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) such counsel has participated in
the preparation of the Registration Statement and the Prospectus and in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company
and representatives of and counsel for the Company at which the
contents of the Registration Statement and the Prospectus were
discussed and, although such counsel has not independently verified and
is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (except as otherwise stated in
the opinion of such counsel), on the basis and subject to the
foregoing, no facts have come to the attention of such counsel which
lead it to believe that the Registration Statement (except for the
financial statements, supporting schedules and other financial data
included therein or omitted therefrom, as to which no belief need be
expressed), 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
13
<PAGE>
Prospectus (except for the financial statements, supporting schedules
and other financial data included therein or omitted therefrom, as to
which no belief need be expressed), at the time the Prospectus was
issued or at the applicable Delivery Date, contains or contained any
untrue statement of a material fact or omits or omitted 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.
(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.
(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
14
<PAGE>
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.
(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.
15
<PAGE>
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 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
16
<PAGE>
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 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
17
<PAGE>
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 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
18
<PAGE>
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 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
19
<PAGE>
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.
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 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: President (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
20
<PAGE>
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.
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
SALOMON SMITH BARNEY INC.
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
Salomon Smith Barney Inc.
---------
Total 3,000,000
=========
</TABLE>
May 6, 1999
Maker Communications, Inc.
73 Mount Wayte Avenue
Framingham, MA 01702
Ladies and Gentlemen:
We have acted as counsel to Maker Communications, Inc., a Delaware
corporation (the "Company"), in connection with proceedings being taken to
register under the Securities Act of 1933, as amended, up to 3,525,000 shares of
the Company's Common Stock, $.01 par value per share (the "Common Stock")
pursuant to a Registration Statement on Form S-1 (File No. 333-74293) (the
"Registration Statement"), which includes 525,000 shares which may be sold upon
exercise of the underwriters' overallotment option described in the Registration
Statement.
As such counsel, we have examined (i) certain corporate records of
the Company, including its Amended and Restated Certificate of Incorporation,
its Amended and Restated Bylaws, stock records and Minutes of Meetings of its
Board of Directors; (ii) a Certificate of the Secretary of State of the State of
Delaware as to the legal existence of the Company; and (iii) such other
documents as we have deemed necessary as a basis for the opinions hereinafter
expressed.
Based upon the foregoing, and having regard for such legal
considerations as we deem relevant, we are of the opinion that:
1. The Company is a validly existing corporation under the
laws of the State of Delaware.
2. The Company, as of the effective date of the foregoing
Articles of Amendment, will be authorized to issue
100,000,000 shares of Common Stock, par value $.01 per
share, and 1,000,000 shares of Preferred Stock, par value
$.01 per share.
3. When issued and sold under the circumstances contemplated
in the Registration Statement, the shares of Common Stock
offered by the Company will be duly authorized, validly
issued, fully paid and nonassessable.
<PAGE>
Maker Communications, Inc.
May 6, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ HUTCHINS, WHEELER & DITTMAR
A Professional Corporation
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 for a period of
three (3) years 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.
IBM/Maker Page 2 of 17
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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 IBM shall use commercially reasonable efforts to meet all Milestone and
Prototype delivery schedules.
24.3 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 Buyer may request changes to any Product design during the course of the
SOW by submitting a written request to IBM. Upon receipt by IBM of any
such request, IBM shall promptly inform Buyer in writing of the effect
of the requested change on the SOW including estimated completion of the
design work to incorporate any requested changes and applicable price
increase(s), if any. IBM shall immediately halt work until the Buyer and
IBM agree, in writing, to changes in pricing, completion date and any
other terms of the SOW, which are affected by such request for change.
If Buyer fails to order a restart of work within fifteen calendar days,
then the cancellation charges in Section 9.0 of Attachment C will apply.
4.5 Buyer may, for the applicable unit price specified in Section 6.0 of
Attachment C, order Prototypes in addition to the quantity included in
the NRE Charges at any time before five (5) working days prior to RTM
signoff. Subject to the RTM signoff and adequate yield from the initial
wafer lot, IBM shall use reasonable efforts to deliver such additional
Prototypes within five (5) working days of the estimated delivery date
for Prototypes.
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 All computer data provided to IBM by Buyer supplied pursuant to this
Agreement will be, to the best of supplier's knowledge, free from any
virus, worm or other routines that would permit unauthorized access or
otherwise harm software, hardware or data.
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.
IBM/Maker Page 3 of 17
<PAGE>
Signature Copy
6.0 PURCHASE ORDERS
6.1 Buyer shall order NRE Services by issuing written purchase orders.
Purchase orders for NRE Services will be deemed accepted by IBM unless
rejected in writing by IBM, specifying the reasons for rejection. IBM
shall make reasonable efforts to make any such rejection within [**]
calendar days, but in no case later than [**] calendar days after IBM's
receipt of such purchase order.
6.2 Buyer shall order Products by issuing written purchase orders. Purchase
orders for Products must be received by IBM in advance, with at least
the Purchase Order Lead Time specified in Attachment C, to allow IBM to
meet Buyer's requested Shipment Date. Requested Shipment Dates will be
deemed accepted (subject to the Purchase Order Lead Time) by IBM, unless
IBM provides buyer with written notice of IBM's rejection of such
purchase order. IBM shall make reasonable efforts to make any such
rejection within [**] calendar days, but in no case later than [**]
calendar days after IBM's receipt of such purchase order. If so
accepted, a requested Shipment Date shall constitute a Scheduled
Shipment Date. Subject to IBM's written acceptance, Buyer may request an
improved Scheduled Shipment Date. Such acceptance shall not be
unreasonably withheld by IBM.
6.3 Purchase orders for Products will be deemed accepted by IBM unless
rejected in writing by IBM, specifying the reasons for rejection. IBM
shall make reasonable efforts to make any such rejection within [**]
calendar days, but in no case later than [**] calendar days after IBM's
receipt of such purchase order. Purchase orders for Products may only be
rejected by IBM if such purchase order requests (i) a quantity of
Products that exceeds the most recent Product demand forecast accepted
by IBM; or (ii) requests a shipment date inconsistent with Purchase
Order Lead Time; or (iii) does not comply with the terms and conditions
of this Agreement, or (iv) if Buyer is in breach of this Agreement and
beyond the cure period.
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.
IBM/Maker Page 4 of 17
<PAGE>
Signature Copy
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 Buyer is responsible for all state and federal sales and use taxes
related to Products, except for IBM's own corporate income taxes.
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 AND END OF
LIFE NOTICE
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 In the event that IBM determines to discontinue the manufacture of a
Product, IBM will provide Customer with at least [**] prior written
notice of any such discontinuance. Customer shall place any and all
orders for such Product within [**] after it receives such notice.
Customer must take final delivery of all Product under any such orders
on or before the date that IBM has notified Customer that such Product
will be discontinued. All such orders will be completed and filled by
IBM in the ordinary course of business and in accordance with the terms
of this Agreement.
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM/Maker Page 5 of 17
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12.0 ENGINEERING CHANGES
12.1 IBM may implement Mandatory Engineering Changes. IBM will provide Buyer
written notice of any Mandatory Engineering Changes that affect form,
fit, or function of the Product as soon as reasonably possible.
12.2 For all previously shipped Product not incorporating Mandatory
Engineering Changes, IBM may provide replacement Products (including
parts, materials and documentation) [**]. Buyer must use reasonable
efforts to install Mandatory Engineering Changes on all Products in its
inventory. If IBM requests the return of Products displaced by
installation of replacement Products, Buyer will promptly return any
displaced Products to IBM's designated U.S. location after installation
of such replacement Products, [**].
12.3 In addition to Mandatory Engineering Changes, IBM may implement
Engineering Changes that result in cost reductions to the Product
("Elective Engineering Changes") with prior written approval from Buyer.
Such approval shall not be unreasonably withheld. IBM shall give Buyer
prompt written notice of Elective Engineering Changes. [**]
12.4 IBM may make available other Engineering Changes ("Optional Engineering
Changes"). The cost of any Optional Engineering Changes that Buyer
desires to implement will be borne by Buyer and will be determined
through a written request for quote process.
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
3.2.2 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
13.3.2 Either party receives a claim or charge, or otherwise has a
reasonable basis to believe any time during the term of this Agreement,
that any of the other parties Deliverable Items infringe third party
intellectual property rights.
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 Either party may terminate this Agreement without cause upon twelve (12)
months prior written notice to the other. If Buyer is the terminating
party, all previously accepted purchase orders will be filled, but IBM
shall not be obligated to accept further purchase orders after receiving
notice. If IBM is the terminating party, IBM will continue to accept new
purchase orders pursuant to Section 6.0 during the notice period.
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 Within thirty (30) days after filling all outstanding purchase orders
after termination, IBM shall provide Buyer with a refund of any net
credit remaining after all amounts due have been applied.
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM/Maker Page 6 of 17
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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 Any unit of Product that fails to conform to the warranty of Section
14.1, while under warranty, may be returned, freight collect, to the
location IBM designates for repair, replacement or credit, at IBM's
discretion, provided, however, that IBM will provide a credit upon
Maker's reasonable request. IBM will within a reasonable time, but no
sooner than Purchase Order Lead Time repair or replace such units or
provide a credit to Buyer for the purchase price paid for such units by
Buyer. IBM will ship replacement units back to Buyer, transportation
prepaid by IBM, and such units of Product will be considered newly
delivered for warranty purposes.
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
All information exchanged under this Agreement is subject to the terms
of the separate agreement for exchange of confidential information
(Agreement Number V1424) as executed between the parties on December
9,1996.
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 Buyer represents, and IBM acknowledges Buyer's representation, that all
Buyer Deliverable Items for the Products are the property of Buyer.
Buyer represents and warrants it is the rightful owner, or authorized
licensee (with all requisite rights to sublicense) of the Buyer
Deliverable Items and all other designs, information, and materials
supplied to IBM hereunder, and that no part of such materials knowingly
incorporate or infringe the intellectual property of any third party.
Buyer and/or its suppliers shall have and retain all intellectual
property rights associated with any intellectual property furnished by
Buyer, but excluding any intellectual property furnished by or for IBM.
17.2 IBM or its licensors shall retain and have all intellectual property
rights (including, without limitation, mask work rights) associated with
any intellectual property furnished by IBM in connection with this
Agreement, including without limitation, (i) all base array layers, (ii)
all IBM-licensed library elements (including, without limitation, any
megafunctions or cores), and (iii) all design methodologies and tools,
(iv) all IBM-furnished modifications of any of the foregoing. To the
extent Buyer has access to such intellectual property, Buyer shall use
such intellectual property solely for the purpose of designing
Prototypes and Products for manufacture pursuant to this Agreement.
Buyer hereby conveys to IBM any intellectual property rights it may
acquire therein. IBM represents and warrants, and Buyer acknowledges
IBM's representation, that IBM is the rightful owner or authorized
licensee of all intellectual property furnished by IBM in connection
with this Agreement.
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17.3 IBM shall own any masks made by IBM using logic data provided by Buyer.
IBM will use any tangible netlist tape(s), and tangible GDS II tape(s)
received from Buyer or generated exclusively for Buyer hereunder, and
any masks made from such GDS II tape(s), only to manufacture Products
for sale solely and exclusively to Buyer.
17.4 Except as set forth in section 17.2, if in the course of performance
under this Agreement either party discovers or invents any process,
pattern, device or other invention, that party shall be deemed the sole
owner of such discovery or invention. In the event any such invention is
jointly discovered or invented by the parties, the parties shall be
deemed joint owners of such discovery or invention without any duty of
accounting.
17.5 The parties understand and agree that no license or other right is
granted herein to either party, directly or by implication, estoppel or
otherwise, with respect to any know-how, inventions, patents, trade
secrets, copyrights, mask works or other intellectual property rights,
except as expressly set forth in this Agreement. No additional license
or other right, express or implied, shall arise from the consummation of
this Agreement, or from any acts, statements or dealings leading to such
consummation.
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.
IBM/Maker Page 8 of 17
<PAGE>
Signature Copy
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 In all situations involving non-conforming or defective Products
furnished under this Agreement as set forth in Section 14.1, Buyer's
exclusive remedy is the replacement of the Products or a credit to Buyer
of the purchase price paid for such units by Buyer, at IBM's discretion,
provided, however, that IBM will provide a credit upon Maker's
reasonable request.
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 Neither party to this Agreement may assign its obligations or delegate
its duties in whole or in part without the prior written consent of the
other except that IBM may assign its rights to payment under this
Agreement and if the assets or stock of that portion of IBM to which
this Agreement pertains hereafter becomes owned or controlled, directly
or indirectly, by a third party, IBM may assign its entire right, title
and interest in this Agreement to such third party. Any other
assignments or delegations will be void.
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.
IBM/Maker Page 9 of 17
<PAGE>
Signature Copy
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 IBM will provide Buyer with ninety (90) days written notice whenever IBM
changes the location or locations, where a substantial portion of the
Product is manufactured.
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 This Agreement shall be construed, and the legal relations between the
parties hereto shall be determined, in accordance with the substantive
laws of the State of New York, without regard to the conflict of laws
principles thereof. Buyer shall bring any and all actions arising under
or relating to this Agreement only in courts of competent jurisdiction
in the State of New York. IBM shall bring any and all actions arising
under or relating to this Agreement only in courts of competent
jurisdiction in the Commonwealth of Massachusetts. The parties hereto
expressly waive any right they may have to a jury trial and agree that
any proceeding under this Agreement shall be tried by a judge without a
jury.
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.
IBM/Maker Page 10 of 17
<PAGE>
Signature Copy
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.
IBM/Maker Page 11 of 17
<PAGE>
Signature Copy
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.
- --------------------------------------------------------------------------------
IBM/Maker Page 12 of 17
<PAGE>
Signature Copy
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.
IBM/Maker Page 13 of 17
<PAGE>
Signature Copy
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.
IBM/Maker Page 14 of 17
<PAGE>
Signature Copy
Attachment C
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM/Maker Page 15 of 17
<PAGE>
Signature Copy
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.
IBM/Maker Page 16 of 17
<PAGE>
Signature Copy
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.
IBM/Maker Page 17 of 17
<PAGE>
Signature Copy Page 1 of 7
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>
Signature Copy Page 2 of 7
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>
Signature Copy Page 3 of 7
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.
IBM/Maker Page 1 of 7
<PAGE>
Signature Copy
[**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
IBM/Maker Page 2 of 7
<PAGE>
Signature Copy
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
<PAGE>
Signature Copy
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
<PAGE>
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
<PAGE>
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 6 of 7
<PAGE>
Signature Copy
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:
------------------------- ----------------------------
IBM/Maker Page 7 of 7
EXECUTION COPY
MAKER COMMUNICATIONS, INC.
STOCK PURCHASE AGREEMENT
May 5, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purchase and Sale of Stock.......................................... 1
1.1 Sale and Issuance of Stock................................. 1
1.2 The Closing................................................ 1
2. Representations and Warranties of the Company....................... 1
2.1 Organization and Good Standing............................. 1
2.2 Authorization.............................................. 1
2.3 Valid Issuance of Stock.................................... 2
2.4 Litigation................................................. 2
2.5 Properties................................................. 2
2.6 Compliance with Other Documents............................ 2
3. Representations and Warranties of the Investor...................... 2
3.1 Authorization.............................................. 2
3.2 Investigation.............................................. 2
3.3 Accredited Investor........................................ 3
3.4 Purchase Entirely for Own Account.......................... 3
4. Conditions to the Investor's Obligation at Closing.................. 3
4.1 Representations and Warranties............................. 3
4.2 Securities Laws............................................ 3
4.3 Authorizations............................................. 3
4.4 Initial Public Offering of Common Stock.................... 3
5. Conditions to the Company's Obligations at Closing.................. 3
5.1 Representations and Warranties............................. 3
5.2 Securities Laws............................................ 3
5.3 Authorizations............................................. 3
5.4 Initial Public Offering of Common Stock.................... 4
5.5 Payment of Purchase Price.................................. 4
6. Covenants of the Company and the Investor........................... 4
6.1 Agreement Not to Transfer.................................. 4
6.2 Market Stand-Off........................................... 4
6.3 Registration of Stock...................................... 4
7. Miscellaneous....................................................... 5
7.1 Governing Law.............................................. 5
7.2 Survival; Additional Securities............................ 5
7.3 Successors and Assigns..................................... 5
i
<PAGE>
<S> <C> <C>
7.4 Entire Agreement........................................... 5
7.5 Notices.................................................... 5
7.6 Amendments and Waivers..................................... 5
7.7 Legal Fees................................................. 6
7.8 Expenses................................................... 6
7.9 Titles and Subtitles....................................... 6
7.10 Counterparts............................................... 6
7.11 Severability............................................... 6
7.12 Confidentiality............................................ 6
</TABLE>
ii
<PAGE>
EXECUTION COPY
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 5th day of May 1999, by and
between Maker Communications, Inc., a Delaware corporation (the "Company") and
Cisco Systems, Inc., a California corporation (the "Investor").
WHEREAS, the Investor has indicated a desire to purchase 500,000 shares of
Common Stock from the Company.
WHEREAS, the Company has indicated a desire to sell 500,000 shares of
Common Stock to the Investor and has agreed to register such shares under the
Securities Act of 1933, as amended (the "Securities Act"), on the terms set
forth herein.
WHEREAS, the Company and the Investor have agreed that this Agreement shall
constitute the entire understanding and agreement between the parties with
regard to the subject matter hereof.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Stock. Subject to the terms and conditions of
this Agreement, the Company agrees to sell to the Investor and the Investor
agrees to purchase from the Company 500,000 shares of the Company's Common Stock
(the "Stock"), having the rights, preferences, privileges and restrictions set
forth in the Amended and Restated Certificate of Incorporation of the Company
(the "Restated Certificate") to be filed with the Delaware Secretary of State
prior to the Closing (as defined below).
1.2 The Closing. The purchase and sale of the Stock shall be held at the
Company's offices concurrently with the closing of the Company's initial public
offering (the "IPO") or, if later, upon satisfaction or waiver of each of the
conditions set forth in Sections 4 and 5 (the "Closing"). At the Closing, the
Company will deliver the Stock to the Investor against payment of the purchase
price therefor by check payable to the order of the Company or by wire transfer.
The per share purchase price for the Stock shall be equal to the per share price
paid by the public for the Company's Common Stock in the IPO, less any
underwriter discounts and commissions.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that:
2.1 Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to carry on its
business as now conducted.
2.2 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this
1
<PAGE>
Agreement, the performance of all obligations of the Company hereunder, and the
authorization, issuance and delivery of the Stock has been taken or will be
taken prior to the Closing, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and by general principles of
equity.
2.3 Valid Issuance of Stock. The Stock, when issued, sold and delivered
in accordance with the terms hereof for the consideration expressed, will be
duly and validly issued, fully paid and nonassessable and, based in part upon
the representations of the Investor in this Agreement, will be issued in
compliance with all applicable federal and state securities laws.
2.4 Litigation. Except as set forth in the Company's registration
statement prepared in connection with the IPO, as filed with the Securities and
Exchange Commission ("SEC") and amended from time to time (the "Registration
Statement"), there are no actions, proceedings or investigations pending or, to
the best of Company's knowledge, any basis therefor or threat thereof, against
or affecting the Company, that, either in any case or in the aggregate, would
result in any material adverse change in the business, financial condition, or
results of operations of the Company.
2.5 Properties. To the best of the Company's knowledge (but without
having conducted any special investigation), the Company has (i) good and
marketable title to its properties and assets and has good title to all its
leasehold interests, and (ii) sufficient title, license and/or ownership of all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for its business as now
conducted on the date hereof.
2.6 Compliance with Other Documents. The execution and delivery of this
Agreement, consummation of the transactions contemplated hereby, and compliance
with the terms and provisions hereof will not conflict with or result in a
breach of the terms and conditions of, or constitute a default under the
Restated Certificate or Bylaws of the Company or of any contract or agreement to
which the Company is now a party, except where such conflict, breach or default
of any such contract or agreement, either individually or in the aggregate,
would not have a material adverse effect on the Company's business, financial
condition or results of operations.
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants that:
3.1 Authorization. This Agreement constitutes the valid and legally
binding obligation of the Investor, enforceable in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and by general principles of equity.
3.2 Investigation. The Investor acknowledges that it has had an
opportunity to discuss the business, affairs and current prospects of the
Company with the Company's president. The Investor further acknowledges having
had access to information about the Company that it has requested or considers
necessary for purposes of purchasing the Stock.
2
<PAGE>
3.3 Accredited Investor. The Investor is an "accredited investor" as
such term is defined in Regulation D adopted by the SEC.
3.4 Purchase Entirely for Own Account. This Agreement is made with the
Investor in reliance upon the Investor's representation to the Company, which by
the Investor's execution of this Agreement the Investor hereby confirms, that
the Stock will be acquired for investment for the Investor's own account, not as
a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same.
4. Conditions to the Investor's Obligation at Closing. The obligation of
the Investor to purchase the Stock at the Closing is subject to the fulfillment
to the Investor's satisfaction on or prior to the Closing of the following
conditions:
4.1 Representations and Warranties. The representations and warranties
made by the Company in Section 2 hereof shall be true and correct when made, and
shall be true and correct as of the Closing with the same force and effect as if
they had been made on and as of such date, subject to changes contemplated by
this Agreement.
4.2 Securities Laws. The offer and sale of the Stock to the Investor
pursuant to this Agreement shall be exempt from the registration requirements of
the Securities Act and qualification requirements of all applicable state
securities laws.
4.3 Authorizations. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body that are required in connection
with the lawful issuance and sale of the Stock pursuant to this Agreement shall
have been duly obtained and shall be effective on and as of the Closing.
4.4 Initial Public Offering of Common Stock. The initial public offering
of the Company's Common Stock shall have occurred.
5. Conditions to the Company's Obligations at Closing. The obligation of
the Company to sell the Stock at the Closing is subject to the fulfillment to
the Company's satisfaction on or prior to the Closing of the following
conditions:
5.1 Representations and Warranties. The representations and warranties
of the Investor contained in Section 3 hereof shall be true as of the Closing
with the same force and effect as if they had been made on and as of such date,
subject to changes contemplated by this Agreement.
5.2 Securities Laws. The offer and sale of the Stock to the Investor
pursuant to this Agreement shall be exempt from the registration requirements of
the Securities Act qualification requirements of all applicable state securities
laws.
5.3 Authorizations. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body that are required in connection
with the lawful issuance and sale of the Stock pursuant to this Agreement shall
have been duly obtained and shall be effective on and as of the Closing.
3
<PAGE>
5.4 Initial Public Offering of Common Stock. The initial public offering
of the Company's Common Stock shall have occurred.
5.5 Payment of Purchase Price. The Investor shall have delivered to the
Company the purchase price for the Stock as set forth in Section 1.2 hereof.
6. Covenants of the Company and the Investor.
6.1 Agreement Not to Transfer.
(a) Prior to the date 180 days after the date of the Closing, the
Investor shall not, directly or indirectly, Transfer or offer to Transfer any
shares of the Stock other than to affiliates who agree to be bound by the terms
of this Agreement, unless the Company consents to such Transfer and the
transferee agrees to be bound by this Agreement.
(b) In order to enforce the Transfer Restrictions, the Company may
impose stop-transfer instructions with respect to the Stock until the end of the
restricted period.
(c) As used in this Agreement, the term "Transfer" shall mean any
sale, transfer, assignment, hypothecation, encumbrance or other disposition,
whether voluntary or involuntary, of shares of the Stock. In the case of a
hypothecation, the Transfer shall be deemed to occur both at the time of the
initial pledge and at any pledgee's sale or a sale by any secured creditor or a
retention by the secured creditor of the pledged shares of the Stock in complete
or partial satisfaction of the indebtedness for which the shares of the Stock
are security.
6.2 Market Stand-Off. In addition to the Transfer Restrictions (which
shall in no way be limited by the following), in connection with any
underwritten public offering by the Company of its equity securities pursuant to
an effective registration statement filed under the Securities Act, the Investor
shall not Transfer or offer to Transfer any shares of the Stock without the
prior written consent of the Company and its underwriters. Such restriction (the
"Market Stand-Off") shall be in effect for such period of time from and after
the effective date of the final prospectus for the offering as may be requested
by the Company or such underwriters; provided, however, that (i) such Market
Stand-Off shall not exceed one hundred eighty (180) days, and (ii) the Investor
shall be subject to the Market Stand-Off only if the officers, directors and
other stockholders of the Company are also subject to similar restrictions. In
order to enforce the Market Stand-Off, the Company may impose stop-transfer
instructions with respect to the Stock until the end of the applicable stand-off
period.
6.3 Registration of Stock. The Company agrees that, upon request by the
Investor, it will effect registration of the Stock in accordance with the
provisions contained in Exhibit A attached hereto. The Investor understands and
agrees that (i) the Stock will be characterized as "restricted securities" under
the federal securities laws inasmuch as it is being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances, and (ii) each
certificate representing the Stock and any other securities issued in respect of
the Stock upon any stock split, stock dividend, recapitalization, merger or
similar event (unless no longer required in the opinion of counsel for
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the Company) shall be stamped or otherwise imprinted with appropriate legends
mandated by federal and state securities laws.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California, without
regard to the conflict of law provisions thereof.
7.2 Survival; Additional Securities. The representations and warranties
set forth in Sections 2 and 3 shall survive until the Closing. The covenants and
agreements set forth in Section 6 shall survive in accordance with their terms.
Any new, substituted or additional securities which are by reason of any stock
split, stock dividend, recapitalization or reorganization distributed with
respect to the Stock ("Stock Distributions") shall be immediately subject to the
covenants and agreements set forth in Section 6 to the same extent the Stock is
at such time covered by such provisions.
7.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the respective successors and assigns of the parties hereto. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. Notwithstanding anything to the
contrary contained herein, the covenants set forth in Section 6 shall not be
binding upon any entity (other than an affiliate of the Investor) which acquires
any shares of the Stock or a Stock Distribution in a transaction permitted
hereunder.
7.4 Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties with regard to the subject
matter hereof.
7.5 Notices. Except as otherwise provided, all notices and other
communications required or permitted hereunder shall be in writing, shall be
effective when given, and shall in any event be deemed to be given upon receipt
or, if earlier, (i) five (5) days after deposit with the U.S. postal service or
other applicable postal service, if delivered by first class mail, postage
prepaid, (ii) upon delivery, if delivered by hand, (iii) one (1) business day
after the day of deposit with Federal Express or similar overnight courier,
freight prepaid, if delivered by overnight courier or (iv) one (1) business day
after the day of facsimile transmission, if delivered by facsimile transmission
with copy by first class mail, postage prepaid, and shall be addressed, (a) if
to the Investor, at the Investor's address set forth below its signature, or at
such other address as the Investor shall have furnished to the Company in
writing, or (b) if to the Company, at its address as set forth below its
signature, or at such other address as the Company shall have furnished to the
Investor in writing.
7.6 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of the Agreement may be waived (either generally
or in
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a particular instance and either retroactively or prospectively) only with the
written consent of the Company and the Investor.
7.7 Legal Fees. In the event of any action at law, suit in equity or
arbitration proceeding in relation to this Agreement or the Stock or any Stock
Distribution, the prevailing party shall be paid by the other party a reasonable
sum for the attorneys' fees and expenses incurred by such prevailing party.
7.8 Expenses. Irrespective of whether the Closing is effected, the
Company and the Investor shall each pay their own costs and expenses incurred
with respect to the negotiation, execution, delivery and performance of this
Agreement.
7.9 Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.10 Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
instrument.
7.11 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7.12 Confidentiality. The parties hereto agree that, except with the
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish, or make accessible to anyone any
confidential information, knowledge, or data concerning or relating to the
business or financial affairs of such other party to which said party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, or the performance of its obligations hereunder.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first written.
MAKER COMMUNICATIONS, INC.
73 Mount Wayte Avenue
Framingham, MA 01702
Attn:
/s/ William N. Giudice
- ----------------------------
By:
CISCO SYSTEMS, INC.
170 W. Tasman Drive
San Jose, CA 95134
Attn: Dan Scheinman, Vice President, Legal and Government Affairs
/s/ Dan Scheinman
- ---------------------------
By:
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EXHIBIT A
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Exhibit A, capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to them in the
Stock Purchase Agreement between the Company and the Investor to which this
Exhibit A is attached. In addition, the following terms used herein shall have
the following meanings:
(a) The term "Form S-1" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the SEC which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
(b) The term "Form S-3" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the SEC which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
(c) The term "1934 Act" means the Securities Exchange Act of 1934,
as amended.
(d) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
1.2 Request for Registration.
(a) If the Company shall receive a written request from the Investor
which request may be received commencing ten months after the Closing date, that
the Company effect a registration on a Form S-3 and any related qualification or
compliance with respect to the Stock, then the Company shall promptly commence
preparation of such registration statement, and as expeditiously as reasonably
possible when the Company is eligible to use Form S-3, effect the registration
of all, but not less than all, such Stock on Form S-3 and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all of the Stock. The Company shall have
no obligation to effect any registration of less than all of the Stock.
(b) Notwithstanding anything to the contrary in this Section 1.2,
the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 1.2: (i) if the Company
shall furnish to the Investor a certificate signed by the President of the
Company stating that, in the good faith judgment of the Board of Directors of
the Company, such registration should be deferred due to material events
directly relating to the Company, in which event the Company shall have the
right to defer the filing of the Form S-3 for a period of not more than 90 days
after receipt of the request of the Investor under this Section 1.2 (provided,
however, that the Company may defer such registration only
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once); or (ii) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(c) If Form S-3 is not available to the Company to effect the
registration of the Stock as contemplated by this Section 1.2, then (i) the
Company shall effect such registration on Form S-1 and (ii) in such event, all
references in this Section 1 to Form S-3 shall be read as references to Form
S-1.
(d) The Company shall not be obligated to effect, or to take any
action to effect, any registration pursuant to this Section 1.2 after the
earlier to occur of the following events: (i) the Company has effected one
registration pursuant to this Section 1.2, and such registration has been
declared or ordered effective and otherwise satisfies and continues to satisfy
the terms and conditions of this Section 1.2; or (ii) the Company has
voluntarily effected the registration of all of the Stock without having first
received a request for such registration pursuant to this Section 1.2 (a
"Voluntary Registration"), and such Voluntary Registration has been declared or
ordered effective and otherwise satisfies and continues to satisfy the terms and
conditions of this Section 1.2.
1.3 Obligations of the Company. Whenever required under Section 1.2 to
effect the registration on Form S-3 of the Stock, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a Form S-3 with respect to such
Stock and use its best efforts to cause such registration statement to become
effective as soon as reasonably practicable after the mailing of the request for
such registration but in no event later than ninety (90) days after such
mailing. The Company shall keep such registration statement effective until the
earlier of (i) two (2) years after the Closing, (ii) the distribution of all of
the Stock as contemplated in the registration statement has been completed, and
(iii) the date which all shares of the Stock held by the Investor may
immediately be sold under Rule 144 during any 90-day period.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Investor such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as the Investor may reasonably request in order to
facilitate the disposition of the Stock.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Investor;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
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(e) Notify the Investor covered by such registration statement at
any time when a prospectus relating thereto is required to be delivered under
the Act of the happening of any event as a result of which the prospectus
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.
(f) Cause all such Stock registered pursuant hereunder to be listed
on each securities exchange on which similar securities issued by the Company
are then listed.
(g) Provide a transfer agent and registrar for all of the Stock
registered pursuant hereunder and a CUSIP number for all such Stock, in each
case not later than the effective date of such registration.
1.4 Investor Obligation to Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action pursuant hereto
with respect to the Stock that the Investor shall furnish to the Company such
information regarding itself, the Stock, and the intended method of disposition
of such securities as shall be required to effect the registration of such
Stock.
1.5 Expenses of Registration. All expenses incurred in connection with
registrations, filings or qualifications pursuant hereto, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company (including
fees and disbursements of counsel for the Company in its capacity as counsel to
the Investor hereunder but excluding the fees and disbursements of any other
counsel for the Investor) 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 hereto if the registration request is subsequently
withdrawn at the request of the Investor, unless the Investor agrees to forfeit
its right to any demand registration pursuant hereto; provided further, however,
that if at the time of such withdrawal, the Investor has learned of a material
adverse change in the condition, business, or prospects of the Company from that
known to the Investor at the time of its request and has withdrawn the request
with reasonable promptness following disclosure by the Company of such material
adverse change, then the Investor shall not be required to pay any of such
expenses and shall retain its right of registration pursuant to Section 1.2.
1.6 Indemnification. In the event any Stock is included in a
registration statement under Section 1.2:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Investor, any underwriter (as defined in the Act) for the
Investor and each person, if any, who controls the Investor or underwriter
within the meaning of the Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
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including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to the Investor, or such underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection (a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Investor, underwriter or controlling person.
(b) To the extent permitted by law, the Investor will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Act, any underwriter, and any controlling person of
any such underwriter, against any losses, claims, damages, or liabilities (joint
or several) to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Investor expressly for use in connection with such
registration; and each such Investor will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection (b), in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection (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 Investor, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection (b) exceed the gross proceeds from the offering received
by the Investor.
(c) Promptly after receipt by an indemnified party under this
Section 1.6 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 1.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party
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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 1.6, 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 1.6.
(d) If the indemnification provided for in this Section 1.6 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in an underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and the Investor under this
Section 1.6 shall survive the completion of any offering of the Stock in a
registration statement pursuant hereto, and otherwise.
1.7 Termination. The Company's obligation to register the Stock pursuant to
this agreement shall terminate on the earlier of (i) the second anniversary of
the Closing and (ii) the date on which all shares of the Stock held by the
Investor may immediately be sold under Rule 144 during any 90-day period.
A-5
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
Boston, Massachusetts
May 6, 1999
