As filed with the Securities and Exchange Commission on April 15, 1999
Registration No. 333-74293
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Amendment No. 1
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:
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
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
--------------
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ] ---------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ] ---------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the earlier
registration statement number of the earlier effective registration statement
for the same offering. [ ] ---------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered be Registered(1) Per Share(2) Offering Price(2) Registration Fee (3)
- -------------------------------- ------------------ ------------------ ------------------- ---------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value .. 4,025,000 shares $ 11.00 $44,275,000 $12,310
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes 525,000 shares subject to the underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3) Includes $11,200 previously paid.
--------------
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 April 15, 1999
PROSPECTUS
3,500,000 Shares
[logo]
MAKER COMMUNICATIONS, INC.
Common Stock
- --------------------------------------------------------------------------------
Maker is offering shares of common stock in its initial public offering.
Maker is listing the shares on the Nasdaq National Market under the symbol
"MAKR."
Anticipated Price Range: $9.00 to $11.00 per share
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>
Inside Page
A collage of Maker's processors and words representing applications addressed
by Maker's products with the following three sentences:
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 focuses on emerging high growth segments of the communications systems
market that
require sophisticated traffic management and internetworking functions.
Our MXT3010 Cell Processor and related software target the high performance
segment of the
ATM equipment market. Our recently announced MXT4000 Traffic Stream Processor
family and
related software will address both IP-based and ATM equipment markets.
Gatefold
Gatefold artwork illustrating the types of networks and equipment that
incorporate Maker's communications processors.
<PAGE>
TABLE OF CONTENTS
Page
-----
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 .................................... 35
Principal Shareholders ........................ 43
Certain Transactions with Executive
Officers, Directors and Principal
Shareholders ............................... 45
Description of Capital Stock .................. 46
Shares Eligible for Future Sale ............... 48
Underwriting .................................. 50
Legal Matters ................................. 51
Experts ....................................... 52
Where You Can Find More Information ........... 52
Index to Consolidated Financial
Statements ................................. F-1
ABOUT THIS PROSPECTUS
Investors may rely only on the information contained in this prospectus.
Maker and the underwriters have not authorized anyone to provide any different
or additional information. This prospectus is not an offer to sell or a
solicitation of an offer to buy common stock in any jurisdiction where it is
unlawful. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. This preliminary prospectus is
subject to completion prior to this offering.
This prospectus makes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Investors should consider any
statements that are not statements of historical fact to be forward-looking
statements. The words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates" and similar expressions identify forward-looking statements. There
are a number of important factors that could cause the results of Maker to
differ materially from those indicated by such forward-looking statements,
including those discussed under the section of this prospectus entitled "Risk
Factors."
All trademarks and trade names appearing in this prospectus are the
property of their respective holders.
Until , 1999, all dealers selling shares of the common stock, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes appearing elsewhere in this
prospectus. Unless otherwise indicated, information in this prospectus assumes
that the underwriters will not exercise their over-allotment option. This
prospectus also assumes the redemption of all outstanding shares of Class A
Redeemable Preferred Stock and the conversion into common stock of all
outstanding shares of Junior Convertible Preferred Stock, Class B Convertible
Preferred Stock and Class C Convertible Preferred Stock upon the closing of
this offering, as well as the conversion into common stock of a convertible
note prior to or upon 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 traffic and
internetworking within and between 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 internetworking. 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. 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 Delaware in 1994 as Maker Communications Equipment
Corporation, reincorporated in California in 1995 as Maker Communications, Inc.,
and reincorporated in Delaware in 1996 as Maker Communications, Inc.
The Offering
<TABLE>
<S> <C>
Common Stock Offered by Maker .......... 3,500,000 shares
Common Stock to be Outstanding after the
Offering .............................. 17,454,833 shares
Use of Proceeds ........................ For working capital, the redemption of redeemable
preferred stock in the amount of $8,635,000 and other
general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol "MAKR"
</TABLE>
Common stock to be outstanding after the offering excludes 2,613,340
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 or upon the closing of this
offering. The pro forma as adjusted column reflects the sale of 3,500,000
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, 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). 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
cannot assure you that we will be able to achieve profitability on a quarterly
or an annual basis.
We Experience Fluctuations in Our Operating Results 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. If our design is not selected, we derive no
revenue from this process. 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, we
cannot be certain that they will continue to grow or that a significant
slowdown in these markets will not occur.
In addition, a substantial majority of our revenues have been, and are
expected to continue to be, derived from sales of products for 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
8
Risk Factors
<PAGE>
potential customers have substantial technological capabilities and financial
resources which enable them 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 be
certain that the MXT4400 will perform as anticipated or that there will not be
unforeseen delays in its final release. Our failure to release the product on
schedule or the failure of the MXT4400 to meet our customers' expectations
would materially and adversely affect 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 have 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 accounted for 29%, 16% and 13% of revenues. No
other customer accounted for revenues greater than 10% 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 such a consolidation. We cannot
assure you that such consolidation will not result in the cancellation of
current products. This industry may experience further consolidation in the
future and we cannot assure you that such consolidation would not result in
product duplication and a resulting cancellation of current projects or that
such consolidation will not materially and adversely affect 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 be certain that our current customers will
continue to place orders with us, that orders by existing customers will
continue at the levels of previous periods or that we will be able to obtain
orders from new customers.
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
certain domestic and foreign patents and intend to continue to seek patents on
our inventions when appropriate. The process of seeking patent protection can
be time consuming and expensive. We cannot ensure that:
o patents will issue from currently pending or future applications;
o our existing patents or any new patents will be sufficient in scope or
strength to provide meaningful protection or any commercial advantage to
us;
o foreign intellectual property laws will protect our intellectual
property rights; or
o others will not independently develop similar products, duplicate our
products or design around any patents issued to us.
Intellectual property rights are uncertain and involve complex legal and
factual questions. We may be unknowingly infringing on the proprietary rights
of others and may be liable for that infringement, which could result in
significant liability for us. We have not been informed that we infringe any
third party intellectual property rights that would prevent our use and sale of
our products. If we do infringe the proprietary rights of others, we could be
forced to either seek a license to intellectual property rights of others or
alter our products so that they no longer infringe the proprietary rights of
others. A license could be very expensive to obtain or may not be available at
all. Similarly, changing our products or processes to avoid infringing the
rights of others may be costly or impractical.
If we were to become involved in a dispute regarding intellectual
property, whether ours or that of another company, we may have to participate
in legal proceedings. These types of proceedings may be costly and time
consuming for us, even if we eventually prevail. If we do not prevail, we might
be forced to pay significant damages, obtain a license or stop making a certain
product.
We also rely on trade secrets, proprietary know-how and confidentiality
provisions in agreements with employees and consultants to protect our
intellectual property. Other parties may not comply with the terms of their
agreements with us, and we may not be able to adequately enforce our rights
against these parties.
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 be certain 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 certain 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 submitting nominations for
election to the board of directors and 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
A substantial majority of our capital stock is held by a limited number of
stockholders. After completion of this offering, our officers and directors and
parties affiliated with or related to such persons or to Maker will own
approximately 74% 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 17,454,833 shares of common stock outstanding immediately
after the offering. Of these shares, the shares sold in the offering will be
freely transferable without restriction or further registration under the
Securities Act, except for any shares purchased by our "affiliates" as defined
in Rule 144 under the Securities Act. The remaining 13,954,833 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. Class B Convertible Preferred Stock and Class
C Convertible Preferred Stock 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, 13,703,632 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, such executive officers, directors and holders 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. 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 $31,550,000, or $36,432,500 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, 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 or upon 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 3,500,000 shares of common stock at an
assumed initial public offering price of $10.00 per share after
deducting the estimated underwriting discount and offering expenses, the
redemption of all outstanding shares of Class A Redeemable Preferred
Stock for $8,635,000 and the repayment of bank debt (approximately
$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 excludes 2,613,340
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, 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>
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 $3,450,000.
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 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 .............. 3,500,000 20% $35,000,000 69% $ 10.00
Shares owned by existing stockholders ......... 13,932,233 80 16,015,000 31 1.15
---------- -- ----------- --
Total ......................................... 17,432,233 100% $51,015,000 100% $ 2.93
</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 or upon the closing of this offering. The data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
and with Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
Inception
(October 21, 1994) Years Ended December 31,
to December 31, --------------------------------------------------------
1994 1995 1996 1997 1998
-------------------- ------------- ------------- ------------- --------------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
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 the Company'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. Maker's top three customers
in 1998 accounted for 29%, 16%, and 13% of 1998 revenues. No other single
customer accounted for more than 10% of 1998 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. The increase is primarily due to increased revenues as well as the
cost of additional personnel to support the Company'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 the Company 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. The increase primarily
reflects additional personnel and recruiting 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. The increase primarily reflects product
marketing costs associated with the introduction of MXT4400 Traffic Stream
Processor in March 1999 and increased salaries. 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. The increase primarily reflects
increased accounting and legal fees and recruiting costs. 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.
Cost of Revenues. Cost of revenues increased from $329,000 in 1996 to $1.0
million in 1997 to $3.2 million in 1998. The increase in cost of revenues is
primarily due to the increase in revenues as well
19
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
as an increase in pre-production costs. 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. The increase in 1997 reflects the continued development of the MXT3010
Cell Processor and related development tools and application software and the
development of the MXT3020 Circuit Co-processor and related development tools
and application software. The increase in 1998 primarily reflects the
development of the MXT4400 Traffic Stream Processor and related development
tools and application software and the continued development of development
tools and application software for the MXT3010 Cell Processor.
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.
General and Administrative Expenses. General and administrative expenses
increased from $373,000 in 1996 to $751,000 in 1997 to $1.3 million in 1998.
The increases were primarily due to the hiring of additional personnel,
including senior level management, and costs associated with supporting the
business.
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 of cash primarily from working capital items. 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 the
foreseeable future, although Maker could seek to raise additional capital
during that period.
Income Taxes
At December 31, 1998, Maker had available net operating loss carryforwards
of approximately $8.7 million for federal and state income tax purposes, which
expire at various dates through 2018. Maker also has available federal tax
credits of approximately $330,000 expiring through 2010. Maker has recorded a
full valuation allowance against its deferred tax asset due to uncertainties
surrounding the realization of these assets.
The Internal Revenue Code of 1986, as amended, 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
22
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
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.
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
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<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 ATM over
SONET (Synchronous Optical Network) and Packet over SONET, or POS. 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 AccessMakerTM 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 PortMakerTM 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
processingTM. 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
ATM 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 the
internetworking function for translating between Asynchronous Transfer Mode and
packet-based networks, such as Ethernet, Frame Relay and Packet over SONET, or
time-division-multiplexed networks (commonly used in the telecommunications
infrastructure). SARing takes place in packet-based communications systems,
such as Ethernet switches and Internet routers in circumstances where an
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
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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
29
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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:
3Com nCUBE
Alcatel Netcom Systems
Ascend Communications Newbridge Networks
Cabletron Systems Nexabit Networks
Cisco Systems Nortel Networks
Ennovate Premisys
Fore Systems Siemens
GTE Sonoma Systems
Hewlett-Packard Sonus Networks
Hitachi Visual Networks
Juniper Networks Xylan
Lucent Technologies
Maker's top five customers in 1998 were Ascend, Cisco, Fore, Lucent and
Nortel. Maker's top three customers in 1998 accounted for 29%, 16% and 13% of
revenues. No other single customer 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.
30
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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Maker Application Programming Interface
------------------------------------------------------------
Communications Processing Applications
Maker Maker Customized Software
Development Applications Maker Customer
Environment Applications Applications --------------
------------------------------------------------------------ [two way arrow] Network
Light-Weight Kernel Function Integrated
------------------------------------------------------------ Library Circuits
Communications Processor
------------------------------------------------------------
Maker's Solution Architecture
</TABLE>
The core technologies employed by Maker include its proprietary RISC
architecture, high-speed context switching, network traffic management
technology and TDM (Time Division Multiplexed) service internetworking
technology.
Proprietary RISC Architecture. Maker's philosophy is to base its
processors on the fastest and most cost-effective processor cores for
communications applications. Rather than using commercially available RISC
processors such as MIPS or PowerPC, Maker has developed proprietary processor
cores which have an architecture and instruction set that are optimized for the
tasks of processing and switching data, voice and video in broadband networks.
Optimizing the instruction set allows these processors to perform common
communications processing steps using a minimum number of instructions,
delivering higher CPU performance and higher throughput at a given clock rate
than general purpose RISC or CISC processors can provide.
High-Speed Context Switching. Maker's communications processors have
event-driven architectures that can quickly adapt to the arrival of new network
traffic or new traffic management information. One of the key differences
between communications processors and general purpose RISC processors is the
speed at which they perform context switching. Context is any descriptive
information, such as traffic contracts and network statistics, that the
processor requires to process a particular packet or Asynchronous Transfer Mode
cell. The processor must gather all of the context information that is
31
Business
<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."
32
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 competes
with a number of competitors offering fixed-function devices including
Conexant, IBM, Texas Instruments, Integrated Device Technology, PMC-Sierra,
Lucent, Fujitsu, NEC and TranSwitch. In the developing OC-12 SAR market Maker
expects to compete with several of the foregoing among others. In the
Asynchronous Transfer Mode traffic policing market, there are a number of
competitors, including Lucent and PMC-Sierra. In Asynchronous Transfer Mode
markets, LSI Logic and Motorola currently offer programmable cell processing
capability.
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 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 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
33
Business
<PAGE>
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. There can be no
assurance that third parties will not assert infringement claims against Maker
in the future, that assertions by third parties will not result in costly
litigation or that Maker would prevail in any such litigation or be able to
license any valid and infringed patents from third parties on commercially
reasonable terms, if at all. Litigation, regardless of the outcome, is likely
to result in substantial cost and diversion of resources of Maker. Any
infringement claim or other litigation against or by Maker could materially
adversely affect Maker's business, financial condition and results of
operations.
In addition, there can be no assurance that competitors of Maker, many of
which have substantially greater resources than Maker and have made substantial
investments in competing technologies, do not have, or will not seek to apply
for and obtain, patents that will prevent, limit or interfere with Maker's
ability to make, use or sell its products either in the United States or in
international markets. Furthermore, there can be no assurance that Maker will
not in the future become subject to patent infringement claims and litigation
or interference proceedings to determine the priority of inventions due to the
significant number of patents in the industry. This large volume of patented
technology makes infringement more 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's business, financial condition and results of
operations. See "Risk Factors--We Need to Protect Our Intellectual Property and
Avoid Infringement of the Intellectual Property of Others."
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.
34
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.
35
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 Low, Ph.D., 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. Robi Soni is a partner of Bessemer Venture Partners, which
will 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.
36
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 28.9% $ 2.75
Michael Rubino ............. 180,000 10.2 0.30
Paul Bergantino ............ 260,000 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) In accordance with the rules of the SEC, shown are the gains or "option
spreads" that would exist for the respective options granted. These gains
are based on the assumed rates of annual compound stock price appreciation
of 5% and 10% from the date the option was granted over the full option
term. These assumed annual compound rates of stock price appreciation are
mandated by the rules of the SEC and do not represent Maker's estimate or
projection of future common stock prices.
(2) 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.
37
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 (a) interprets and applies the 1996 Plan,
(b) determines the eligibility of an individual to participate in the 1996
Plan, (c) approves the assignment of options immediately prior to the
registration of Maker's stock pursuant to the Securities Exchange Act of 1934,
as amended, if such assignment would increase the number of common stockholders
and (d) determines and allocates the cancellation or exchange of outstanding
options in the case of a recapitalization, acquisition, merger or change in
control. No options may be granted to an employee who, at the time of the
grant, owns more than 10% of the voting power or greater than 10% of each class
of Maker's outstanding stock, unless the purchase price of the stock is not
less than 110% of the stock's fair market value on the date of the grant and
the option, by its terms, shall not be exercisable more than five years from
the date it is granted. 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 (a)
cash or a check payable to the order of Maker in an amount equal to the
exercise price of such options, (b) shares of Maker's common stock owned by the
optionee having a fair market value equal in amount to the exercise price of
the options being exercised, (c) the cancellation of shares covered by this
option which are then vested and exercisable having a fair market value equal
in amount to the purchase price of the shares being purchased, (d) any
combination of (a), (b), (c) and (d); provided, however, that payment of the
exercise price by delivery of shares of common stock owned by such optionee or
cancellation of shares covered by the option may be made only with the consent
of the Board if such payment results in a charge to earnings for financial
accounting purposes as determined by the Board. Maker may delay the issuance of
shares covered by the exercise of an option until (a) the shares for which such
option has been exercised have been registered or qualified under the
applicable federal or state securities laws or (b) counsel for Maker has opined
that such shares are exempt from the registration requirements of such federal
or state securities laws.
38
Management
<PAGE>
Under the 1996 Plan, at the option of the board of directors, certain
options granted may be immediately exercisable but subject to a right of
repurchase pursuant to the vesting schedule of each such grant.
The term of any option granted under the Plan shall be limited to ten
years. Upon the termination of an optionholder's employment with Maker, such
options shall terminate between 30 and 180 days after that optionholder leaves
the employ of Maker.
As of 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 (a) 125,000 shares, or (b) a
lesser amount determined by the board of directors.
The Director Plan provides that each non-employee director will
automatically be granted an option to purchase 20,000 shares of common stock on
the date which such person first becomes a non-employee director, unless
immediately prior to becoming a non-employee director, such person was an
employee director of Maker. In addition to this option, each non-employee
director will automatically be granted an option to purchase 15,000 shares on
the date two days after Maker announces its fiscal year-end earnings of each
year, if on such date he or she will have served on the board of directors for
at least the preceding six months. The term of each option shall not exceed ten
years and such shares will vest as determined by the board at the time of
grant. In addition, upon a change in control of Maker, all unvested options
shall immediately vest.
The exercise price of each option is 100% of the fair market value per
share of the common stock, generally determined with reference to the closing
price of the common stock as reported on the Nasdaq National Market on the last
trading day prior to the date of grant. In the event of a merger of Maker or
the sale of substantially all of its assets, each outstanding option may be
assumed or an equivalent option substituted for by the successor corporation.
Options granted under the director plan must be exercised within three months
of the end of the optionee's tenure as a director of Maker, or within 12 months
after such director's termination by death or disability, but in no event later
than the expiration of the option's term. No option granted under the director
plan is transferable by the optionee other than by will or the laws of descent
and distribution, and each option is exercisable, during the lifetime of the
optionee, only by such optionee.
1999 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 Incentive
Plan is 2,600,000 shares 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. 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 such rules and
regulations as, in its opinion, may be advisable in the administration of the
1999 Incentive Plan.
Options designated as incentive stock options may be granted only to
employees of Maker or any subsidiary. Non-qualified options may be granted to
any officer, employee, consultant or director of
39
Management
<PAGE>
Maker or any of its subsidiaries. No option designated as an incentive stock
option shall be granted to any employee of Maker or any subsidiary if such
employee owns, immediately prior to the grant of an option, stock representing
more than 10% of the combined voting power of all classes of stock of Maker or
a parent or a subsidiary, unless the purchase price for the stock under such
option is at least 110% of 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
or the Committee. Upon a change in control of Maker, the exercisability of
options due to vest during the twelve month period are automatically
accelerated.
The right of any optionee to exercise an option granted to him or her
shall not be assignable or transferable by the optionee other than by will or
the laws of descent and distribution, except that an optionee may transfer
options that are not incentive stock options to the optionee's spouse or
children or to a trust for the benefit of the optionee or the optionee's spouse
or children. Incentive stock options are exercisable during the lifetime of the
optionee only by the optionee.
An option granted to any employee optionee who ceases to be an employee of
Maker or one of its subsidiaries shall terminate on the last day of the month
in which such optionee ceases to be an employee of Maker or one of its
subsidiaries. If such termination of employment is because of dismissal for
cause or because the employee is in breach of any employment agreement, such an
option will terminate immediately on the date the optionee ceases to be an
employee of Maker or one of its subsidiaries. If such termination of employment
is because the optionee has become permanently disabled, the option shall
terminate on the last day of the twelfth month from the date such optionee
ceases to be an employee. In the event of the death of the optionee, the option
shall terminate on the last day of the twelfth month from the date of death. In
no event shall an option be exercisable after the date upon which it expires by
its terms.
An option granted to an employee optionee who ceases to be an employee of
Maker or one of its subsidiaries shall be exercisable only to the extent that
the right to purchase shares under such option has accrued and is in effect on
the date such optionee ceases to be an employee of Maker or one of its
subsidiaries. In the event of the death of any optionee, the option granted to
such optionee may be exercised by the estate of such optionee, or by any person
or persons who acquired the right to exercise such option by bequest or
inheritance or by reason of the death of such optionee.
The Committee may grant, subject to the limitation on the number of shares
of common stock available under the plan, stock awards to employees of and
other key individuals engaged to provide services to Maker and its
subsidiaries. A stock award may be made in stock or denominated in stock
subject to final settlement in cash or stock. Each stock award granted will be
subject to such terms and conditions as the Committee, in its sole discretion,
shall determine and establish.
1999 Employee Stock Purchase Plan
The Maker 1999 Employee Stock Purchase Plan (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 (a) persons whose customary
employment is less than twenty hours per week or five months or less per year;
and (b) persons who have been employed by Maker for less than three months on
the first day of the purchase period, with the exception of persons previously
eligible. In addition, persons who are deemed for purposes of Section 423(b)(3)
of the Code, to own stock possessing 5% or more of the total combined voting
power or value of all classes of stock of Maker or a subsidiary are ineligible
to participate in the Stock Purchase Plan. Employment will be treated as
continuing intact while a participating employee is on military leave or other
bona fide leave of absence,
40
Management
<PAGE>
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 such equitable rules and
regulations regarding the Stock Purchase Plan as it may deem advisable.
Determinations by the Board of Directors, or the Committee, as to the
interpretation and operation of the Stock Purchase Plan shall be final and
conclusive.
There shall be four 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 such date as is
determined by Maker's board of directors. The participating employee authorizes
regular payroll deductions amounting to a full percentage of the participant's
regular compensation as the participant shall designate. Such payroll
deductions cannot amount to less than one percent (1%) nor more than ten
percent (10%) of the participant's regular compensation and cannot exceed
$25,000 per year.
All sums deducted from the regular compensation of participants will be
credited to a stock purchase account established for each participant on the
books of Maker, but prior to use of such funds for the purchase of shares of
Maker's common stock in accordance with the Stock Purchase Plan, Maker may use
such funds for any valid corporate purpose. Maker is under no obligation to pay
interest on funds credited to a participant's stock purchase account in any
event.
The purchase price of shares of Maker common stock under the Stock
Purchase Plan is the lower of (a) 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 (b) eighty-five percent (85%) of such value for the
relevant exercise date. The fair market value on a given day is the mean
between the high and low sales prices of a share of common stock of the Company
on the Nasdaq National Market. Each participating employee receives an option,
effective on the first day of the purchase period, to purchase shares of common
stock on the exercise date, which is the last business day of the purchase
period. The number of shares which a participant may purchase under the option
is the quotient of the aggregate payroll deductions in the purchase period
authorized by the participant, divided by the purchase price. No employee can
be granted an option under the Stock Purchase Plan to purchase shares of
Maker's common stock having a fair market value, as of the date the option to
purchase is granted, in any one calendar year of in excess of $25,000. No
employee can be granted an option in one purchase period for more than 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.
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
41
Management
<PAGE>
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.
42
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.
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 9, 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 9, 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% 9.8%
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 -- 18.9 15.1
755 Page Hill Road, Suite A-100
Palo Alto, CA 94304
Roger Evans (5) ............................. 2,643,378 23,500 19.1 15.3
Bessemer Venture Partners (6) ............... 2,643,379 -- 18.9 15.1
1400 Old Country Road, Suite 407
Westbury, NY 11590
Rob Soni (7) ................................ 2,643,379 23,500 19.1 15.3
Bessemer Venture Partners
83 Walnut Street
Wellesley Hills, MA 02181
Technologies for Information and 662,124 -- 4.7 3.8
Entertainment III, L.P. ....................
c/o Applied Technology
One Cranberry Hill
Lexington, MA 02421
Level One Communications, 1,209,103 -- 8.7 6.9
Incorporated ...............................
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) ............................... 1,471,140 -- 10.5 8.4
555 California Street, Suite 3130
San Francisco, CA 94104
</TABLE>
43
Principal Shareholders
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Shares Beneficially Owned
as of April 9, 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>
All directors and officers as a group
(10 persons) (2) (3) (4) (5) (7) (9) ......... 8,123,919 1,413,100 62.1 50.5%
</TABLE>
- ------------
* Less than one percent
(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.
(3) Includes 100,000 shares held by the Bergantino 1999 Grantor Retained
Annuity Trust and 100,000 shares held by the 1999 Irrevocable Trust.
(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, together with the other general
partners of Greylock Equity Limited Partnership, shares voting and
investment power with respect to the shares owned by Greylock Equity
Limited Partnership. Mr. Evans disclaims any beneficial ownership of the
shares held by Greylock Equity Limited Partnership except as to his
proportionate partnership interest therein.
(6) Shares attributed to Bessemer Venture Partners include holdings of three
major partnerships--Bessemer Venture Partners IV L.P. (1,078,470 shares),
Bessec Ventures IV L.P. (1,078,472 shares), and BVP IV Special Situations
L.P. (98,542 shares), whose general partner is Deer IV & Co. LLC. The sole
limited partner of Bessemer Venture Partners IV L.P. and Bessec Ventures
IV L.P. is Bessemer Securities, LLC, or its subsidiaries; the limited
partners of BVP IV Special Situations are non-employee directors of
Bessemer Securities Corporation. Also reflected in the Bessemer Venture
Partner shares are 340,398 shares owned by members of Deer IV and
employees or former employees of Deer II & Co. LLC, a general partner of a
predecessor fund similar to BVP IV. Also reflected in the Bessemer Venture
Partner Shares are 47,497 shares owned by senior employees, former
employees, or family partnerships of such persons, of Bessemer Securities
Corporation. Under certain circumstances, Bessemer Venture Partners IV
L.P. can direct their voting on corporate matters.
(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) Includes shares held by WPG Enterprise Fund III, L.L.C. (638,598 shares),
Weiss, Peck & Greer Venture Associates IV, L.L.C. (711,101 shares), WPG
Information Sciences Entrepreneur Fund, L.P. (29,285 shares) and Weiss
Peck and Greer Venture Associates IV Cayman, L.P. (92,156 shares). WPG VC
Fund Adviser, L.L.C. is the Fund Investment Advisory Member of WPG
Enterprise Fund III, L.L.C. and Weiss, Peck & Greer Venture Associates IV,
L.L.C., and the General Partner of WPG Information Sciences Entrepreneur
Fund, L.P. The Managing Members of WPG VC Fund Adviser L.L.C. have shared
voting power over the funds named herein.
(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.
44
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 such 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 right 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. In connection with such offering,
officers and directors of Maker and Maker's principal stockholders are holders
of Class A Preferred Stock and will receive amounts payable upon redemption.
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 such 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".
45
Certain Transactions with and Stock Issuances to
Executive Officers, Directors and Principal Shareholders
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the offering, the authorized capital stock of Maker
will consist of 100,000,000 shares of common stock, $.01 par value per share,
of which 17,454,833 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. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available therefor, and shall be entitled to
receive, pro rata, all assets of Maker available for distribution to such
holders upon liquidation. Holders of common stock have no preemptive,
subscription or redemption rights.
Preferred Stock
Maker is authorized to issue "blank check" preferred stock, which may be
issued from time to time in one or more series upon authorization by Maker's
board of directors. The board of directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
and any other rights, preferences, privileges and restrictions applicable to
each series of the preferred stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things, adversely affect the voting power
of the holders of common stock and, under certain circumstances, make it more
difficult for a third party to gain control of Maker, discourage bids for
Maker's common stock at a premium or otherwise adversely affect the market
price of the common stock. Maker currently has no plans to issue any preferred
stock.
Certain Certificate of Incorporation, Bylaw and Statutory Anti-Takeover
Provisions Affecting Stockholders
Classified Board
Maker's board of directors is divided into two classes, each of which,
after a transitional period, will serve for two years, with one class being
elected each year. Removal of a member of the board of directors with or
without cause requires a majority vote of the board of directors or of the
stockholders. A majority of the remaining directors then in office, though less
than a quorum, or the stockholders, are empowered to fill any vacancy on the
board of directors. A majority vote of the stockholders is required to alter,
amend or repeal the foregoing provisions.
Section 203 of Delaware General Corporation Law
Maker is subject to the "business combination" statute of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in "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
46
Description of Capital Stock
<PAGE>
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 662/3% of the outstanding
voting stock which is not owned by the "interested shareholder." A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to a shareholder. An "interested shareholder" is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of a corporation's voting stock. By virtue of Maker's decision
not to elect out of the statute's provisions, the statute applies to Maker. No
current stockholders of Maker are "interested stockholders" because their
acquisition of shares was approved by Maker's board of directors. The statute
could prohibit or delay the accomplishment of mergers or other takeover or
change in control attempts with respect to Maker and, accordingly, may
discourage attempts to acquire Maker.
Director Liability
The 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.
Certain provisions described above may also have the effect of delaying
stockholder actions with respect to certain business combinations and the
election of new members to the board of directors. As such, the provisions
could have the effect of discouraging open market purchases of Maker's common
stock.
Registration Rights of 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."
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be BankBoston,
N.A.
47
Description of Capital Stock
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Maker will have 17,454,833 outstanding
shares of common stock. Of these shares, the 3,500,000 shares offered hereby
(4,025,000 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 13,954,833 shares of common
stock outstanding upon closing of the offering are "restricted securities" as
that term is defined in Rule 144. Of the remaining 13,954,833 shares,
13,703,632 shares are subject to lock-up agreements (described below).
Beginning 90 days after commencement of the offering, approximately
12,660,000 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 13,727,561 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 1,017,407
shares) will be freely eligible for sale pursuant to Rule 144(k). In addition,
225,777 additional shares of common stock subject to outstanding vested stock
options and 125,000 shares that will be issued upon conversion of a convertible
note could also be sold, subject in some cases to compliance with certain
volume and other limitations as described below.
In general, under Rule 144, as amended, a person (or persons whose shares
are aggregated) who has beneficially owned shares for at least one year
(including the holding period of any prior owner except an affiliate from whom
such shares were purchased) is entitled to sell in "brokers' transactions" or
to market makers, within any three-month period commencing 90 days after the
date of this prospectus, a number of shares that does not exceed the greater of
(a) one percent of the number of shares of common stock then outstanding,
approximately 174,548 shares immediately after the completion of the offering
or (b) generally, the average weekly trading volume in the common stock during
the four calendar weeks preceding the required filing of a Form 144 with
respect to such sale. Sales under Rule 144 are generally subject to the
availability of current public information about Maker. Under Rule 144(k), a
person who is not deemed to have been an affiliate of Maker at any time during
the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of any
prior owner other than an affiliate from whom such shares were purchased), is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144. Under
Rule 701, persons who purchase shares upon exercise of options granted prior to
the effective date of the offering are entitled to sell such shares 90 days
after the effective date of the offering in reliance on Rule 144, without
having to comply with the holding period requirements of Rule 144 and, in the
case of non-affiliates, without having to comply with the public information,
volume limitation or notice provisions of Rule 144.
Pursuant to the lock-up agreements, all of Maker's officers and directors
and certain stockholders owning upon completion of the offering, in the
aggregate, approximately 13,703,632 shares of common stock, have executed
agreements pursuant to which each has agreed that they will not, directly or
indirectly, offer, pledge, sell or otherwise transfer or dispose of any shares
of common stock or any securities convertible into, or exercisable or
exchangeable for, any shares of common stock or enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any common stock without the prior written
consent of Lehman Brothers Inc. for a period of 150 days subsequent to the date
of this prospectus. Two thirds of such shares shall remain subject to this
lock-up for a period of 180 days subsequent to the date of this prospectus and
one third of such shares shall be subject to this lock-up for a period of 210
days subsequent to the date of this prospectus. Further, holders of outstanding
vested stock options for, in the aggregate, an additional 178,780 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 as consideration 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.
48
Shares Eligible for Future Sale
<PAGE>
The holders of an aggregate of 4,554,433 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" and "Certain Transactions--
Registration Rights Agreement."
Prior to this offering, there has not been any public market for the
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the prevailing market prices and impair Maker's
ability to raise capital through the sale of equity securities.
49
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 .............................. 3,500,000
=========
</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
3,500,000 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 (a) 210 days with respect to
one-third of the shares, (b) 180 days with respect to two-thirds of the shares
and (c) 150 days with respect to all shares, in each case after the date of
this prospectus, without the prior written consent of Lehman Brothers Inc.
Stockholders who have agreed to this lock-up arrangement hold an aggregate of
13,703,632 shares of common stock and options to purchase an aggregate of
178,780 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. See "Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated by the
underwriters and Maker. The underwriters will consider, among other things and
in addition to prevailing market conditions, Maker's historical performance and
capital structure, estimates of business potential and earning prospects, an
overall assessment of Maker's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
50
Underwriting
<PAGE>
Application has been made to have the common stock approved for quotation
on the Nasdaq National Market under the symbol "MAKR."
Maker has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute,
under 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.
51
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.
52
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.
/s/ 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.
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,
----------------------------------------------
1996 1997 1998
-------------- --------------- ---------------
<S> <C> <C> <C>
Risk-free interest rates ........................... 6.09% 5.89-6.46% 4.47-5.49%
Expected dividend yield ............................ -- -- --
Expected life ...................................... 4 years 4 years 4 years
Expected volatility ................................ 60% 60% 60%
Weighted average fair value of options granted ..... $ .04 $ .09 $ 1.02
Weighted-average remaining contractual life of
options outstanding .............................. 9.81 years 9.27 years 9.13 years
<CAPTION>
March 31,
----------------------------
1998 1999
-------------- -------------
<S> <C> <C>
Risk-free interest rates ........................... 5.59% 4.90%
Expected dividend yield ............................ -- --
Expected life ...................................... 4 years 4 years
Expected volatility ................................ 60% 60%
Weighted average fair value of options granted ..... $ .15 $ 2.87
Weighted-average remaining contractual life of
options outstanding .............................. 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>
[Back cover]
Three diagrams illustrating:
--A typical communications system
--The location of Maker's processor within a communications system
--The architecture of Maker's solution
<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
During the past three years, Maker has issued the following securities,
none of which have been registered under the Securities Act:
1. In 1996, Maker authorized 4,019,654 shares of Junior Convertible
Preferred Stock, $0.01 par value. In September 1996, each outstanding share of
$0.01 par value common stock, totaling 4,019,654 shares, was exchanged for one
share of Junior Convertible Preferred Stock.
2. On September 27, 1996 Maker issued and sold an aggregate of 5,077,398
shares of its Class A Redeemable Preferred Stock and an equal number of shares
of common stock of Maker, for an aggregate purchase price of approximately
$8,149,000, or $1.605 per share, to a total of 28 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 in exchange for the conversion of a note payable to a
stockholder who was an accredited investor 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 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
4.1 Form of Stock Certificate (in standard printer form, not provided)
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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibits
No. Description of Documents
- --------- ---------------------------------------------------------------------------------------------
<S> <C>
++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
+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>
- ------------
* To be filed by amendment
++ 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 April 14, 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) April 14, 1999
/s/ Michael Rubino Vice President, Finance and
- ------------------------- Operations, Chief Financial Officer,
Michael Rubino Treasurer and Secretary (principal
financial and accounting officer) April 14, 1999
*
- -------------------------
Roger Evans Director April 14, 1999
*
- -------------------------
Robi Soni Director April 14, 1999
*
- -------------------------
Louis Tomasetta Director April 14, 1999
/s/ Paul R. Low
- -------------------------
Paul R. Low Director April 14, 1999
* /s/ William N. Giudice
-----------------------
William N. Giudice, as
attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
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
4.1 Form of Stock Certificate (in standard printer form, not provided)
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
+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>
- ------------
* To be filed by amendment
++ Confidential treatment requested as to certain portions, which portions
have been omitted and filed separately with the Commission.
+ Previously filed
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MAKER COMMUNICATIONS, INC.
Maker Communications, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as
follows:
The date of filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was September 19, 1996.
The Board of Directors of the Corporation, by unanimous written consent,
duly adopted resolutions setting forth the Amended and Restated Certificate of
Incorporation herein contained, declaring its advisability and directing that
such Amended and Restated Certificate of Incorporation be submitted to the
holders of the issued and outstanding capital stock for approval in accordance
with the applicable provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware and the Corporation's Certificate of
Incorporation, as previously amended.
The Amended and Restated Certificate of Incorporation was duly adopted,
after having been declared advisable by the Board of Directors of the
Corporation by the stockholders of the Corporation by written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware, and prompt written notice of the taking of the action without a
meeting by less than unanimous written consent has been given in accordance with
section 228(d) to the stockholders who did not consent in writing.
The text of the Amended and Restated Certificate of Incorporation of the
Corporation, as restated and amended (herein called the "Restated Certificate of
Incorporation") shall read in its entirety as follows:
FIRST: The name of the Corporation shall be:
MAKER COMMUNICATIONS, INC.
SECOND: The registered office of the Corporation in the State of Delaware
is located at 1209 Orange Street, in the City of Wilmington, County of New
Castle, 19801, and its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose or purposes of the Corporation shall be to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
<PAGE>
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 101,000,000 shares, which shares shall be divided
into two classes consisting of: (i) 100,000,000 shares of Common Stock (with
$.01 par value per share) ("Common Stock") and (ii) 1,000,000 shares of
Preferred Stock (with $.01 par value per share) ("Blank Check Preferred Stock").
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the Common Stock and the
Preferred Stock shall be as follows:
A. COMMON STOCK
1. Voting Rights. Except as otherwise required by law or this Amended and
Restated Certificate of Incorporation, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held by him of record on the
books of the Corporation for the election of directors and on all matters
submitted to a vote of stockholders of the Corporation.
2. Dividends. The holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property or in shares of capital stock, subject, however, to the
limitations contained in Part B below.
3. Dissolution, Liquidation or Winding Up. After distribution in full of
the preferential amount, if any, to be distributed to the holders of series of
the Blank Check Preferred Stock (in accordance with the relative preferences
among such series) in the event of involuntary liquidation, distribution,
dissolution or winding-up, of the Corporation, the holders of the Common Stock
shall be entitled to receive all of the remaining assets of the Corporation,
tangible and intangible, or whatever kind available for distribution to
stockholders, ratably in proportion to the number of shares of Common Stock held
by them respectively.
B. BLANK CHECK PREFERRED STOCK
1. Issuance. Shares of Blank Check Preferred Stock may be issued from time
to time in one or more series as may from time to time be determined by the
Board of Directors, each of said series to be distinctly designated. All shares
of any one series of the Blank Check Preferred Stock shall be alike in every
particular, except that there may be different dates from which dividends, if
any, thereon shall be cumulative, if made cumulative. The voting powers, if any,
and the designations, relative preferences, participating, optional or other
special rights or privileges of each such series, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding.
-2-
<PAGE>
2. Authority of the Board of Directors. The Board of Directors is
authorized, subject to limitations prescribed by law and the provisions of this
Article FOURTH, to provide for the issuance of the shares of the Blank Check
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix in the
resolution or resolutions providing for the issue of such stock adopted by the
Board of Directors of the Corporation the voting powers, if any, and the
designations, relative preferences, participating, optional or other special
rights or privileges, and the qualifications, limitations or restrictions of
such series, including, but without limiting the generality of the foregoing,
the following:
(a) The distinctive designation of, and the number of shares of the
Blank Check Preferred Stock which shall constitute such series. The
designation of a series of preferred stock need not include the words
"preferred" or "preference" and may be designated "special" or other
distinctive term. Unless otherwise provided in the resolution issuing
such series, the number of shares of any series of the Blank Check
Preferred Stock may be increased or decreased (but not below the number
of shares thereof then outstanding) by the Board of Directors in the
manner prescribed by law;
(b) The rate and times at which, and the terms and conditions upon
which, dividends, if any, on the Blank Check Preferred Stock of such
series shall be paid, the extent of the preference or relation, if any,
of such dividends to the dividends payable on any other class or
classes, or series of the same or other classes of stock and whether
such dividends shall be cumulative or non-cumulative and, if cumulative,
the date from which such dividends shall be cumulative;
(c) Whether the series shall be convertible into, or exchangeable for,
at the option of the holders of the Blank Check Preferred Stock of such
series or the Corporation or upon the happening of a specified event,
shares of any other class or classes or any other series of the same or
any other class or classes of stock of the Corporation, and the terms
and conditions of such conversion or exchange, including provisions for
the adjustment of any such conversion rate in such events as the Board
of Directors shall determine;
(d) Whether or not the Blank Check Preferred Stock of such series shall
be subject to redemption at the option of the Corporation or the holders
of such series or upon the happening of a specified event, and the
redemption price or prices and the time or times at which, and the terms
and conditions upon which, the Blank Check Preferred Stock of such
series may be redeemed;
-3-
<PAGE>
(e) The rights, if any, of the holders of the Blank Check Preferred
Stock of such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets, dissolution or
winding-up, of the Corporation;
(f) The terms of the sinking fund or redemption or purchase account, if
any, to be provided for the Blank Check Preferred Stock of such series;
and
(g) Subject to subparagraph 5 of Paragraph C hereof, whether such series
of the Blank Check Preferred Stock shall have full, limited or no voting
powers including, without limiting the generality of the foregoing,
whether such series shall have the right, voting as a series by itself
or together with other series of the Blank Check Preferred Stock or all
series of the Blank Check Preferred Stock as a class, to elect one or
more directors of the Corporation if there shall have been a default in
the payment of dividends on any one or more series of the Blank Check
Preferred Stock or under such other circumstances and on such conditions
as the Board of Directors may determine.
C. OTHER PROVISIONS.
1. No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason of any increase
of the authorized capital stock of the Corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock of the Corporation of any class or series, or
carrying any right to purchase stock of any class or series, but any such
unissued stock, additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to resolution of
the Board of Directors to such persons, firms, corporations or associations
(including such holders or others) and upon such terms as may be deemed
advisable by the Board of Directors in the exercise of its sole discretion.
2. The relative powers, preferences and rights of each series of the Blank
Check Preferred Stock in relation to the powers, preferences and rights of each
other series of the Blank Check Preferred Stock shall, in each case, be as fixed
from time to time by the Board of Directors in the resolution or resolutions
adopted pursuant to authority granted in Paragraph B hereof. The consent, by
class or series vote or otherwise, of the holders of such of the series of the
Blank Check Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other series of the
Blank Check Preferred Stock whether or not the powers, preferences and rights of
-4-
<PAGE>
such other series shall be fixed by the Board of Directors as senior to, or on a
parity with, the powers, preferences and rights of such outstanding series, or
any of them; provided, however, that the Board of Directors may provide in the
resolution or resolutions as to any series of the Blank Check Preferred Stock
adopted pursuant to Paragraph B hereof, the conditions, if any, under which the
consent of the holders of a majority (or such greater proportion as shall be
fixed therein) of the outstanding shares of such series shall be required for
the issuance of any or all other series of the Blank Check Preferred Stock.
3. Subject to the provisions of subparagraph 2 of this Paragraph C, shares
of any series of the Blank Check Preferred Stock may be issued from time to time
as the Board of Directors of the Corporation shall determine and on such terms
and for such consideration as shall be fixed by the Board of Directors.
4. Shares of authorized Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such terms and for
such consideration as shall be fixed by the Board of Directors.
5. The number of authorized shares of Common Stock and of the Blank Check
Preferred Stock, without a class or series vote, may be increased or decreased
from time to time (but not below the number of shares thereof then outstanding)
by the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote thereon.
FIFTH:
A. Number, Election and Terms of Directors. The number of directors shall
be fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by the Board of Directors. The Directors of the Corporation
shall be divided into two classes: Class I and Class II. Each class shall
consist, as nearly as may be possible, of one-half of the whole number of the
Board of Directors. If the Board of Directors is not evenly divisible by two,
the Board of Directors shall determine the number of Directors to be elected to
each class. The initial members of Class I shall be Rob Soni and Roger Evans and
they shall hold office for a term to expire at the Annual Meeting of the
Stockholders to be held in 2000; the initial members of Class II shall be
William Guidice Louis Tomasetta and Paul Low and they shall hold office for a
term to expire at the Annual Meeting of the Stockholders to be held in 2001, and
in the case of each class, until their respective successors are duly elected
and qualified. At each annual election held commencing with the annual election
in 2000, the Directors elected to succeed those whose terms expire shall be
identified as being of the same class as the Directors they succeed and shall be
elected to hold office for a term to expire at the second Annual Meeting of the
Stockholders after their election, and until their respective successors are
duly elected and qualified. If the number of Directors changes, any increase or
decrease in Directors shall be apportioned among the classes so as to maintain
all classes as equal in number as possible, and any additional Director elected
to any class shall hold office for a term which shall coincide with the terms of
the other Directors in such class and until his successor is duly elected and
qualified.
-5-
<PAGE>
B. Removal. Any Director or the entire Board of Directors may be removed
with or without cause by the holders of a majority of the shares then entitled
to vote at an election of Directors, or a majority vote of the Board of
Directors.
C. Amendment, Repeal or Alteration. Notwithstanding any other provisions of
the Restated Certificate of Incorporation or the Restated By-Laws of the
Corporation or the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of greater than fifty percent (50%) of the
combined voting power of the outstanding stock of the Corporation entitled to
vote generally in the election of Directors, voting together as a single class,
shall be required to amend, alter, adopt any provision inconsistent with or to
repeal this Article FIFTH.
SIXTH: The Corporation hereby affirmatively elects in this Restated
Certificate of Incorporation to be governed by Section 203 of the General
Corporation Law of Delaware.
SEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
EIGHTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
notwithstanding any provision of law imposing such liability; provided that, to
the extent provided by applicable law, this provision shall not eliminate the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any
-6-
<PAGE>
director for or with respect to any acts or omissions of such director occurring
prior to such amendment or repeal.
NINTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware.
A. The Board of Directors of the Corporation is expressly authorized to
adopt, amend, or repeal the By-laws of the Corporation.
B. Elections of directors need not be by written ballot unless the By-laws
of the Corporation shall so provide.
C. The books of the Corporation may be kept at such place within or without
the State of Delaware as the By-laws of the Corporation may provide or as may be
designated from time to time by the Board of Directors of the Corporation.
TENTH: Except as otherwise stated elsewhere in this Restated Certificate of
Incorporation, the Corporation reserves the right to amend or repeal any
provision contained in this Restated Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon a
stockholder herein are granted subject to this reservation.
ELEVENTH: The Corporation is to have perpetual existence.
[Remainder of Page Intentionally Left Blank]
-7-
<PAGE>
IN WITNESS WHEREOF, Maker Communications, Inc. has caused its corporate
seal to be hereunto affixed and this Restated Certificate of Incorporation to be
signed by William Giudice, its President, who hereby acknowledges under
penalties of perjury that the facts herein stated are true and that this
Restated Certificate of Incorporation is his act and deed, and attested by
Michael Rubino, its Secretary, as of the __ day of _________, 1999.
MAKER COMMUNICATIONS, INC.
By: _______________________
Name: William Giudice
Title: President
ATTEST:
By:
--------------------
Name: Michael Rubino
Title: Secretary
[SEAL]
-8-
_____ __, 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 _________ 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 _______ 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.
April 15, 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,
HUTCHINS, WHEELER & DITTMAR
A Professional Corporation
OFFICE LEASE
By And Between
MARRIOTT PLAZA ASSOCIATES LP., A CALIFORNIA LIMITED PARTNERSHIP
("LANDLORD")
And
MAKER COMMUNICATIONS, A DELAWARE CORPORATION
("TENANT")
2901 TASMAN DRIVE, SUITE 204
SANTA CLARA, CALIFORNIA 95054
<PAGE>
OFFICE LEASE
BASIC LEASE INFORMATION
Date: December 10, 1997
Landlord: Marriott Plaza Associates L.P., a California
limited partnership
Tenant: Maker Communications, a Delaware corporation
Premises: Suite 204, located on the Second floor of the
building located at 2901 Tasman Drive, Santa
Clara, California
Base Year: 1998
Rentable Area of Premises: 1316 square feet
Tenants Percentage Share: l.2%
Term: Two (2) years, beginning on the Term
Commencement Date and expiring on the Term
Expiration Date unless properly extended or
renewed pursuant to any right granted in the
Lease or any Addendum to the Lease.
Term Commencement Date: January 15, 1998, or as determined in accordance
with Exhibit F.
Term Expiration Date: January 15, 2000, or as determined in accordance
with Exhibit F.
Base Rent: $2,895.20/per month (months 1-12)
$2,987.32/per month (months 13-24)
Security Deposit: $5,974.64
Tenants Required
Liability Coverage: $2,000.000
Tenants Address 2901 Tasman Drive, Suite 204
for Notices: Santa Clara, CA 95054
Landlord's Address MARRIOTT PLAZA ASSOCIATES L.P.
for Notices: 525 University Avenue, #100
Palo Alto, CA 94301
with a copy to: Menlo Equities Management Company LLC
2901 Tasman Drive, #220
Santa Clara, CA 95054
Tenant's/Procuring Broker: BT Commercial
1995 North First Street, Suite 200
San Jose, California 95112
Attn: Derik Benson
Parking: Five (5) non-exclusive spaces onsite
Exhibits and Addenda: Exhibit A - Legal Description of the Project
Exhibit B - Floor Plan of Suite
Exhibit C - Rules and Regulations
Exhibit D - Tenant Improvements
Exhibit E - Form of Estoppel
Exhibit F - Commencement Date Certificate
Each reference in the Lease to particular Basic Lease Information shall
incorporate the applicable Basic Lease Information. In the event of any conflict
between any Basic Lease Information and the Lease, the latter shall control.
LANDLORD:
MARRIOTT PLAZA ASSOCIATES L.P.
A California Limited Partnership
By: Menlo Equities Associates IV LLC, a California Limited Liability
Company. Its General Partner
By: Menlo Equities LLC, a California Limited Liability Company. Its
Manager
By:_________________________________________
Its: Member
Date:_______________________________________
2.
<PAGE>
TENANT:
MAKER COMMUNICATIONS, a Delaware corporation
Signature: /s/ MITCHELL MACKOFF
------------------------------------
By: MITCHELL MACKOFF
------------------------------------
Its: VICE PRESIDENT & CFO
------------------------------------
Date: 12/31/97
------------------------------------
3.
<PAGE>
OFFICE LEASE
THIS LEASE, dated December 10, 1997, for purposes of reference only, is
made and entered into by and between MARRIOTT PLAZA ASSOCIATES L.P., a
California Limited Partnership ("Landlord") and MAKER COMMUNICATIONS, a Delaware
corporation ("Tenant").
WITNESSETH
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
the Premises described in paragraph 1(b) below for the term and subject to the
terms covenants, agreements and conditions hereinafter set forth, to each and
all of which Landlord and Tenant hereby mutually agree.
1. DEFINITIONS
Unless the context otherwise specifies or requires the following terms
shall have the meanings herein specified:
(a) The term property shall mean the parcel of real property the
street address of which is 2901 Tasman Drive, Santa Clara, California, and
which is more particularly described in Exhibit A attached hereto and made
a part hereof, the building, sidewalks, landscaping and parking facilities
constructed or to be constructed thereon, and all other improvements on or
appurtenances to the parcel, subject to all easements, rights of way and
encumbrances (collectively, the "Building".)
(b) The term Premises shall mean the portion of the Building located
on the floor(s) specified in the Basic Lease. Information which is outlined
on the floor plan(s) attached hereto as Exhibit B, and which is improved or
to be improved with the improvements described on Exhibit D attached hereto
and made a part hereof.
(c) The term "Base Year" shall mean the calendar year specified in the
Basic Lease Information as the Base Year.
(d) The term "Operating Expenses" shall mean:
(i) All costs of management, operation, repair and maintenance of
the Property, including, without limitation: wages, salaries and
payroll of employees: property management fees, janitorial repairs and
maintenance, guard parking and other services: rent or rental value of
offices used in connection with the management of the Property; power,
water, waste disposal and other utilities and services: materials and
supplies: maintenance and repairs: costs for licenses, permits and
inspections; insurance premiums and the deductible portion of any loss
insured under Landlord's liability insurance: costs for accounting,
legal and other professional services incurred in connection with the
operation of the Property and the calculation of Operating Expenses
and Property Taxes: the reasonable cost of contesting the validity or
applicability of any governmental enactments that may affect the
Property: a reasonable allowance for depreciation on machinery and
equipment used to maintain the Property and on other personal property
used by Landlord in the Building: and any other expense or charge,
whether or not included herein, which in accordance with general
accounting and management practices would be considered an expense of
managing, operating, maintaining and repairing the Property.
(ii) The cost of any capital improvements made to the Property by
Landlord during or after the Base Year, such cost or allocable portion
thereof to be amortized over such reasonable period as Landlord shall
determine in accordance with generally accepted accounting principles
together with interest on the unamortized balance at the rate of
interest equal to the greater of (a) 12% or (b) the sum of that rate
quoted by Wells Fargo Bank, N.T. & S.A. from time to time as its prime
rate (the "Prime Rate"), plus two percent (2%) or such higher rate as
may have been paid by Landlord on funds borrowed for the purpose of
constructing such capital improvements or performing any capital
repairs and/or replacements but not to exceed the maximum rate
permitted by law.
(iii) If less than 95% of the total rentable area of the Building
is occupied during the Base Year or any calendar year during the term
of this Lease, then Operating Expenses shall be adjusted to equal
Landlord's reasonable estimate of Operating Expenses had such
percentage of the total rentable area of the Building been occupied.
(e) The term "Base Operating Expenses" shall mean the Operating
Expenses defined in Section 1(d) above that are paid or incurred by
Landlord in the Base Year.
(f) The term "Property Taxes" shall each mean (i) all taxes,
assessments, levies and other charges of any kind or nature whatsoever,
general and special, foreseen and unforeseen (including all instruments of
principal and interest required to pay any general or special assessments
for public improvements and any increases resulting from reassessments
caused by any change in ownership or new construction), now or hereafter
imposed by any governmental or quasi-governmental authority or special
district having the direct or indirect power to tax or levy assessments,
which are levied or assessed for whatever reason against the Property or
any portion thereof, or Landlords interest herein, or the fixtures,
equipment and other property of Landlord that is an integral part of the
Property and located thereon, or Landlord's business of owning, leasing or
managing the Property or the gross receipts, income or rentals from the
Property, (ii) all charges, levies or fees imposed by any governmental
authority against Landlord by reason of or based upon the use of or number
of parking spaces within the Property, the amount of public services or
public utilities used or consumed (e.g. water, gas, electricity, sewage or
waste water disposal) at the Property, the number of person employed by
tenants of the Property, the size (whether measured in area, volume, number
of tenants or whatever) or the value of the Property, or the type of use or
uses conducted within the Property, and all costs and fees (including
attorneys fees) reasonably incurred by Landlord in contesting any Property
Tax and to negotiating with public authorities as to any Property Tax. If,
at any time during the Lease Term, the taxation or assessment of the
Property prevailing as of the Term Commencement Date shall be altered so
that in lieu of or in addition to any the Property Tax described above
there shall be levied, awarded or imposed (whether by reason of a change in
the method of taxation or assessment, creation of a new tax or charge, or
any other cause) an alternate, substitute, or additional use or charge (i)
on the value, size, use or occupancy of the Property or Landlord's interest
therein or (ii) on or measured by the gross receipts, income or rentals
from the Property, or on Landlord's business of owning, leasing or managing
the Property or (iii) computed in any manner with respect to the operation
of the Property, then any such tax or charge, however designated, shall be
included within the meaning of the terms "Property Tax" or "Property Taxes"
for purposes of this Lease. If any Property Tax is partly based upon
property or rents unrelated to the Property, then only that part of such
Property Tax that is fairly allocable to the Property shall be included
within the meaning of the terms "Property Tax" or "Property Taxes".
Notwithstanding the foregoing, the terms "Property Tax" or "Property Taxes"
shall not include estate, inheritance, transfer, gift or franchise taxes of
Landlord or the federal or state income tax imposed on Landlord's income
from all sources.
(g) The term "Base Property Taxes" shall mean the amount of Property
Taxes paid or accruing during the Base Year.
(h) The term "Rentable Area" shall mean the net rentable area
specified in the Basic Lease Information.
(i) The term "Common Areas" shall mean all areas in the Building and
the Property (as defined herein) not reserved for the exclusive use of
Landlord. Tenant or any other tenant, including without limitation, plazas,
walkways, private roadways, loading docks, parking areas, landscaped areas,
and the areas devoted to corridors, fire vestibules, stairways, elevator
foyers, lobbies, electric and telephone closets, rest rooms, mechanical
rooms and other similar facilities for the benefit of all tenants (or
invitees) or servicing the Buildings as a whole. Landlord reserves the
right to make changes to the Common Area as it deems necessary, provided
Landlord shall not reduce the number of parking spaces provided to Tenant
pursuant to this Lease.
4.
<PAGE>
(j) The term "Tenant's Percentage Share" shall mean the percentage figure
specified in the Basic Lease Information. Landlord and Tenant acknowledge that
Tenant's percentage share has been obtained by dividing the Rentable Area of the
Premises, as specified in the Basic Lease Information, by the total Rentable
Area of the Building, which Landlord and Tenant agree is 100.114 square feet,
and multiplying such quotient by 100. In the event the Rentable Area of the
Premises is increased or decreased. Tenant's Percentage Share shall be
appropriately adjusted, and as to the calendar year in which such change occurs,
for the purposes of paragraph 3 below Tenant's Percentage Share shall be
determined on the basis of the number of days during such calendar year at each
such Percentage Share.
(k) The term "Private Restrictions" shall mean (as they may exist from time
to time) any and all covenants, conditions and restrictions, private agreements,
easements, and any other recorded documents or instruments affecting the use of
the Property, the Building, the Leased Premises, or the Common Areas.
(l) The term "Law" shall mean any judicial decisions and any statute,
constitution, ordinance, resolution, regulation, rule, administrative order, or
other requirements of any municipal, county, state, federal, or other
governmental agency or authority having jurisdiction over the parties to this
Lease, the Premises, the Building or the Property, or any of them, in effect
either at the Term Commencement Date or at any time during the Lease Term,
including, without limitation, any regulation, order, or policy of any
quasi-official entity or body (e.g. aboard of fire examiners or a public utility
or special district).
2. TERM.
The term of this Lease shall commence and, unless sooner terminated as
hereinafter provided, shall end on the dates respectively specified in the Basic
Lease Information. If Landlord, for any reason whatsoever beyond Landlords
reasonable control, cannot deliver possession of the Premises to Tenant at the
commencement of the term, this Lease shall not be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting therefrom, but in
that event, rental shall be waived for the period between the commencement of
the term and the time when Landlord can deliver possession.
3. RENTAL.
(a) Tenant shall pay to Landlord throughout the term of this Lease as
rental for the Premises the sum specified in the Basic Lease Information as the
Base Rent, provided that the rental payable during each calendar year shall be
the Base Rent, increased by Tenants Percentage Share of the total dollar amount
above or increase in, if any, Operating Expenses paid or incurred by Landlord in
such year over the Base Operating Expenses, and also increased by Tenants
Percentage Share of the total dollar amount above or increase in, if any.
Property Taxes paid by Landlord in such year over the Base Property Taxes. The
increased rental due pursuant to this paragraph 3(a) is hereinafter referred to
as "Escalation Rent."
(b) Rental shall be paid to Landlord on or before the first day of the term
hereof and on or before the first day of each and every successive calendar
month thereafter during the term hereof. In the event the term of this Lease
commences on a day other than the first day of a calendar month or ends on a day
other than the last day of a calendar month, the monthly rental for the first
and last fractional months of the term hereof shall be appropriately prorated.
(c) All sums of money due to Landlord hereunder not specifically
characterized as rental shall constitute additional rent, and if any such sum is
not paid at the time provided in this Lease, it shall nonetheless be collectible
as additional rent at any time thereafter, including, without limitation on the
date on which the next installment of rental is due. Nothing contained herein
shall be deemed to suspend or delay the payment of any sum of money at the time
it becomes due and payable hereunder, or to limit any other remedy of Landlord.
(d) Tenant hereby acknowledges that late payment by Tenant to Landlord of
rent and other sums due hereunder will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be difficult to
ascertain. Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
trust deed covering the Premises. Accordingly, if any installment of rent or any
other sums due from Tenant shall not be received by Landlord when due or in the
time period provided herein. Tenant shall pay to Landlord a late charge equal to
5% of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. Acceptance of such late charge by Landlord
shall in no event constitute a waiver of Tenant's default with respect to such
overdue amount, nor prevent Landlord from exercising any of the other rights and
remedies granted hereunder.
(e) Any amount due to Landlord, if not paid when due, shall bear interest
from the date due until paid at the lower of (i) the rate of the Prime Rate plus
2% per annum, and (ii) the highest rate legally permitted, provided that
interest shall not be payable on late charges incurred by Tenant nor on any
amounts upon which late charges are paid by Tenant to the extent such interest
would cause the total interest to be in excess of that legally permitted.
Payment of interest shall not excuse or cure any default hereunder by Tenant.
(f) All payments due from Tenant to Landlord shall be paid to Landlord,
without deduction or offset, in lawful money of the United States of America at
Landlord's address for notices hereunder, or to such other person or at such
other place as Landlord may from time to time designate by notice to Tenant.
4. ESCALATION RENT PAYMENTS.
Escalation Rent shall be paid monthly on an estimated basis, with
subsequent annual reconciliation, in accordance with the following procedures:
(a) During December of the Base Year and December of each subsequent
calendar year, or as soon as practicable. Landlord shall give Tenant notice
of its estimate of any Escalation Rent due wider paragraph 3(a) above for
the calendar year. On or before the first day of each month during the
calendar year. Tenant shall pay to Landlord 1/12th of such estimated
Escalation Rent, provided that if such notice is not given in December
Tenant shall continue to pay on the basis of the prior year's estimate
until the month after such notice is given. If at any time or times it
appears to Landlord that the Escalation Rent for the current calendar year
will vary from its estimate by more than 5%. Landlord may, in its sole
discretion, by notice to Tenant, revise its estimate for such year, and
subsequent payments by Tenant for such year shall be based upon such
revised estimate.
(b) Unless Tenant shall dispute landlord's statement of Operating
Expenses and Property Taxes in accordance with its rights under Paragraph
4(d) below, within 90 days after the close of each calendar year or as soon
after such 90-day period as practicable, Landlord shall deliver to Tenant a
statement of the actural Escalation Rent for such calendar year,
accompanied by a statement showing the Operating Expenses and Property
Taxes on the basis of which the actual Escalation Rent was determined. The
statement shall be final and binding upon Landlord and Tenant as the amount
of the Operating Expenses and Property Taxes. If Landlord's statement
discloses that Tenant owes an amount that is less than the estimated
payments for such calendar year previously made by Tenant, Landlord shall
credit such excess against the next payment of rental due from Tenant
hereunder. If Landlord's statement discloses that Tenant owes an amount
that is more than the estimated payments for such calendar year previously
made by Tenant, Tenant shall pay the deficiency to Landlord within 30 days
after delivery of the statement
5.
<PAGE>
(c) The amount of Escalation Rent for any fractional year in the term
hereof shall be appropriately prorated. The termination of this Lease shall
not affect the obligations of Landlord and Tenant pursuant to paragraph
4(b) above to be performed after such termination.
(d) Tenant shall have the right to dispute Landlord's Statement of
Operating Expenses and Property Taxes by so notifying Landlord no later
than 30 days after receipt of same. If Tenant disputes such statement.
Landlord shall provide Tenant with reasonable verification of the figures
shown on the statement and the parties shall negotiate in good faith to
resolve any disputes. If Landlord and Tenant cannot agree. Tenant shall
have the right to have a certified public accountant approved by Landlord
audit, at Tenant's expense, at Landlord's offices, Landlord's accounts and
records relating to Operating Expenses and Property taxes. If such audit
reveals that landlord has overcharged Tenant, the amount overcharged shall,
at Landlord's option, be paid to Tenant within 20 days after the audit is
concluded or be deducted from Tenant's next payment's) of rent. In
addition, if the statement overstates actual Operating Expenses and Real
Property Taxes by more than 10%, the cost of the audit shall be paid by
Landlord. Any objection by Tenant to Landlord's statement and resolution of
any dispute shall not postpone the time for payment of any amounts due
Landlord based on Landlords statement or due under the Lease.
5. SECURITY DEPOSIT.
Tenant has deposited with Landlord the amount set forth in the Basic Lease
Information as the "Security Deposit" as security for the performance by Tenant
of the terms of this Lease to be performed by Tenant, and not as prepayment of
rent. Landlord may apply such portion or portions of the Security Deposit as are
reasonably necessary for the following purposes: (i) to remedy any default by
Tenant in the payment of Base Rent or Escalation Rent or a late charge or
interest on defaulted rent, or any other monetary payment obligation of Tenant
under this Lease: (ii) to repair damage to the Premises, the Building or the
Common Areas caused or permitted to occur by Tenant: (iii) to clean and restore
and repair the Premises, the Building or the Common Areas following their
surrender to Landlord if not surrendered in the condition required pursuant to
the provisions of Paragraph 7, and (iv) to remedy any other default of Tenant to
the extent permitted by Law including, without limitation, paying in full on
Tenant's behalf any sums claimed by materialmen or contractors of Tenant to be
owing to them by Tenant for work done or improvements made at Tenant's request
to the Premises. In this regard, Tenant hereby waives any restriction on the
uses to which the Security Deposit may be applied as contained an Section
1950.7(c) of the California Civil Code and/or any successor statute. In the
event the Security Deposit or any portion thereof is so used. Tenant shall pay
to Landlord, promptly upon demand, an amount in cash sufficient to restore the
Security Deposit to the full original sum. If Tenant fails to promptly restore
the Security deposit and if Tenant shall have paid to Landlord any sums as "Last
Month's Prepaid Rent." Landlord may, in addition to any other remedy Landlord
may have under this Lease, reduce the amount of Tenant's Last Months Prepaid
Rent by transferring all or portions of such Last Month's Prepaid Rent to
Tenant's Security Deposit until such Security Deposit is restored to the amount
set forth in Article 1. Landlord shall not be deemed a trustee of the Security
Deposit. Landlord may use the Security Deposit in Landlord's ordinary business
and Shall not be required to segregate it from Landlord's general accounts.
Tenant shall not be entitled to any interest on the Security Deposit. If
Landlord transfers the Building or the Property during the Lease Term. Landlord
may pay the Security Deposit to any subsequent owner in conformity with the
provisions of Section 1950.7 of the California Civil Code and/or any successor
statute, in which event the transferring landlord shall be released from all
liability for the return of the Security Deposit. Tenant specifically grants to
Landlord (and Tenant hereby waives the provisions of California Civil Code
Section 1950.7 to the contrary) a period of ninety days following a surrender of
the Premises by Tenant to Landlord within which to inspect the Premises, make
required restorations and repairs, receive and verify workmen's billings
therefor, and prepare a final accounting with respect to the Security Deposit.
In no event shall the Security Deposit or any portion thereof, be considered
prepaid rent.
6. Use.
Tenant shall be entitled to use the Premises solely for office/research and
development, sales, marketing and other related uses and (or no other use
whatsoever. Tenant shall continuously and without interruption use the Premises
for such purpose for the entire Lease Term. Any discontinuance of such use for a
period of sixty consecutive calendar days shall be, at Landlord's election, a
default by Tenant under the terms of this Lease. Tenant shall have the right to
use the Common Areas in conjunction with its Permitted Use of the Premises
solely for the purposes for which they were designed and intended aid for no
other purposes whatsoever. Tenant shall not do or permit anything to be done in
or about the Premises, the Building, the Common Areas or the Property which does
or could (i) jeopardize the structural integrity of the Building or (ii) cause
damage to any part of the Premises, the Building, the Common Areas or the
Property. Tenant shall not operate any equipment within the Premises which does
or could (i) injure, vibrate or shake the Premises or the Building, (ii) damage,
overload or impair the efficient operation of any electrical, plumbing, heating,
ventilating or air conditioning system within or servicing the Premises or the
Building, or (iii) damage or impair the efficient operation of the sprinkler
system (if any) within or servicing the Premises or the Building. Tenant shall
nor install any equipment or antennas on or make any penetrations of the
exterior walls or roof of the Building. Tenant shall not affix any equipment to
or make any penetrations or cuts in the floor, ceiling, walls or roof of the
Premises' Tenant shall not place any loads upon the floors, walls, ceiling or
roof systems which could endanger the structural integrity of the Building or
damage its floors, foundations or supporting structural components. Tenant shall
not place any explosive, flammable or harmful fluids or other waste materials in
the drainage systems of the Premises, the Building, the Common Areas or the
Property. Tenant shall not drain or discharge any fluids in the landscaped areas
or across the paved areas of the Property. Tenant shall not use any of the
Common Areas for the storage of its materials, supplies, inventory or equipment
and all such materials, supplies, inventory or equipment shall at all times be
stored within the Premises. Tenant shall not commit nor permit to be committed
any waste in or about the Premises, the Building, the Common Areas or the
Property.
7. SURRENDER OR POSSESSION. Immediately prior to the expiration or upon the
sooner termination of this Lease. Tenant shall remove all of Tenant's signs from
the exterior of the Building and shall remove all of Tenant's equipment, trade
fixtures, furniture, supplies, wall decorations and other personal property from
within the Leased Premises, the Building and the Common Areas, and shall vacate
and surrender the Leased Premises, the Building, the Outside Area and the
Property to Landlord in the same condition, broom clean, as existed at the Term
Commencement Date, reasonable wear and tear excepted. Tenant shall repair all
damage to the Leased Premises, the exterior of the Building and the Common Areas
caused by Tenant's removal of Tenant's property. Tenant shall patch and
refinish, to Landlord's reasonable satisfaction, all penetrations made by Tenant
or its employees to the floor, walls or ceiling of the Leased Premises, whether
such penetrations were made with Landlord's approval or not. Tenant shall repair
or replace all stained or damaged ceiling tiles, wall coverings and floor
coverings to the reasonable satisfaction of Landlord. Tenant shall repair all
damage caused by Tenant to the exterior surface of the Building and the paved
surfaces of the Common Areas and, where necessary, replace or resurface same.
Additionally, to the extent that Landlord shall have notified Tenant in writing
at the time the improvements were completed that it desired to have certain
improvements removed at the expiration or sooner termination of the Lease.
Tenant shall, upon the expiration or sooner termination of the Lease, remove any
such improvements constructed or installed by Landlord or Tenant and repair all
damage caused by such removal. If the Leased Premises, the Building, the Common
Areas and the Property are not surrendered to Landlord in the condition required
by this paragraph at the expiration or sooner termination of this Lease,
Landlord may, at Tenant's expense, so remove Tenant's signs, property and/or
improvements not so removed and make such repairs and replacements not so made
or hire, at Tenant's expense, independent contractors to perform such work.
Tenant shall be liable to Landlord for all costs incurred by Landlord in
returning the Leased Premises, the Building and the Common Areas to the required
condition, together with interest on all costs so incurred from the date paid by
Landlord at the then maximum rate of interest not prohibited or made usurious by
law until paid. Tenant shall pay to Landlord the amount of all costs so incurred
plus such interest thereon, within ten (10) days of Landlord's billing Tenant
for same. Tenant shall indemnify Landlord against loss or liability resulting
from delay by Tenant in surrendering the Leased Premises, including, without
limitation, any claims made by any succeeding Tenant or any losses to Landlord
with respect to lost opportunities to lease to succeeding tenants.
8. COMPLIANCE WITH LEGAL REQUIREMENTS.
Tenant shall abide by and shall promptly observe and comply with, at its
sole cost and expense, all Laws and Private Restrictions respecting the use and
occupancy of the Premises, the Building, the Common Areas, or the Property, and
shall defend with competent
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counsel, indemnify and hold Landlord harmless from any claims, damages or
liability resulting from Tenant's failure to so abide, observe, or comply. The
indemnity provision of this paragraph shall survive the expiration or sooner
termination of this Lease.
9. ENVIRONMENTAL REGULATIONS.
(a) As used herein, the term "Hazardous Materials" shall mean any toxic or
hazardous substance, material or waste or any pollutant or infectious or
radioactive material, including but not limited to those substances, materials
or wastes regulated now or in the future under any of the following statutes or
regulations and any and all of those substances included within the definitions
of "hazardous substances," "hazardous materials," "hazardous waste, hazardous
chemical substance or mixture," "imminently hazardous chemical substance or
mixture," "toxic substance," "hazardous air pollutant, "toxic pollutant," or
"solid waste" in the (a) Comprehensive Environmental Response, Compensation and
Liability Act of 1990 ("CERCLA" or "Superfund"), as amended by the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C. ss. 9601 et seq.,
(b) Resource Conservation arid Recovery Act of 1976 ("RCRA"). 42 U.S.C. ss. 6901
et seq., (c) Federal Water Pollution Control Act ("FSPCA"). 33 U.S.C. 51251 et
seq., (d) Clean Air Act ("CAA"), 42 U.S.C. ss. 7401 et seq., (e) Toxic
Substances Control Act ("TSCA"). 14 U.S.C. ss. 2601 et seq., (f) Hazardous
Materials Transportation Act, 49 U.S.C. ss. 1801. et seq., (g)
Carpenter-Presley-Tanner Hazardous Substance Account Act ("California
Superfund"), Cal. Health & Safety Code ss. 25300 et seq., (h) California
Hazardous Waste Control Act. Cal. Health & Safety code ss. 25100 et seq., (i)
Porter-Cologne Water Quality Control Act ("Porter-Cologne Act"). Cal. Water Code
ss. 13000 et seq., (j) Hazardous Waste Disposal Land Use Law, Cal. Health &
Safety codes ss. 25220 et seq., (k) Safe Drinking Water and Toxic Enforcement
Act of 1986 ("Proposition 65"). Cal. Health & Safety code ss. 25249.5 et seq.,
(l) Hazardous Substances Underground Storage Tank Law. Cal. Health & Safety code
ss. 25280 et seq., (m) Air Resources Law. Cal. Health & Safety Code ss. 39000
et seq., and (n) regulations promulgated pursuant to said laws or any
replacement thereof, or as similar terms are defined in the federal, state and
local laws, statutes, regulations, orders or roles, Hazardous Materials shall
also mean any and all other biohazardous wastes and substances, materials and
wastes which are, or in the future become, regulated under applicable Laws for
the protection of health or the environment, or which are classified as
hazardous or toxic substances, materials or wastes, pollutants or contaminants,
as defined, listed or regulated by any federal, state or local law, regulation
or order or by common law decision, including, without limitation. (i)
trichloroethylene, tetrachloroethylene, perchloroethylene and other chlorinated
solvents, (ii) any petroleum products or fractions thereof, (iii) asbestos, (iv)
polychlorinted biphenyls, (v) flammable explosives, (vi) urea formaldehyde,
(vii) radioactive materials and waste, and (viii) materials and wastes that are
harmful to or may threaten human health, ecology or the environment.
(b) Notwithstanding anything to the contrary in this Lease, Tenant, at its
sole cost, shall comply with all Laws relating to the storage, use and disposal
of Hazardous Materials in, on, or under the Property; provided however, that
Tenant shall not be responsible for contamination of the Premises by Hazardous
Materials existing as of the date the Premises are delivered to Tenant (whether
before or after the Term Commencement Date) unless caused by Tenant. Except for
small quantities of standard household or office products containing chemicals
which Tenant may use in conducting its business at the Premises so long as such
use is in compliance with all Laws. Tenant shall not store, use or dispose of
any Hazardous Materials except for those Hazardous Materials listed in a
Hazardous Materials management plan ("HMMP") which Tenant shall deliver to
Landlord for approval in advance of any such use, storage or disposal and update
at least annually with Landlord (once so approved by Landlord, the "Permitted
Materials"), which may be used, stored and disposed of provided (i) such
Permitted Materials are used, stored, transported, and disposed of in strict
compliance with applicable laws, (ii) such Permitted Materials shall be limited
to the materials listed on and may be used only in the quantities specified in
the HMMP, and (iii) Tenant shall provide Landlord with copies of all material
safety data sheets and other documentation required under applicable Laws in
connection with Tenant's use of Permitted Materials as and when such
documentation is provided to any regulatory authority having jurisdiction, in no
event shall Tenant cause or permit to be discharged into the plumbing or sewage
system of the Building or onto the land underlying or adjacent to the Building
any Hazardous Materials. Tenant shall be solely responsible for and shall
defend, indemnify, and hold Landlord and its agents harmless from and against
all claims, costs and liabilities, including attorneys' fees and costs, arising
out of or in connection with Tenant's storage, use and/or disposal of Hazardous
Materials. If the presence of Hazardous Materials on the Premises caused or
permitted by Tenant results in contamination or deterioration of water or soil,
then Tenant shall promptly take any and all action necessary to clean up such
contamination, but the foregoing shall in no event be deemed to constitute
permission by Landlord to allow the presence of such Hazardous Materials. At any
time prior to the expiration of the Lease Term if Tenant has a reasonable basis
to suspect that there has been any release or the presence of Hazardous
Materials in the ground or ground water on the Premises which did not exist upon
commencement of the Lease Term. Tenant shall have the right to conduct
appropriate tests of water and soil and to deliver to Landlord the results of
such tests to demonstrate that no contamination in excess of permitted levels
has occurred as a result of Tenant's use of the Premises. Tenant shall further
be solely responsible for, and shall defend, indemnify, and hold Landlord and
its agents harmless from and against all claims, costs and liabilities,
including attorneys' fees arid costs, arising out of or in connection with any
removal, cleanup and restoration work and materials required hereunder to return
the Premises and any other property of whatever nature to their condition
existing prior to the appearance of the Hazardous Materials. Tenant's obligation
hereunder shall survive the expiration or earlier termination of the Lease.
(c) Upon termination or expiration of the Lease. Tenant at its sole expense
shall cause all Hazardous Materials placed in or about the Premises, the
Building, the Common Areas, the Property, and/or the Property by Tenant, its
agents, contractors, or invitees, and all installations (whether interior or
exterior) made by or on behalf of Tenant relating to the storage, use, disposal
or transportation of Hazardous Materials to be removed and transported for use,
storage or disposal in accordance and compliance with all Laws and other
requirements respecting Hazardous Materials used or permitted to be used by
Tenant. Tenant shall apply for and shall obtain from all appropriate regulatory
authorities (including any applicable fire department or regional water quality
control board) all permits, approvals amid clearances necessary for the closure
of the Building arid the Property and shall take all other actions as may be
required to complete the closure of the Building and the Property. In addition,
prior to vacating the Premises, Tenant shall undertake and submit to Landlord an
environmental site assessment from an environmental consulting company
reasonably acceptable to Landlord which site assessment shall evidence Tenant's
compliance with this Paragraph 9.
(d) At any time prior to expiration of the Lease term, subject to
reasonable prior notice (not less than forty-eight (48) hours) and Tenant's
reasonable security requirements and provided such activities do not
unreasonably interfere with the conduct of Tenant's business at the Premises.
Landlord shall have the right to enter in and upon the Property, Building,
Common Areas. Premises and Property in order to conduct appropriate tests of
water and soil to determine whether levels of any Hazardous Materials in excess
of legally permissible levels has occurred as a result of Tenant's use thereof.
Landlord shall furnish copies of all such test results amid reports to Tenant
and, at Tenant's option and cost, shall permit split sampling for testing and
analysis by Tenant. Such testing shall be at Tenant's expense if Landlord has a
reasonable basis for suspecting and confirms the presence of Hazardous Materials
in the soil or surface or ground water in, on, under, or about the Property, the
Property, the Building, the Common Areas, or the Premises, which has been caused
by or resulted from the activities of Tenant, its agents, contractors, or
invitees.
(e) Landlord may voluntarily cooperate in a reasonable manner with the
efforts of all governmental agencies in reducing actual or potential
environmental damage. Tenant shall not be entitled to terminate this Lease or to
any reduction in or abatement of rent by reason of such compliance or
cooperation. Tenant agrees at all times to cooperate fully with the requirements
and recommendations of governmental agencies regulating, or otherwise involved
in, the protection of the environment.
10. NOTICES AND CONSENTS.
All notices, consents, demands and other communications from one party to
the other that are given pursuant to the terms of this Lease shall be in writing
and shall be deemed to have been fully given when delivered including delivery
by commercial delivery services, or if sent by the United States mail, certified
or registered, when deposited in the mail, postage prepaid. All notices,
consents, demands and other communications shall be addressed as follows: to
Tenant at the address specified in the Basic Lease Information, or to such other
place as Tenant may from time to time designate in a notice to Landlord; to
Landlord at the address specified in the Basic Lease Information, or to such
other place as Landlord may from time to time designate in a notice to Tenant;
or, in the case of Tenant, delivered to Tenant at the Premises. Tenant
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hereby appoints as its agent to receive the service of all dispossessory or
distraint proceedings and notices thereunder the person in charge of or
occupying the Premises at the time, and, if no person shall be in charge of or
occupying the same, then such service may be made by attaching the same in the
main entrance of the Premises.
11. BROKERAGE COMMISSIONS.
Tenant represents and warrants that it has dealt with no broker, agent or
other person in connection with this transaction and that no broker, agent or
other person brought about this transaction, other than the Procuring Broker or
the Tenant's Broker identified in the Basic Lease information and Landlord and
Tenant each agree to indemnify and hold the other party harmless from and
against any claims by any other broker, agent or other person claiming a
commission or other form of compensation by virtue of having dealt with Landlord
or Tenant with regard to this leasing transaction. The provisions of this
paragraph shall survive the expiration or earlier termination of this Lease.
12. HOLDING OVER.
(a) If Tenant holds possession of the Premises after expiration of the term
of this Lease, Tenant shall become a tenant from month to month upon the terms
herein specified but at a monthly rental equivalent to 150% of the then
prevailing monthly rental paid by Tenant at the expiration of the term of this
Lease, payable in advance on or before the first day of each month. Each party
shall give the other notice at least one month prior to the date of termination
of such monthly tenancy of its intention to terminate such tenancy.
(b) If, without Landlord's written consent, Tenant holds possession of the
Premises after expiration of the term of this Lease or expiration of its
holdover tenancy, without limiting the liability of Tenant for its unauthorized
occupancy of the Premises, Tenant shall indemnify Landlord and any replacement
tenant for the Premises for any damages or loss suffered by either Landlord or
the replacement tenant resulting from Tenant's failure timely to vacate the
Premises.
13. ADDITIONAL OBLIGATIONS PAYABLE BY TENANT.
In addition to the monthly rental and other charges to be paid by Tenant
hereunder, Tenant shall pay or reimburse Landlord for any and all of the
following items when due (hereinafter collectively referred to as "Additional
Obligations"), whether or not now customary or in the contemplation of the
parties hereto: taxes other than local, state and federal personal or corporate
income taxes measured by the net income of Landlord from all sources,
assessments including, without limitation, all assessments for public
improvements, services or benefits, irrespective of when commenced or completed,
excises, levies, business taxes, license, permit, inspection and other
authorization fees, transit development fees, assessments or charges for housing
funds, service payments in lieu of taxes and any other fees or charges of any
kind, which are levied, assessed, confirmed or imposed by any public authority.
In the event that it shall not be lawful for Tenant to reimburse Landlord for
the Additional Obligations but it is lawful to increase the monthly rental to
take into account Landlord's payment of the Additional Obligations, the monthly
rental payable to Landlord shall be revised to net Landlord the same net return
without reimbursement of the Additional Obligations as would have been received
by Landlord with reimbursement of the Additional Obligations.
14. ALTERATIONS.
(a) Tenant shall not make any alterations to or modifications of the
Premises or construct any improvements within the Premises until Landlord shall
have first approved, in writing, the plans and specifications therefor, which
approval may be withheld in Landlord's sole discretion. All such modifications,
alterations or improvements, once so approved, shall be made, constructed or
installed by Tenant at Tenant's expense (including all permit fees and
governmental charges related thereto), using a licensed contractor first
approved by Landlord, in substantial compliance with the Landlord-approved plans
and specifications therefor. All work undertaken by Tenant shall be done in
accordance with all Laws and in a good and workmanlike manner using new or
like-new materials of good quality. Tenant shall not commence the making of any
such modifications or alterations or the construction of any such improvements
until (i) all required governmental approvals and permits shall have been
obtained, (ii) all requirements regarding insurance imposed by this Lease have
been satisfied, (iii) Tenant shall have given Landlord at lease five business
days prior written notice of its intention to commence such work so that
Landlord may post and file notices of non-responsibility, and (iv) if requested
by Landlord, Tenant shall have obtained contingent liability and broad form
builder's risk insurance in an amount satisfactory to Landlord in its reasonable
discretion to cover any perils relating to the proposed work not covered by
insurance carried by Tenant pursuant to Paragraph 20. In no event shall Tenant
make any modification, alterations or improvements whatsoever to the Common
Areas or the exterior or structural components of the Building including,
without limitation, any cuts or penetrations in the floor, roof or exterior
walls of the Premises. As used in this Article, the term "modifications,
alterations and/or improvements" shall include, without limitation, the
installation of additional electrical outlets, overhead lighting fixtures,
drains, sinks, partitions, doorways, or the like.
(b) All modifications, alterations and improvements made or added to the
Premises by Tenant (other than Tenant's inventory, equipment, movable furniture,
wall decorations and trade fixtures) shall be deemed real property and a part of
the Premises, but shall remain the property of Tenant during the Lease. Any such
modifications, alterations or improvements, once completed, shall not be altered
or removed from the Premises during the Lease Term without Landlord's written
approval first obtained in accordance with the provisions of Paragraph 14(a)
above. At the expiration or sooner termination of this Lease, all such
modifications, alterations and improvements other than Tenant's inventory,
equipment, movable furniture, wall decorations and trade fixtures, shall
automatically become the property of Landlord and shall be surrendered to
Landlord as part of the Premises as required pursuant to Paragraph 7, unless
Landlord shall require Tenant to remove any of such modifications, alterations
or improvements in accordance with the provisions of Paragraph 7, in which case
Tenant shall so remove same. Landlord shall have no obligations to reimburse
Tenant for all or any portion of the cost or value of any such modifications,
alterations or improvements so surrendered to Landlord. All modifications,
alterations or improvements which are installed or constructed on or attached to
the Premises by Landlord and/or at Landlord's expense shall be deemed real
property and a part of the Premises and shall be property of Landlord. All
lighting, plumbing, electrical, heating, ventilating and air conditioning
fixtures, partitioning, window coverings, wall coverings and floor coverings
installed by Tenant shall be deemed improvements to the Premises and not trade
fixtures of Tenant.
(c) Tenant shall make all modifications, alterations and improvements to
the Premises, at its sole cost, that are required by any Law because of (i)
Tenant's use or occupancy of the Premises, the Building, the Common Areas or the
Property, (ii) Tenant's application for any permit or governmental approval, or
(iii) Tenant's making of any modifications, alterations or improvements to or
within the Premises. If Landlord shall, at any time during the Lease Term, be
required by any governmental authority to make any modifications, alterations or
improvements to the Building or the Property, the cost incurred by Landlord in
making such modifications, alterations or improvements, including interest at a
rate equal to the greater of (a) 12%, or (b) the sum of that rate quoted by
Wells Fargo Bank, N.T. & S.A. from time to time as its prime rate, plus two
percent (2%) ("Wells Prime Plus Two"), shall be amortized by Landlord over the
useful life of such modifications, alterations or improvements, as determined in
accordance with generally accepted accounting principles, and the monthly
amortized cost of such modifications, alterations and improvements as so
amortized shall be included in Operating Expenses.
15. REPAIRS.
By entry hereunder Tenant accepts the Premises as being in the condition in
which Landlord is obligated to deliver the Premises. Tenant shall, at all times
during the term hereof, and at Tenant's sole cost and expense, keep the Premises
in good condition and repair, ordinary wear and tear, damage thereto by fire,
earthquake, act of God or the elements excepted. Tenant hereby waives all rights
to make repairs at the expense of Landlord or in lieu thereof to vacate the
Premises. Tenant shall at the end of the term hereof surrender to Landlord the
Premises and all alterations thereto in the good and clean condition, ordinary
wear and tear and damage by fire, earthquake, act of God or the elements
excepted. Landlord has no obligation and has made no promise to alter, remodel,
improve, repair, decorate or paint the Premise or any part
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thereof, except as specifically hereto set forth. No representations or
warranties respecting the condition of the Premises or the Building have been
made by Landlord to Tenant, except as specifically herein set forth.
16. LIENS.
Tenant shall keep the Premises and the Building free from any liens arising
out of any work performed, materials furnished or obligations incurred by
Tenant. Landlord shall have the right to post and keep posted on the Premises
any notices that may be provided by law or which Landlord may deem to be proper
for the protection of Landlord, the Premises and the Building from such liens.
In the event any such lien attaches to the Premises or the Property, and Tenant
does not cause the same to be released by payment, bonding or otherwise, within
ten (10) days after the attachment thereof, Landlord shall have the right but
not the obligation to cause the same to be released by such means as it shall
deem proper, and any sums expended by Landlord in connection therewith shall be
payable by Tenant on demand with interest thereon from the date of expenditure
by Landlord at the rate specified in Paragraph 3(e). Landlord and Tenant each
hereby warrant to use best efforts to notify the other of the existence or
attachment of any and all liens contemplated under this Paragraph 15 within five
(5) business days of Landlord's or Tenant's actual knowledge of such lien(s).
17. ENTRY BY LANDLORD.
Landlord, upon reasonable notice to Tenant, may enter the Premises at
reasonable hours to (a) inspect the same; (b) exhibit the same to prospective
purchasers, lenders or tenants; (c) determine whether Tenant is complying with
all its obligations hereunder; (d) supply janitor service and any other service
to be provided by Landlord to Tenant hereunder; (e) post notices of
non-responsibility; and (f) make repairs or perform maintenance required of
Landlord under the terms hereof, make repairs to any adjoining space or utility
services, or make repairs, alterations or improvements to any other portion of
the Building. Landlord shall at all times have and retain a key with which to
unlock all of the doors in, on or about the Premises excluding Tenant's vaults,
safes and similar areas designated in writing by Tenant in advance; and Landlord
shall have the right to use any and all means which Landlord may deem proper to
open Tenant's doors in an emergency in order to obtain entry to the Premises,
and any entry to the Premises obtained by Landlord in a real or perceived
emergency shall not be considered or deemed to be a forcible or unlawful entry
into or a detainer of the Premises or an eviction, actual or constructive, of
Tenant from the Premises or any portion thereof.
18. SERVICES.
(a) Landlord shall maintain the Common Areas and public areas of the
Property, including lobbies, stairs, elevators, corridors and restrooms, all
exterior landscaping, the windows in the Building, the mechanical, plumbing and
electrical equipment serving the Building, and the structure itself in
reasonably good order and condition, except for damage occasioned by the act or
omission of Tenant, its employees, contractors, agents or invitees which damage
shall be repaired by Landlord at Tenant's expense.
(b) Landlord shall cause to be furnished (1) electricity for lighting and
the operation of office equipment, on a 24-hour basis, with power usage in
excess of the time allowance referred to in Paragraph 18(d) below to be at
Tenants cost, (2) heat and air conditioning to the extent reasonably required
for the comfortable occupancy by Tenant in its use of the Premises during the
period from 7:00 a.m. to 6:00 p.m. on weekdays excluding holidays, or as set
forth in the Rules and Regulations, which may be changed from time to time, or
such shorter periods as may be prescribed by any applicable policies or
regulations adopted by any utility or governmental agency, (3) elevator service,
(4) lighting replacement for building standard lights, (5) restroom supplies,
(6) window washing with reasonable frequency, (7) water for lavatory and
drinking purposes, and (8) security patrol services and janitor service during
the times and in the manner that such services are customarily furnished in
comparable office buildings in the area; provided that in no event shall
Landlord be obligated to furnish janitor service on Saturdays, Sundays, or legal
holidays. Landlord may establish reasonable measures to conserve energy,
including but not limited to, automatic switching of lights after hours and more
efficient forms of lighting, so long as such measures do not unreasonably
interfere with Tenants use of the Premises. Landlord shall not be in default
hereunder or be liable for any damages directly or indirectly resulting from,
nor shall the rental herein reserved be abated by reason of (i) the
installation, use or interruption of use of any equipment in connection with the
furnishing of any of the foregoing services, (ii) failure to furnish or delay in
furnishing any such services when such failure or delay is caused by accident or
any condition beyond the control of Landlord or by the making of necessary
repairs or improvements to the Premises or to the Building, or (iii) the
limitation, curtailment, rationing or restrictions on use of water, electricity,
gas or any other form of energy serving the Premises or the Building. Tenant
hereby waives the provisions of California Civil Code Section 1932 or any other
applicable existing or future law or ordinance or governmental regulation
permitting the termination of this lease due to any interruption, failure or
inability to provide Landlord services as provided for herein.
(c) Tenant shall reimburse Landlord, upon billing therefor, for the cost of
all heat or air conditioning provided to the Premises during hours requested by
Tenant when such services are not otherwise furnished by Landlord pursuant to
Paragraph 18(b) above. The cost of such after hours heat or air conditioning
shall be a per-hour charge reflecting the electrical energy, labor and fixed
plant costs of running the heating and air conditioning system which per hour
charge shall be fifteen dollars ($15.00). In the event that Landlord has
reasonable cause to believe that the cost of after hours heating, air
conditioning and electricity used by Tenant is exceeding the per hour charge,
Landlord may at its option install separate meter(s) for the Premises, or
portions thereof, at Tenant's sole expense, and Tenant thereafter shall pay all
charges of the utility providing service.
(d) In the event that Landlord, at Tenant's request, provides services to
Tenant that are (i) in excess of those services required to maintain "Building
Standard Improvements," or (ii) are not otherwise provided for in this Lease,
Tenant shall pay Landlord's reasonable charges for such services upon billing
therefor.
19. INDEMNIFICATION AND LIMITATION ON LANDLORD'S LIABILITY.
(a) Tenant shall defend with competent counsel satisfactory to Landlord any
claims made or legal actions filed or threatened against Landlord with respect
to the violation of any Law, or the death, bodily injury, personal injury,
property damage, or interference with contractual or property rights suffered by
any third party occurring within the Premises or resulting from Tenant's use or
occupancy of the Premises, the Building, or the Common Areas, or resulting from
Tenant's activities in or about the Premises, the Building, the Common Areas or
the Property, and Tenant shall indemnify and hold Landlord, Landlord's partners,
principals, members, employees, agents and contractors harmless from any loss,
liability, penalties, or expense whatsoever (including any loss attributable to
vacant space which otherwise would have been leased, but for such activities)
resulting therefrom, except to the extent proximately caused by the active
negligence or willful misconduct of Landlord. This indemnity agreement shall
survive until the latter to occur of (i) the date of the expiration, or sooner
termination, of this Lease, or (ii) the date Tenant actually vacates the
Premises.
(b) Landlord shall not be liable to Tenant for, and Tenant hereby releases
Landlord and its partners, principals, members, officers, agents, employees,
lenders, attorneys, and consultants from, any and all liability, whether in
contract, tort or on any other basis, for any injury to or any damage sustained
by Tenant, Tenant's agents, employees, contractors or invitees, any damage to
Tenant's property, or any loss to Tenant's business, loss of Tenant's profits or
other financial loss of Tenant resulting from or attributable to the condition
of, the management of, the repair or maintenance of, the protection of, the
supply of services or utilities to, the damage in or destruction of the
Premises, the Building, the Property or the Common Areas, including without
limitation (i) the failure, interruption, rationing or other curtailment or
cessation in the supply of electricity, water, gas or other utility service to
the Property, the Building or the Premises; (ii) the vandalism or forcible entry
into the Building or the Premises; (iii) the penetration of water into or onto
any portion of the Premises; (iv) the failure to provide security and/or
adequate lighting in or about the Property, the Building or the Premises, (v)
the existence of any design or construction defects within the Property, the
Building or the Premises; (vi) the failure of any mechanical systems to function
properly (such as the HVAC systems); (vii) the blockage of access to any portion
of the Property, the Building or the Premises, except that Tenant does not so
release Landlord from such liability
9.
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to the extent such damage was proximately caused by Landlord's active
negligence, willful misconduct, or Landlord's failure to perform an obligation
expressly undertaken pursuant to this Lease after a reasonable period of time
shall have lapsed following receipt of written notice from Tenant to so perform
such obligation. In this regard, Tenant acknowledges that it is fully apprised
of the provisions of Law relating to releases, and particularly to those
provisions contained in Section 1542 of the California Civil Code which reads as
follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
Notwithstanding such statutory provision, and for the purpose of implementing a
full and complete release and discharge, Tenant hereby (i) waives the benefit of
such statutory provision and (ii) acknowledges that, subject to the exceptions
specifically set forth herein, the release and discharge set forth in this
paragraph is a full and complete settlement and release and discharge of all
claims and is intended to include in its effect, without limitation, all claims
which Tenant, as of the date hereof, does not know of or suspect to exist in its
favor.
20. INSURANCE AND SUBROGATION.
(a) Tenant shall maintain insurance complying with all of the following:
(i) Tenant shall procure, pay for and keep in full force and effect,
at all times during the Lease Term, the following:
(1) Comprehensive general liability insurance insuring Tenant
against liability for personal injury, bodily injury, death and damage
to property occurring within the Premises, or resulting from Tenant's
use or occupancy of the Premises, the Building, the Common Areas or
the Property, or resulting from Tenant's activities in or about the
Premises or the Property, with coverage in an amount equal to Tenant's
Required Liability Coverage (as set forth in Basic Lease Information),
which insurance shall contain a "broad form liability" endorsement
insuring Tenant's performance of Tenant's obligation to indemnify
Landlord as contained in this Lease;
(2) Fire and property damage insurance in so-called "fire and
extended coverage" form insuring Tenant against loss from physical
damage to Tenant's personal property, inventory, trade fixtures and
improvements within the Premises with coverage for the full actual
replacement cost thereof;
(3) Plate glass insurance, at actual replacement cost;
(4) Pressure vessel insurance, if applicable;
(5) Product liability insurance (including, without limitation,
if food and/or beverages are distributed, sold and/or consumed within
the Premises, to the extent obtainable, coverage for liability arising
out of the distribution, sale, use or consumption of food and/or
beverages (including alcoholic beverages, if applicable) at the
Premises for not less than Tenant's Required Liability Coverage (as
set forth in Basic Lease Information);
(6) Workers compensation insurance and any other employee benefit
insurance sufficient to comply with all laws; and
(7) With respect to making of alterations or the construction of
improvements or the like undertaken by Tenant, contingent liability
and builder's risk insurance, in an amount and with coverage
reasonably satisfactory to Landlord.
(ii) Each policy of liability insurance required to be carried by
Tenant pursuant to this paragraph or actually carried by Tenant with
respect to the Premises or the Property: (i) shall, except with respect to
insurance required by subparagraph (a)(vi) above, name Landlord, and such
others as are designated by Landlord, as additional insureds; (ii) shall be
primary insurance providing that the insurer shall be liable for the full
amount of the loss, up to and including the total amount of liability set
forth in the declaration of coverage, without the right of contribution
from or prior payment by any other insurance coverage of Landlord; (iii)
shall be in a form satisfactory to Landlord; (iv) shall be carried with
companies reasonably acceptable to Landlord with Best's ratings of at least
A and XI; (v) shall provide that such policy shall not be subject so
cancellation, lapse or change except after at least thirty days prior
written notice to Landlord, and (vi) shall contain a so-called
"severability" or "cross liability" endorsement. Each policy of property
insurance maintained by Tenant with respect to the Premises or the Property
or any property therein (i) shall provide that such policy shall not be
subject to cancellation, lapse or change except after at least thirty days
prior written notice to Landlord and (ii) shall contain a waiver and/or a
permission to waive by the insurer of any right of subrogation against
Landlord, its partners, principals, members, officers, employees, agents
and contractors, which might arise by reason of any payment under such
policy or by reason of any act or omission of Landlord, its partners,
principals, members, officers, employees, agents and contractors.
(iii) Prior to the time Tenant or any of its contractors enters the
Premises, Tenant shall deliver to Landlord, with respect to each policy of
insurance required to be carried by Tenant pursuant to this Paragraph, a
copy of such policy (appropriately authenticated by the insurer as having
been issued, premium paid) or a certificate of the insurer certifying in
fcrm satisfactory to Landlord that a policy has been issued, premium paid,
providing the coverage required by this Paragraph aid containing the
provisions specified herein. With respect to each renewal or replacement of
any such insurance, the requirements of this Paragraph must be complied
with not less than thirty days prior to the expiration or cancellation of
the policies being renewed or replaced. Landlord may, at any time and from
time to time, inspect and/or copy any and all insurance policies required
to be carried by Tenant pursuant to this Article. If Landlord's Lender,
insurance broker, advisor or counsel reasonably determines at any time that
the amount of coverage set forth herein for any policy of insurance Tenant
is required to carry pursuant to this Paragraph is not adequate, then
Tenant shall increase the amount of coverage for such insurance to such
greater amount as Landlord's Lender, insurance broker, advisor or counsel
reasonably deems adequate.
(b) With respect to insurance maintained by Landlord:
(i) Landlord shall maintain, as the minimum coverage required of it by
this Lease, fire and property damage insurance in so-called "fire and
extended coverage" form insuring Landlord (and such others as Landlord may
designate) against loss from physical damage to the Building with coverage
of not less than one hundred percent (100%) of the full actual replacement
cost thereof and against loss of rents for a period of not less than six
months. Such fire and property damage insurance, at Landlord's election but
without any requirements on Landlord's behalf to do so, (i) may be written
in so-called "all risk" form, excluding only those perils commonly excluded
from such coverage by Landlord's then property damage insurer; (ii) may
provide coverage for physical damage to the improvements so insured for up
to the entire full actual replacement cost thereof; (iii) may be endorsed
to cover loss or damage caused by any additional perils against which
Landlord may elect to insure, including earthquake and/or flood; and/or
(iv) may provide coverage for loss of rents for a period of up to twelve
months. Landlord shall not be required to cause such insurance to cover any
of Tenant's personal property, inventory, and trade fixtures, or any
modifications, alteration or improvements made or constructed by Tenant to
or within the Premises. Landlord shall use commercially reasonable efforts
to obtain such insurance at competitive rates.
(ii) Landlord shall maintain comprehensive general liability insurance
insuring Landlord (and such others as are designated by Landlord) against
liability for personal injury, bodily injury, death, and damage to property
occurring in, on or about, or resulting from the use or occupancy of the
Property, or any portion thereof, with combined single limit coverage of at
least Three Million Dollars
10.
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($3,000.000). Landlord may carry such greater coverage as Landlord or
Landlord's Lender, insurance broker, advisor or counsel may from time to
time determine is reasonably necessary for the adequate protection of
Landlord and the Property.
(iii) Landlord may maintain any other insurance which in the opinion
of its insurance broker, advisor or legal counsel is prudent to carry under
the given circumstances, provided such insurance is commonly carried by
owners of property similarly situated and operating under similar
circumstances.
(c) Landlord hereby releases Tenant, and Tenant hereby releases Landlord
and its respective partners, principals, members, officers, agents, employees
and servants, from any and all liability for loss, damage or injury to the
property of the other in or about the Premises or the Property which is caused
by or results from a peril or event or happening which is covered by insurance
actually carried and in force at the time of the loss by the party sustaining
such loss; provided, however, that such waiver shall be effective only to the
extent permitted by the insurance covering such loss and to the extent such
insurance is not prejudiced thereby.
21. DAMAGE OR DESTRUCTION.
(a) If the Premises, the Building or the Common Areas are damaged by any
peril after the Effective Term Commencement Date, Landlord shall restore the
same, as and when required by this paragraph, unless this Lease as terminated by
Landlord pursuant to Paragraph 21(c) or by Tenant pursuant to Paragraph 21(d).
If this Lease is not so terminated, then upon the issuance of all necessary
governmental permits, Landlord shall commence and diligently prosecute to
completion the restoration of the Premises, the Building or the Common Areas, as
the case may be, to the extent then allowed by law, to substantially the same
condition in which it existed as of the Term Commencement Date. Landlord's
obligation to restore shall be limited to the improvements constructed by
Landlord. Landlord shall have no obligation to restore any improvements made by
Tenant to the Premises or any of Tenant's personal property, inventory or trade
fixtures. Upon completion of the restoration by Landlord, Tenant shall forthwith
replace or fully repair all of Tenant's personal property, inventory, trade
fixtures and other improvements constructed by Tenant to like or similar
conditions as existed at the time immediately prior to such damage or
destruction.
(b) All insurance proceeds available from the fire and property damage
insurance carried by Landlord shall be paid to and become the property of
Landlord. If this Lease is terminated pursuant to either Paragraph 21(c) or
21(d), all insurance proceeds available from insurance carried by Tenant which
cover loss of property that is Landlord's property or would become Landlord's
property on termination of this Lease shall be paid to and become the property
of Landlord, and the remainder of such proceeds shall be paid to and become the
property of Tenant. If this Lease is not terminated pursuant to either Paragraph
21(c) or 21(d), all insurance proceeds available from insurance carried by
Tenant which cover loss to property that is Landlord's property shall be paid to
and become the property of Landlord, and all proceeds available from such
insurance which cover loss to property which would only become the property of
Landlord upon the termination of this Lease shall be paid to and remain the
property of Tenant. The determination of Landlord's property and Tenant's
property shall be made pursuant to Paragraph 14(b).
(c) Landlord's Right To Terminate. Landlord shall have the option to
terminate this Lease in the event any of the following occurs, which option may
be exercised only by delivery to Tenant of a written notice of election to
terminate within thirty days after the date of such damage or destruction:
(i) The Building is damaged by any peril covered by valid and
collectible insurance actually carried by Landlord and in force at the time
of such damage or destruction (an "insured peril") to such an extent that
the estimated cost to restore the Building exceeds the lesser of (i) the
insurance proceeds available from insurance actually carried by Landlord,
or (ii) fifty percent of the then actual replacement cost thereof;
(ii) The Building is damaged by an uninsured peril, which peril
Landlord was not required to insure against pursuant to the provisions of
Paragraph 20 of this Lease.
(iii) The Building is damaged by any peril and, because of the laws
then in force, the Building (i) cannot be restored at reasonable cost or
(ii) if restored, cannot be used for the same use being made thereof before
such damage.
(d) If the Premises, the Building or the Common Areas are damaged by any
peril and Landlord does not elect to terminate this Lease or is not entitled to
terminate this Lease pursuant to this Paragraph, then as soon as reasonably
practicable, Landlord shall furnish Tenant with the written opinion of
Landlord's architect or construction consultant as to when the restoration work
required of Landlord may be complete. Tenant shall have the option to terminate
this Lease in the event any of the following occurs, which option may be
exercised only by delivery to Landlord of a written notice of election to
terminate within seven (7) days after Tenant receives from Landlord the estimate
of the time needed to complete such restoration:
(i) If the time estimated to substantially complete the restoration
exceeds twelve months from and after the date the architect's or
construction consultant's written opinion is delivered; or
(ii) If the damage occurred within twelve (12) months of the last day
of the Lease Term and the time estimated to substantially complete the
restoration exceeds one hundred eighty days from and after the date such
restoration is commenced.
(e) Landlord and Tenant agree that the provisions of Paragraph 21(d) above
are intended to supersede and replace the provisions contained in California
Civil Code, Section 1932, Subdivision 2, and California Civil Code, Section
1934, and accordingly, Tenant hereby waives the provisions of such Civil Code
Sections and the provisions of any successor Civil Code Sections or similar laws
hereinafter enacted.
(f) In the event of damage to the Premises which does not result in the
termination of this Lease, the Base Rent (and any Escalation Rent) shall be
temporarily abated during the period of restoration in proportion in the degree
to which Tenant's use of the Premises is Impaired by such damage.
22. EMINENT DOMAIN.
(a) Except as otherwise provided in Paragraph 22(d) below regarding
temporary takings, Tenant shall have the option to terminate this Lease if, as a
result of any taking, (i) all of the Premises is taken, or (ii) twenty five
percent (25%) or more of the Premises is taken and the part of the Premises that
remain cannot, within a reasonable period of time, be made reasonably suitable
for the continued operation of Tenant's business. Tenant must exercise such
option within a reasonable period of time, to be effective on the later to occur
of (i) the date that possession of that portion of the Premises that is
condemned is taken by the condemnor or (ii) the date Tenant vacated the
Premises.
(b) Except as otherwise provided in Paragraph 22(d) below regarding
temporary takings, Landlord shall have the option to terminate this Lease if, as
a result of any taking, (i) all of the Premises is taken, (ii) twenty five
percent (25%) or more of the Premises is taken and the part of the Premises that
remains cannot, within a reasonable period of time, be made reasonably suitable
for the continued operation of Tenant's business, or (iii) because of the laws
then in force, the Premises may not be used for the same use being made before
such taking, whether or not restored as required by Paragraph 22(c) below. Any
such option to terminate by Landlord must be exercised within a reasonable
period of time, to be effective as of the date possession is taken by the
condemnor.
11.
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(c) If any part of the Premises or the Building is taken and this Lease is
not terminated, then Landlord shall, to the extent not prohibited by laws then
in force, repair any damage occasioned thereby to the remainder thereof to a
condition reasonably suitable for Tenant's continued operations and otherwise,
to the extent practicable, in the manner and to the extent provided in Paragraph
21(a).
(d) If a portion of the Premises is temporarily taken for a period of one
year or less and such period does not extend beyond the Lease Expiration Date,
this Lease shall remain in effect. If any portion of the Premises is temporarily
taken for a period which exceeds one year or which extends beyond the Lease
Expiration Date, then the rights of Landlord and Tenant shall be determined in
accordance with Paragraphs 22(a) and 22(b) above.
(e) Any award made for any taking of the Property, the Building, or the
Premises, or any portion thereof, shall belong to and be paid to Landlord, and
Tenant hereby assigns to Landlord all of its right, tile and interest in any
such award; provided, however, that Tenant shall be entitled to receive any
portion of the award that is made specifically (i) for the taking of personal
property, inventory or trade fixtures belonging to Tenant, (ii) for the
interruption of Tenant's business or its moving costs, or (iii) for the value of
any leasehold improvements installed and paid for by Tenant. The rights of
Landlord and Tenant regarding any condemnation shall be determined as provided
in this Paragraph, and each party hereby waives the provisions of Section
1265.130 of the California Code of Civil Procedure, and the provisions of any
similar law hereinafter enacted, allowing either party to petition the Supreme
Court to terminate this Lease and/or otherwise allocate condemnation awards
between Landlord and Tenant in the event of a taking of the Premises.
(f) In the event of a taking of the Premises which does not result in a
termination of this Lease (other than a temporary taking), then, as of the date
possession is taken by the condemning authority, the Base Rent shall be reduced
in the same proportion that the area of that part of the Premises so taken (less
any addition to the area of the Premises by reason of any reconstruction) bears
to the area of the Premises immediately prior to such taking.
(g) The term "taking" or "taken" as used in this Article 11 shall mean any
transfer or conveyance of all or any portion of the Property to a public or
quasi-public agency or other entity having the power of eminent domain pursuant
to or as a result of the exercise of such power by such an agency, including any
inverse condemnation and/or any sale or transfer by Landlord of all or any
portion of the Property to such an agency under threat of condemnation or the
exercise of such power.
23. EVENTS OF DEFAULT.
(a) Tenant shall be in default of its obligations under this Lease if any
of the following events occur:
(i) Tenant shall have failed to pay Base Rent or any Escalation Rent
when due; or
(ii) Tenant shall have done or permitted to be done any act, use or
thing in its use, occupancy or possession of the Premises or the Building
or the Common Areas which is prohibited by the terms of this Lease; or
(iii) Tenant shall have failed to perform any term, covenant or
condition of this Lease (except those requiring the payment of Base Rent or
Escalation Rent, which failures shall be governed by subparagraph (a)
above) within thirty (30) days after written notice from Landlord to Tenant
specifying the nature of such failure and requesting Tenant to perform
same; or
(iv) Tenant shall have sublet the Premises or assigned or encumbered
its interest in this Lease in violation of the provisions contained in
Paragraph 24, whether voluntarily or by operation of law; or
(v) Tenant shall have abandoned the Premises; or
(vi) Tenant or any Guarantor of this Lease shall have permitted or
suffered the sequestration or attachment of, or execution on, or the
appointment of a custodian or receiver with respect to, all or any
substantial part of the property or assets of Tenant (or such Guarantor) or
any property or asset essential to the conduct of Tenant's (or such
Guarantor's) business, and Tenant (or such Guarantor) shall have failed to
obtain a return or release of the same within thirty days thereafter, or
prior to sale pursuant to such sequestration, attachment or levy, whichever
is earlier; or
(vii) Tenant or any Guarantor of this Lease shall have made a general
assignment of all or a substantial part of its assets for the benefit of
its creditors; or
(viii) Tenant or any Guarantor of this Lease shall have allowed (or
sought) to have entered against it a decree or order which: (i) grants or
constitutes an order for relief, appointment of a trustee, or condemnation
or a reorganization plan under the bankruptcy laws of the United States;
(ii) approves as properly filed a petition seeking liquidation or
reorganization under said bankruptcy laws or any other debtor's relief law
or similar statute of the United States or any state thereof; or (iii)
otherwise directs the winding up or liquidation of Tenant; provided,
however, if any decree or order was entered without Tenant's consent or
over Tenant's objection, Landlord may not terminate this Lease pursuant to
this Subparagraph if such decree or order is rescinded or reversed within
thirty days after its original entry; or
(ix) Tenant or any Guarantor of this Lease shall have availed itself
of the protection of any debtor's relief law, moratorium law or other
similar law which does not require the prior entry of a decree or order.
(b) In the event of any default by Tenant, and without limiting Landlord's
right to indemnification as provided in Paragraph 19, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by law
or otherwise provided in this Lease, to which Landlord may resort cumulatively,
or in the alternative:
(i) Landlord may, at Landlord's election, keep this Lease in effect
and enforce, by an action at law or in equity, all of its rights and
remedies under this Lease including, without limitation, (i) the right to
recover the rent and other sums as they become due by appropriate legal
action, (ii) the right to make payments required by Tenant, or perform
Tenant's obligations and to be reimbursed by Tenant for the cost thereof
with interest at the then maximum rate not prohibited by law from the date
the sum is paid by Landlord until Landlord is reimbursed by Tenant, and
(iii) the remedies of injunctive relief and specific performance to prevent
Tenant from violating the terms of this Lease and/or to compel Tenant to
perform its obligations under this Lease. as the case may be.
(ii) Landlord may, at Landlord's election, terminate this Lease by
giving Tenant written notice of termination, in which event this Lease
shall terminate on the date set forth for termination in such notice. Any
termination under this subparagraph shall not relieve Tenant from its
obligation to pay to Landlord all Base Rent and Escalation Rent then or
thereafter due, or any other sums due or thereafter accruing to Landlord,
or from any claim against Tenant for damages previously accrued or then or
thereafter accruing. In no event shall any one or more of the following
actions by Landlord, in the absence of a written election by Landlord to
terminate this Lease constitute a termination of this Lease;
(1) Appointment of a receiver or keeper in order to protect
Landlord's interest hereunder;
(2) Consent to any subletting of the Premises or assignment of
this Lease by Tenant, whether pursuant to the provisions hereof or
otherwise; or
12.
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(3) Any action taken by Landlord or its partners, principals, members,
officers, agents, employees, or servants, which is intended to mitigate the
adverse effects of any breach of this Lease by Tenant, including, without
limitation, any action taken to maintain and preserve the Premises on any action
taken to relate the Premises or any portion thereof for the account at Tenant
and in the name of Tenant.
(iii) In the event Tenant breaches this Lease and abandons the
Premises, Landlord may terminate this Lease, but this Lease shall not
terminate unless Landlord gives Tenant written notice of termination. If
Landlord does not terminate this Lease by giving written notice of
termination, Landlord may enforce all its rights and remedies under this
Lease, including the right and remedies provided by California Civil Code
Section 1951.4 ("lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has tight to
sublet or assign subject only to reasonable limitations"), as in effect on
the Term Commencement Date.
(iv) In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to the rights and remedies provided in
California Civil Code Section 1951.2, as in effect on the Term Commencement
Date. For purposes of computing damages pursuant to Section 1951.2, an
interest rate equal to the maximum rate of interest then not prohibited by
law shall be used where permitted. Such damages shall include, without
limitation:
(1) The worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount
of such rental loss that Tenant proves could be reasonably avoided,
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco, at the time of award plus one percent; and
(2) Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the ordinary course of things
would be likely to result therefrom, including without limitation, the
following: (i) expenses for cleaning, repairing or restoring the Premises,
(ii) expenses for altering, remodeling or otherwise improving the Premises
for the purpose of reletting, including removal of existing leasehold
improvements and/or installation of additional leasehold improvements
(regardless of how the same is funded, including reduction of rent, a
direct payment or allowance to a new tenant, or otherwise), (iii) broker's
fees allocable to the remainder of the term of this Lease, advertising
costs and other expenses of reletting the Premises; (iv) costs of carrying
and maintaining the Premises, such as taxes, insurance premiums, utility
charges and security precautions, (v) expenses incurred in removing,
disposing of and/or storing any of Tenant's personal property, inventory or
trade fixtures remaining therein; (vi) reasonable attorney's fees, expert
witness fees, court costs and other reasonable expenses incurred by
Landlord (but not limited to taxable costs) in retaking possession of the
Premises, establishing damages hereunder, and releasing the Premises; and
(vii) any other expenses, costs or damages otherwise incurred or suffered
as a result of Tenant's default.
(c) In the event Landlord fails to perform its obligations under this
Lease, Landlord shall nevertheless not be in default under the terms of this
Lease until such time as Tenant shall have first given Landlord written notice
specifying the nature of such failure to perform its obligations, and then only
after Landlord shall have had thirty (30) days following its receipt of such
notice within which to perform such obligations; provided that, if longer than
thirty (30) days is reasonably required in order no perform such obligations,
Landlord shall have such longer period. In the event of Landlord's default as
above set forth, then, and only then, Tenant may then proceed in equity or at
law to compel Landlord to perform is obligations and/or to recover damages
proximately caused by such failure no perform (except as and to the extent
Tenant has waived its right to damages as provided in this Lease).
(d) If Landlord is a corporation, trust, partnership, joint venture,
limited liability company, unincorporated association, or other form of business
entity, Tenant agrees that (i) the obligations of Landlord under this Lease
shall not constitute personal obligations of the officers, directors, trustees,
partners, joint venturers, members, owners, stockholders, or other principals of
such business entity, and (ii) Tenant shall have recourse only to the property
of such corporation, trust, partnership, joint venture, limited liability
company, unincorporated association, or other form of business entity for the
satisfaction of such obligations and not against the assets of such officers,
directors, trustees, partners, joint venturers, members, owners, stockholders or
principals. Additionally, if Landlord is a partnership or limited liability
company, then Tenant covenants and agrees:
(i) No partner or member of Landlord shall be sued or named as a party
in any suit or action brought by Tenant with respect to any alleged breach
of this Lease (except no the extent necessary to secure jurisdiction over
the partnership and then only for that sole purpose);
(ii) No service of process shall be made against any partner or member
of Landlord except for the sole purpose of securing jurisdiction over the
partnership; and
(iii) No writ of execution will ever be levied against the assets of
any partner or member of Landlord other than to the extent of his or her
interest in the assets of the partnership or limited liability company
constituting Landlord.
Tenant further agrees that each of the foregoing covenants and agreements shall
be enforceable by Landlord and by any partner or member of Landlord and shall be
applicable to any actual or alleged misrepresentation or nondisclosure made
regarding this Lease or the Premises or any actual or alleged failure, default
or breach of any covenant or agreement either expressly or implicitly contained
in this Lease or imposed by statute or at common law.
(e) Landlord and Tenant agree that the provisions of Paragraph 12.3 above
are intended to supersede and replace the provisions of California Civil Code
Sections 1932(1), 1941 and 1942, and accordingly, Tenant hereby waives the
provisions of California Civil Code Sections 1932(1), 1941 and 1942 and/or any
similar or successor law regarding Tenant's right to terminate this Lease or no
make repairs and deduct the expenses of such repairs from the rent due under
this Lease.
24. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not sublet the Premises or any portion thereof or assign
its interest in this Lease, whether voluntarily or by operation of Law, without
Landlord's prior written consent which shall not be unreasonably withheld. Any
attempted subletting or assignment without Landlord's prior written consent, at
Landlord's election, shall constitute a default by Tenant under the terms of
this Lease. The acceptance of rent by Landlord from any person or entity other
than Tenant, or the acceptance of rent by Landlord from Tenant with knowledge of
a violation of the provisions of this paragraph, shall not be deemed no be a
waiver by Landlord of any provision of this Article or this Lease or to be a
consent to any subletting by Tenant or any assignment of Tenant's interest in
this Lease. Without limiting the circumstances in which is may be reasonable for
Landlord to withhold its consent to an assignment or subletting, Landlord and
Tenant acknowledge than it shall be reasonable for Landlord to withhold its
consent in the following instances:
(i) the proposed assignee or sublessee is a governmental agency;
(ii) in Landlord's reasonable judgment, the use of the Premises by the
proposed assignee or subleases would involve occupancy by other than
primarily general office, would entail any alterations which would lessen
the value of the leasehold improvements in the Premises, or would require
increased services by Landlord;
(iii) in Landlord's reasonable judgment, the financial worth of the
proposed assignee is less than that of Tenant or does not meet the credit
standards applied by Landlord;
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(iv) the proposed assignee or subleases (or any of its affiliates) has
been in material default under a lease, has been in litigation with a
previous landlord, or in the ten years prior to the assignment or sublease
has filed for bankruptcy protection, has been the subject of an involuntary
bankruptcy, or has been adjudged insolvent;
(v) Landlord has experienced a previous default by or is in litigation
with the proposed assignee or sublessee;
(vi) in Landlord's reasonable judgment, the Premises, or the relevant
part thereof, will be used in a manner that will violate any negative
covenant as to use contained in this Lease;
(vii) the use of the Premises by the proposed assignee or sublessee
will violate any applicable law, ordinance or regulation;
(viii) the proposed assignee or sublessee is, as of the date of this
Lease, a tenant in the Building;
(ix) the proposed assignment or sublease fails to include all of the
terms and provisions required to be included therein pursuant to this
Paragraph 24;
(x) Tenant is in default of any obligation of Tenant under this Lease,
or Tenant has defaulted under this Lease on three or more occasions during
the 12 months preceding the date that Tenant shall request consent; or
(xi) in the case of a subletting of less than the entire Premises, if
the subletting would result in the division of the Premises into more than
two subparcels or would require improvements so be made outside of the
Premises.
(b) If Tenant is a corporation, any dissolution, merger, consolidation or
other reorganization of Tenant, or the sale or other transfer in the aggregate
over the Lease Term of a controlling percentage of the capital stock of Tenant,
shall be deemed a voluntary assignment of Tenant's interest in this Lease. The
phrase "controlling percentage" means the ownership of and the right to vote
stock possessing more than fifty percent of the total combined voting power of
all classes of Tenant's capital stock issued, outstanding and entitled to vote
for the election of directors. If Tenant is a partnership, a withdrawal or
change, voluntary, involuntary or by operation of Law, of any general partner,
or the dissolution of the partnership, shall be deemed a voluntary assignment of
Tenant's interest in this Lease.
(c) If Tenant shall desire to assign its interest under the Lease or to
sublet the Premises, Tenant must first notify Landlord, in writing, of its
intent to so assign or sublet, at least thirty (30) days in advance of the date
it intends to so assign its interest in this Lease or sublet the Premises but
not sooner than one hundred eighty (180) days in advance of such date,
specifying in detail the terms of such proposed assignment or subletting,
including the name of the proposed assignee or sublessee, the property
assignee's or sublessee's intended use of the Premises, current financial
statements (including a balance sheet, income statement and statement of cash
flow, all prepared in accordance with generally accepted accounting principles)
of such proposed assignee or sublessee, the form of documents to be used in
effectuating such assignment or subletting and such other information as
Landlord may reasonably request. Landlord shall have a period of ten (10)
business days following receipt of such notice and the required information
within which to do one of the following: (i) consent to such requested
assignment or subletting subject to Tenant's compliance with the conditions set
forth in Paragraph 24(d) below, or (ii) refuse to so consent to such requested
assignment or subletting, provided that such consent shall not be unreasonably
refused, or (iii) terminate this Lease as to the portion (including all) of the
Premises that is the subject of the proposed assignment or subletting. During
such ten (10) business day period, Tenant covenants and agrees to supply to
Landlord, upon request, all necessary or relevant information which Landlord may
reasonably request respecting such proposed assignment or subletting and/or the
proposed assignee or sublessee.
(d) If Landlord elects to consent, or shall have been ordered to so consent
by a court of competent jurisdiction, to such requested assignment or
subletting, such consent shall be expressly conditioned upon the occurrence of
each of the conditions below set forth, and any purported assignment or
subletting made or ordered prior to the full and complete satisfaction of each
of the following conditions shall be void and, at the election of Landlord,
which election may be exercised at any time following such a purported
assignment or subletting but prior to the satisfaction of each of the stated
conditions, shall constitute a material default by Tenant under this Lease until
cured by satisfying in full each such condition by the assignee or sublessee.
The conditions are as follows:
(i) Landlord having approved in form and substance the assignment or
sublease agreement and any ancillary documents, which approval shall not be
unreasonably withheld by Landlord if the requirements of this Paragraph 24
are otherwise complied with.
(ii) Each such sublessee or assignee having agreed, in writing
satisfactory to Landlord and its counsel and for the benefit of Landlord,
to assume, to be bound by, and to perform the obligations of this Lease to
be performed by Tenant which relate to space being subleased.
(iii) Tenant having fully and completely performed all of its
obligations under the terms of this Lease through and including the date of
such assignment or subletting.
(iv) Tenant having reimbursed to Landlord all reasonable costs and
reasonable attorneys' fees incurred by Landlord in conjunction with the
processing and documentation of any such requested subletting or
assignment.
(v) Tenant having delivered to Landlord a complete and fully-executed
duplicate original of such sublease agreement or assignment agreement (as
applicable) and all related agreement.
(vi) Tenant having paid, or having agreed in writing to pay as to
future payments, to Landlord fifty percent (50%) of all assignment
consideration or excess rentals to be paid to Tenant or to any other on
Tenant's behalf or for Tenant's benefit for such assignment or subletting
as follows:
(1) If Tenant assigns its interest under this Lease and if all or
a portion of the consideration for such assignment is to be paid by
the assignee at the time of the assignment, that Tenant shall have
paid to Landlord and Landlord shall have received an amount equal to
fifty percent (50%) of the assignment consideration so paid or to be
paid (whichever is the greater) as the time of the assignment by the
assignee: or
(2) If Tenant assigns its interest under this Lease and if Tenant
is to receive all or a portion of the consideration for such
assignment in future installments, that Tenant and Tenant's assignee
shall have entered into a written agreement with and for the benefit
of Landlord satisfactory to Landlord and its counsel whereby Tenant
and Tenant's assignee jointly agree to pay to Landlord an amount equal
to fifty percent (50%) of all such future assignment consideration
installments so be paid by such assignee as and when such assignment
consideration is so paid.
(3) If Tenant subleases the Premises, that Tenant and Tenant's
sublessee shall have entered into a written agreement with and for the
benefit of Landlord satisfactory to Landlord and its counsel whereby
Tenant and Tenant's sublessee jointly agree to pay to Landlord fifty
percent (50%) of all excess rentals to be paid by such sublessee as
and when such excess rentals are so paid.
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(e) For purposes of this Article, including any amendment to this Article
by way of addendum or other writing, the term "assignment consideration" shall
mean all consideration so be paid by the assignee to Tenant or so any other
party on Tenant's behalf or for Tenant's benefit as consideration for such
assignment, without deduction for any commissions paid by Tenant or any other
costs or expenses (including, without limitation, tenant improvements, capital
improvements, building upgrades, permit fees, attorneys' fees, and other
consultants' fees) incurred by Tenant in connection with such assignment, and
the term "excess rentals" shall mean all consideration so be paid by the
sublessee to Tenant or to any other party on Tenant's behalf or for Tenant's
benefit for the sublease of the Premises in excess of the rent due to Landlord
under the terms of this Lease for the same period, without deduction for any
commissions paid by Tenant or any other costs or expenses (including, without
limitation, tenant improvements, capital improvements, building upgrades, permit
fees, attorneys' fees, and other consultants' fees) incurred by Tenant in
connection with such sublease. Tenant agrees that the portion of any assignment
consideration and/or excess rentals arising from any assignment or subletting by
Tenant which is to be paid to Landlord pursuant to this Article now is and shall
then be the property of Landlord and not the property of Tenant.
(f) All payments required by this Paragraph to be made to Landlord shall be
made in cash in full as and when they become due. At the time Tenant, Tenant's
assignee or sublessee makes each such payment to Landlord, Tenant or Tenant's
assignee or sublessee, as the case may be, shall deliver to Landlord an itemized
statement in reasonable detail showing the method by which the amount due
Landlord was calculated and certified by the party making such payment as true
and correct.
(g) The rights granted so Tenant by this Article are granted in
consideration of Tenant's express covenant that all pertinent allocations which
are made by Tenant between the rental value of the Premises and the value of any
of Tenant's personal property which may be conveyed or leased generally
concurrently with and which may reasonably be considered a part of the same
transaction as the permitted assignment or subletting shall be made fairly,
honestly and in good faith. If Tenant shall breach this covenant, Landlord may
immediately declare Tenant to be in default under the terms of this Lease and
terminate this Lease and/or exercise any other rights and remedies Landlord
would have under the terms of this Lease in the case of a material default by
Tenant under this Lease.
(h) No subletting or assignment, even with the consent of Landlord, shall
relieve Tenant of its personal and primary obligation so pay rent and to perform
all of the other obligations to be performed by Tenant hereunder. Consent by
Landlord to one or more assignments of Tenant's interest in this Lease or to one
or more sublettings of the Premises shall not be deemed so be a consent so any
subsequent assignment or subletting. If Landlord shall have been ordered by a
court of competent jurisdiction to consent to a requested assignment or
subletting, or such an assignment or subletting shall have been ordered by a
court of competent jurisdiction over the objection of Landlord, such assignment
or subletting shall not be binding between the assignee (or sublessee) and
Landlord until such time as all conditions set forth in Paragraph 7.4 above have
been fully satisfied (to the extent not then satisfied) by the assignee or
sublessee, including, without limitation, the payment to Landlord of all agreed
assignment considerations and/or excess rentals then due Landlord.
25. SUBORDINATION
(a) This Lease is subject to and subordinate so all ground leases,
mortgages and deeds of trust which affect the Building or the Property and which
are of public record as of the Term Commencement Date, and so all renewals,
modifications, consolidations, replacements and extensions thereof. However, if
the lessor under any such ground lease or any lender holding any such mortgage
or deed of trust shall advise Landlord that it desires or requires this Lease to
be made prior and superior thereto, then, upon written request of Landlord to
Tenant, Tenant shall promptly execute, acknowledge and deliver any and all
customary or reasonable documents or instruments which Landlord and such lessor
or lender deems necessary or desirable so make this Lease prior thereto. Tenant
hereby consents to Landlord's ground leasing the land underlying the Building or
the Property and/or encumbering the Building or the Property as security for
future loans on such terms as Landlord shall desire, all of which future ground
leases, mortgages or deeds of trust shall be subject to and subordinate so this
Lease. However, if any lessor under any such future ground lease or any lender
holding such future mortgage or deed of trust shall desire or require that this
Lease be made subject to and subordinate to such future ground lease, mortgage
or deed of trust, then Tenant agrees, within ten days after Landlord's written
request therefor, so execute, acknowledge and deliver to Landlord any and all
documents or instruments requested by Landlord or by such lessor or lender as
may be necessary or proper to assure the subordination of this Lease to such
future ground lease, mortgage or deed of trust, but only if such lessor or
lender agrees so recognize Tenant's rights under this Lease and agrees not to
disturb Tenant's quiet possession of the Leased Premises so long as Tenant is
not in default under this Lease. If Landlord assigns the Lease as security for a
loan, Tenant agrees to execute such documents as are reasonably requested by the
lender and to provide reasonable provisions in the Lease protecting such
lender's security interest which are customarily required by institutional
lenders making loans secured by a deed of trust.
(b) Tenant shall, upon request, attorn (i) to any purchaser of the Building
or the Property at any foreclosure sale or private sale conducted pursuant so
any security instruments encumberng the Building or she Property, (ii) to any
grantee or transferee designated in any deed given in lieu of foreclose of any
security interest encumbering the Building or the Property, or (iii) so the
lessor under an underlying ground lease of the land underlying the Building or
the Property, should such ground lease be terminated; provided that such
purchaser, grantee or lessor recognizes Tenant's rights under this Lease.
26. ESTOPPEL CERTIFICATE. Tenant will, following any request by Landlord,
promptly execute and deliver to Landlord an esstoppel certificate (i) certifying
that this Lease is unmodified and in full force and effect, or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect, (ii) stating the date to which the rent
and other charges are paid in advance, if any, (iii) acknowledging that there
are not to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed, and (iv) certifying
such other information about this Lease as may be reasonably requested by
Landlord, its Lender or prospective lenders, investors or purchasers of the
Building or the Property. Tenant's failure to execute and deliver such estoppel
certificate within ten days after Landlord's request therefor shall be a
material default by Tenant under this Lease, and Landlord shall have all of the
rights and remedies available to Landlord as Landlord would otherwise have in
the case of any other material default by Tenant, including the right to
terminate this Lease and sue for damages proximately caused thereby, it being
agreed and understood by Tenant that Tenant's failure to so deliver such
estoppel certificate in a timely manner could result in Landlord being unable to
perform committed obligations to other third parties which were made by Landlord
in reliance upon this covenant of Tenant. Landlord and Tenant intend that any
statement delivered pursuant to this paragraph may be relied upon by any Lender
or purchaser or prospective Lender or purchaser of the Building, the Property,
or any interest in them.
27. Tenant's Financial Information. Tenant shall, within ten business days
after Landlord's request therefor, deliver to Landlord a copy of Tenant's (and
any guarantor's) current financial statements (including a balance sheet, income
statement and statement of cash flow, all prepared in accordance with generally
accepted accounting principles, and any such other information reasonably
requested by Landlord regarding Tenant's financial condition. Landlord shall be
entitled to disclose such financial statements or other information to its
Lender, to any present or prospective principal of or investor in Landlord, or
to any prospective Lender or purchaser of the Building, the Property, or any
portion thereof or interest therein. Any such financial statement or other
intonation which is marked "confidential" or "company secrets" (or is otherwise
similarly marked by Tenant) shall be confidential and shall not be disclosed by
Landlord to any third party except as specifically provided in this paragraph,
unless the same becomes a part of the public domain without the fault of
Landlord.
28. RULES.
Tenant shall faithfully observe and comply with the rules and regulations
annexed to this Lease, and after notice thereof, all reasonable modifications
thereof and additions thereto from time to time promulated in writing by
Landlord. Landlord shall not be responsible to Tenant for the non-performance by
any other tenant or occupant of the Building of any of said rules and
regulations.
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29. ATTORNEYS' FEES.
If as a result of any breach or default in the performance of any of the
provisions of this Lease, Landlord or Tenant uses the services of an attorney
and brings an action in a local, state or federal court of law in order to
secure compliance with such provisions or to recover damages therefor, or to
terminate this Lease or evict Tenant, the party against whom judgement has been
rendered shall reimburse the prevailing party upon demand for any and all
reasonable attorneys' fees and expenses so incurred by the prevailing party.
30. WAIVER.
The waiver by Landlord of any agreement, condition or provision herein
contained shall not be deemed to be a waiver of any subsequent breach of the
same or any other agreement, condition or provision herein contained, nor shall
any custom or practice which may grow up between the parties in the
administration of the terms hereof be construed to waive or to lessen the right
of Landlord to insist upon the performance by Tenant in strict accordance with
such terms. The subsequent acceptance of rental hereunder by Landlord shall not
be deemed to be a waiver of any preceding breach by Tenant of any agreement,
condition or provision of this Lease, other than the failure of Tenant to pay
the particular rental so accepted, regardless of Landlord's knowledge of the
preceding breach at the time of acceptance or payment of the rental.
31. PARKING AND TRANSPORTATION MANAGEMENT.
(a) Unless Tenant is in default hereunder, Tenant shall be entitled to park
in the Building's parking lot (the "Lot") on a non-assigned, unreserved basis
the number of automobiles designated in the Basic Lease Information for
`onsite', subject to all of the rules and regulations applicable to such parking
as are promulgated by Landlord and to any restrictions or regulations at any
time imposed by the City of Santa Clara on Landlord's ability to offer such
parking.
(b) Landlord may assign any unreserved and unassigned parking spaces and/or
make all or a portion of such spaces reserved, if it determines in its sole
discretion that such action is necessary for orderly and efficient parking.
Tenant shall not use more parking spaces than the number of parking privileges
specified herein. Landlord may, at its option, cause all parking so be valet
parked or implement a regulated or monitored parking program with any associated
costs deemed an Operating Expense. If Tenant permits or allows any of the
prohibited activities described in this Paragraph 31, then Landlord shall have
the right, without notice, in addition to such other rights and remedies that it
may have, to remove or tow away the vehicle involved and charge the cost to
Tenant, which cost shall be immediately payable upon demand by Landlord.
Landlord shall have no responsibility for damage to automobiles incurred in the
Lot.
(c) All parking rights granted to Tenant in this Paragraph 31 shall be for
the sole use of the employees and invitees of the named Tenant, and no parking
rights may be assigned or sublet to any other party.
(d) Tenant agrees that it will use its best efforts to cooperate in
programs which may be undertaken by Landlord independently, or in cooperation
with local municipalities or governmental agencies or other property owners in
the vicinity of the Building, to reduce peak levels of commuter traffic. Such
programs may include, but shall not be limited so, carpools, vanpools and other
ride sharing or transportation system management programs, public and private
transit, and flexible work hours. Tenant agrees to cooperate with Landlord in
Landlord's administration of a transportation-management program (if any)
required by the City of Santa Clara. Tenant acknowledges that as a part of this
program, Tenant may be required to distribute employee transportation
information at the Term Commencement Date, participate in annual employee
transportation surveys, allow employees to participate in commuter activities,
designate a liaison for commuter transportation related activities, distribute
commuter information to all employees prior to relocation and to new employees
when hired, and otherwise participate in other programs or services initiated
under the transportation management program.
32. COMPLETE AGREEMENT.
There are no oral agreements between Landlord and Tenant affecting this
Lease, and this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements, and understandings if any, between Landlord
and Tenant or displayed by Landlord to Tenant with respect to the subject manner
of this Lease or the Property. There are no representations between Landlord and
Tenant other than those contained in this Lease and all reliance with respect to
any representations is solely upon the representations contained in this Lease.
All implied warranties, including implied warranties of merchantability and
fitness, are excluded. Except as otherwise provided herein, no subsequent
change, modification or addition to this Lease shall be binding unless in
writing and signed by the parties hereto.
33. MODIFICATION FOR LENDER.
If, in connection with obtaining financing or refinancing for the Property
or the Premises or the Building or any portion thereof, Landlord's lender shall
request reasonable modification of or to this Lease as a condition to such
financing or refinancing. Tenant shall not unreasonably withhold, delay or defer
its consent thereto, provided such modifications do not materially affect
Tenant's rights or obligations hereunder.
34. MERGER.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies, or operate as
an assignment to it of any or all such subleases or subtenancies.
35. SALE.
In the event the original Landlord hereunder, or any successor owner of the
Building or Property, shall sell or convey the Building or Property, all
liabilities and obligations on the part of the original Landlord, or such
successor owner, under this Lease accruing thereafter shall terminate, and
thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner.
36. NO LIGHT, AIR, OR VIEW EASEMENT.
Any diminution of shutting off or light, air or view by any structure which
may be erected on lands adjacent to the Building or the Property shall in no way
affect this Lease or impose any liability on Landlord.
37. CORPORATE AUTHORITY.
If Tenant signs as a corporation, each of the persons executing this Lease
on behalf of Tenant warrants that Tenant is a duly authorized and existing
corporation, that Tenant has and is qualified to do business in California, that
the corporation has full right and authority to enter into this Lease, and that
each and both of the persons signing on behalf of the corporation were
authorized to do so.
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38. ABANDONMENT.
If Tenant shall abandon or surrender the Premises, or be dispossessed by
process of law or otherwise, any personal property belonging to Tenant and left
on the Premises shall be deemed to be abandoned, at the option of Landlord,
except such property as may be mortgaged to Landlord.
39. FUTURE DEVELOPMENT.
Tenant agrees that any construction work performed on the Building may
result in minor inconveniences to Tenant but shall not entitle Tenant to any
rebate of rent or subject Landlord to any liability. Tenant further acknowledges
that such construction work shall be in Landlord's sole discretion. Tenant
agrees to execute and deliver, upon demand by Landlord and in the form requested
by Landlord, any additional documents needed to conform this Lease so the
circumstances resulting from such construction.
40. SECURITY MEASURES.
Landlord may, but shall be under no obligation to, implement security
measures for the Building or the Property, such as the registration or search of
all persons entering or leaving the Building, requiring identification for
access to the Building, evacuation of the Building for cause, suspected cause,
or for drill purposes, the issuance of magnetic pass cards or keys for Building
or elevator or access and other actions that Landlord deems necessary or
appropriate to prevent any threat of property loss or damage, bodily injury or
business interruption. Tenant shall cooperate and comply with, and cause its
employees, representatives and visitors to cooperate and comply with, such
security measures. Landlord, its agents and employees shall have no liability to
Tenant, its employees, agents and invitees for the implementation or exercise
of, or the failure to implement or exercise, any such security measures or for
any resulting disturbance of Tenant's use or enjoyment of the Premises.
41. FORCE MAJEURE.
In the event Landlord is delayed, interrupted or prevented from performing
any of its obligations under this Lease, including its obligations under Exhibit
D with respect to Tenant Improvements, and such delay, interruption or
prevention is due to fire, act of God, governmental act, strike, labor dispute,
unavailability of materials or any other cause outside the reasonable control of
Landlord, then the time for performance of the affected obligations of Landlord
shall be extended for a period equivalent to the period of such delay,
interruption or prevention.
42. RECORDING.
Neither landlord nor Tenant shall record this Lease, nor a short form
memorandum of this Lease, without the prior written consent of the other.
43. MISCELLANEOUS.
The words "Landlord" and "Tenant" as used herein shall include the plural
as well as the singular. if there be more than one Tenant, the obligations
hereunder imposed upon Tenant shall be joint and several. Time is of the essence
of this Lease and each and all of its provisions. Submission of this instrument
for examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant. The agreements, conditions
and provisions herein contained shall, subject to the provisions as to
assignment, apply so and bind the heirs, executors, administrators, successors
and assigns of the parties hereto. Tenant shall not, without the consent of
Landlord, use the words "Marriott Plaza" or "2901 Tasman Drive" for any purpose
other than as the address of the business so be conducted by Tenant in the
Premises. If any provision of this Lease shall be determined to be illegal or
unenforceable, such determination shall not affect any other provision of this
Lease and all such other provisions shall remain in full force and effect. This
Lease shall be governed by and construed pursuant to the laws of the State of
California. Exclusive jurisdiction and venue for resolving any dispute between
Tenant and Landlord shall be in the County of Santa Clara, State of California.
44. EXHIBITS.
The exhibits and addendum, if any, specified in the Basic Lease Information
are attached so this Lease and by this reference made a part hereof.
45. TELEPHONE SERVICE.
Notwithstanding any other provision of this Lease so the contrary:
(a) So long as the entirety of the Premises is leased to Tenant:
(i) Landlord shall have no responsibility for providing to Tenant any
telephone equipment, including wiring, within the Premises or for providing
telephone service or connections from the utility to the Premises; and
(ii) Landlord makes no warranty as so the quality, continuity or
availability of the telecommunications services in the Building, and Tenant
hereby waives any claim against Landlord for any actual or consequential
damages (including damages for loss of business) in the event Tenant
telecommunications services in any way are interrupted, damaged or rendered
less effective, except to the extent caused by the grossly negligent or
willful act or omission by Landlord, its agents or employees. Tenant's
accepts the telephone equipment (including, without limitation, the INC. as
defined below) in its `AS-IS' condition, and Tenant shall be solely
responsible for contracting with a reliable third party vendor to assume
responsibility for the maintenance and repair thereof (which contract shall
contain provisions requiring such vendor to inspect the INC periodically
(the frequency of such inspections to be determined by such vendor based on
its experience and professional judgment), and requiring such vendor to
meet local and federal requirements for telecommunications material and
workmanship). Landlord shall not be liable to Tenant and Tenant waives all
claims against Landlord whatsoever, whether for personal injury, property
damage, loss of use of the Premises, or otherwise, due to the interruption
or failure of telephone services to the Premises. Tenant hereby holds
Landlord harmless and agrees to indemnify, protect and defend Landlord from
and against any liability for any damage, loss or expense due to any
failure or interruption of telephone service to the Premises for any
reason. Tenant agrees to obtain loss of rental insurance adequate to cover
any damage, loss or expense occasioned by the interruption of telephone
service.
(b) At such time as the entirety of the Leased Premise is no longer leased
to Tenant, Landlord shall in its sole discretion have the right, by written
notice to Tenant, to elect to assume limited responsibility for INC, as provided
below, and upon such assumption of responsibility by Landlord, this subparagraph
(b) shall apply prospectively.
(i) Landlord shall provide Tenant access to such quantity of pairs in
the Building intra-building network cable ("INC") as is determined to be
available by Landlord in its reasonable discretion. Tenant's access to the
INC shall be solely by arrangements made by Tenant, as Tenant may elect,
directly with Pacific Bell or Landlord (or such vendor as Landlord may
designate), and Tenant shall pay all reasonable charges as may be imposed
in connection therewith. Pacific Bell's charges shall be deemed to be
reasonable. Subject to the foregoing, Landlord shall have no responsibility
for providing to Tenant any telephone equipment, including wiring, within
the Premises or for providing telephone service or connections from the
utility to the Premises, except as required by law.
17
<PAGE>
(ii) Tenant shall not alter, modify, add to or disturb any telephone
wiring in the Premises or elsewhere in the Building without the Landlord's
prior written consent. Tenant shall be liable to Landlord for any damage to
the telephone wiring in the Building due to the act, negligent or
otherwise. of Tenant or any employee, contractor or other agent of Tenant.
Tenant shall have no access to the telephone closets within the Building,
except in the manner and under procedures established by Landlord. Tenant
shall promptly notify Landlord of any actual or suspected failure of
telephone service to the Premises.
(iii) All costs incurred by Landlord for the installation,
maintenance, repair and replacement of telephone wiring in the Building
shall be included in Operating Expenses
(iv) Landlord makes no warranty as to the quality, continuity or
availability of the telecommunications services in the Building, and Tenant
hereby waives any claim against Landlord for any actual or consequential
damages (including damages for loss of business) in the event Tenant's
telecommunications services in any way are interrupted, damaged or rendered
less effective, except to the extent caused by the grossly negligent or
willful act or omission by Landlord, its agents or employees. Tenant
acknowledges that Landlord meets its duty of care to Tenant with respect to
the Building INC by contracting with a reliable third party vendor to
assume responsibility for the maintenance and repair thereof (which
contract shall contain provisions requiring such vendor to inspect the INC
periodically (the frequency of such inspections to be determined by such
vendor based on its experience and professional judgment), and requiring
such vendor to meet local and federal requirements for telecommunications
material and workmanship). Subject to the foregoing, Landlord shall not be
liable to Tenant and Tenant waives all claims against Landlord whatsoever,
whether for personal injury, property damage, loss of use of the Premises,
or otherwise, due to the interruption or failure of telephone services to
the Premises. Tenant hereby holds Landlord harmless and agrees to
indemnify, protect and defend Landlord from and against any liability for
any damage, loss or expense due to any failure or interruption of telephone
service to the Premises for any reason. Tenant agrees so obtain loss of
rental insurance adequate to cover any damage, loss or expense occasioned
by the interruption of telephone service.
IN WITNESS WHEREOF, the parties have executed this Lease on the respective
dates indicated below:
LANDLORD:
MARRIOTT PLAZA ASSOCIATES L.P.,
A California Limited Partnership
By: Menlo Equities Associates IV LLC, a California Limited Liability Company,
Its General Partner
By: Menlo Equities LLC, a California Limited Liability Company,
Its Manager
By:
----------------------------
Its: Member
Date:
---------------------------
TENANT:
MAKER COMMUNICATIONS, a Delaware corporation
Signature: /s/ Mitchell Mackoff
-------------------------
By: /s/ Mitchell Mackoff
------------------------------
Its: Vice President & CFO
Date: 12/31/97
------------------------------
<PAGE>
EXHIBIT B
FLOOR PLANS
[DIAGRAM]
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, hails, passages, exits, entrances, elevators, and
stairways of the Building shall not be obstructed by any of the tenants or used
by them for any purpose other than for ingress to and egress from their
respective Premises. The halls, passages, exits, entrances, elevators, and
stairways are not for the general public, and Landlord shall in all cases retain
the right to control and prevent access thereto of all persons whose presence in
the judgment of Landlord would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that nothing
herein contained shall be construed to prevent ingress to and egress from
Tenant's Premises to persons with whom any tenant normally deals in the ordinary
course of its business, unless such persons are engaged in illegal activities.
No tenant and no employee or invitee of any tenant shall go upon the roof of the
Building.
2. No sign, placard, picture, name, advertisement or notice visible from
the exterior of any tenant's Premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant on any part of the Building without the prior
written consent of Landlord. Landlord will adopt and furnish to tenants general
guidelines relating to signs inside the Building on the office floors. Each
tenant shall conform to such guidelines, but may request approval of Landlord
for modifications, which approval will not be unreasonably withheld. All
approved signs or lettering on doors shall be printed, painted, affixed or
inscribed at the expense of the tenant by a person approved by Landlord, which
approval will not be unreasonably withheld. Material visible from outside the
Building will not be permitted.
3. The Premises shall not be used for the storage of merchandise held for
sale so the general public or for lodging. No cooking shall be done or permitted
by any tenant on the Premises, except that use by the tenant of food and
beverage vending machines and Underwriters' Laboratory approved microwave and
toaster ovens and equipment for brewing coffee, tea, hot chocolate and similar
beverages shall be permitted; provided that such use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations.
4. No tenant shall employ any person or persons other than Landlord's
janitorial service for the purpose of cleaning the Premises, unless otherwise
approved by Landlord. No person or persons other than those approved by Landlord
shall be permitted so enter the Building for the purpose of cleaning the same.
No tenant shall cause any unnecessary labor by reason of such tenant's
carelessness or indifference in the preservation of good order and cleanliness.
Janitor service will not be furnished on nights when rooms are occupied after
8:00 P.M. unless, by prior arrangement with Landlord, service is extended to a
later hour for specifically designated rooms with any additional cost to be paid
by the requesting tenant.
5. Landlord will furnish each tenant free of charge with two keys to each
door lock in its Premises. Landlord may make a reasonable charge for any
additional keys Tenants shall have the right to make keys. No tenant shall
change any lock without the express written consent of the Landlord. The tenants
shall in each case furnish Landlord with a key for any such lock. Each tenant,
upon the termination of its tenancy, shall deliver so Landlord all keys so doors
in the Building which shall have been furnished to or made by the tenant.
6. The elevator shall be available for use by all tenants in the Building.
The persons employed to move equipment in or out of the Building must be
acceptable to Landlord. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects shall, if considered necessary by
Landlord, stand on wood strips of such thickness as is necessary properly to
distribute the weight. Landlord will not be responsible for loss of or damage to
any such property from any cause, and all damage done to the Building by moving
or maintaining such property shall be repaired at the expense of the tenant.
7. No tenant shall use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of office equipment, or, without Landlord's prior approval, use any method of
heating or air conditioning other than that supplied by Landlord. No tenant
shall use or keep or permit to be used or kept any foul or noxious gas or
substance in the Premises, or permit or suffer the Premises to be occupied or
used in a manner offensive or objectionable so Landlord or other occupants of
the Building by reason of noise, odors or vibrations, or interfere in any way
with other tenants or those having business therein.
8. Landlord shall have the right, exercisable without liability to any
tenant to change the name and street address of the Building.
9. Landlord reserves the right to exclude from the Building between the
hours of 6:00 P.M. and 8:00 A.M. and as all hours on Saturdays, Sundays and
legal holidays all persons who do not present a proper access card or other
identification as an employee of Tenant or who do not otherwise present proper
authorization by Tenant for access to the Premises. Tenant shall be responsible
for all persons for whom is authorizes access and shall be liable to Landlord
for all acts of such persons. Landlord shall in no case be liable for damages
for any error with regard to the admission so or exclusion from the Building of
any person. In the case of invasion, mob, riot, public excitement or other
circumstances rendering such action advisable in Landlord's opinion. Landlord
reserves the right to prevent access to the Building during the continuance of
the same by such action as Landlord may deem appropriate.
10. The directory of the Building will be provided for the display of the
name and location of tenants. Any additional name which Tenant desires to have
added to the directory shall be subject to Landlord's approval and may be
subject so a charge therefor.
11. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any exterior window in the Building without the prior
consent of Landlord. If consented so by Landlord, such items shall be installed
on the office side of the standard window covering and shall in no way be
visible from the exterior of the Building.
12. Messenger services and suppliers of bottled water, food, beverages, and
other products or services shall be subject to such reasonable regulations as
may be adopted by Landlord. So long as the time for pick-up and delivery of
packages from and to the Premises is not materially increased, Landlord may
establish a central receiving station in the Building for delivery and pick-up
by all messenger services, and may limit delivery and pick-up at tenant Premises
to Building personnel.
13. Each ten shall see that the doors of its Premises are closed and locked
and that all water faucets or apparatus, cooking facilities and office equipment
(excluding office equipment required to be operative at all times) are shut off
before the tenant or its employees leave the Premises at night, so as to prevent
waste or damage, and for any default or carelessness in this regard the tenant
shall be responsible for any damage sustained by other tenants or occupants of
the Building or Landlord. All tenants shall keep the doors to the Building
corridors closed at all times except for ingress and egress.
14. The toilets, urinals, wash bowls and other restroom facilities shall
not be used for any purpose other than that for which they were constructed, no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the tenant who, or whose employees or invitees, shall have
caused it.
15. Except with the prior consent of Landlord, no tenant shall sell, or
permit the sale at retail, of newspapers, magazines, periodicals, theater
tickets or any other goods or merchandise to the general public in or on the
Premises, in or from the Premises for the service
1.
<PAGE>
or accommodation of occupants of any other portion of the Building, nor shall
the Premises of any tenant be used for manufacturing of any kind, or any
business or activity other than that specifically provided for in such tenant's
lease.
16. No tenant shall install any antenna, loudspeaker, or any other device
on the roof or exterior walls of the Building.
17. There shall not be used in any portion of the Building, by any tenant
or its invitees, any hand trucks or other material handling equipment except
those equipped with rubber tires and side guards unless otherwise approved by
Landlord.
18. Each tenant shall store its refuse within its Premises. No material
shall be placed in the refuse boxes or receptacles if such material is of such
nature that is may not be disposed of in the ordinary and customary manner of
removing and disposing of refuse in the City of Santa Clara without being in
violation of any law or ordinance governing such disposal. All refuse disposal
shall be made only through entryways and elevators provided for such purposes
and at such tunes as Landlord shall designate.
19. Canvassing, peddling, soliciting, and distribution of handbills or any
other written materials in the Building are prohibited, and each tenant shall to
prevent the same.
20. Smoking in all portions of the Building is prohibited, and each tenant
shall cooperate to prevent the same.
21. No objects of any kind (including, without limitation, picture frames
and cups) shall be placed on the interior window sills, chair rails, or mullions
which adjoin the exterior windows of the Building.
22. Holidays shall include the following: Christmas (December 25); New
Years (January 1); Memorial Day; Independence Day (July 4); Labor Day and
Thanksgiving.
23. The requirements of the tenants will be attended to only upon
application by telephone or in person at the office of the Landlord or
Landlord's designated representative. Employees of Landlord shall not perform
any work or do anything outside of their regular duties unless under special
instructions from Landlord.
24. Subject so the terms of the leases, Landlord may waive any one or more
of these Rules and Regulations for the benefit of any particular tenant or
tenants, but no such waiver by Landlord shall be construed as a waiver of such
Rules and Regulations in favor of any other tenant or tenants, nor prevent
Landlord from thereafter enforcing any such Rules and Regulations against any or
all of the tenants of the Building.
25. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of Premises in the Building.
26. Subject to the terms of the leases, Landlord reserves the right to make
such other and reasonable rules and regulations as in its judgment may from time
to time be needed for the safety, care and cleanliness of the Building, and for
the preservation of good order therein.
2.
<PAGE>
EXHIBIT E
SAMPLE FORM OF TENANT ESTOPPEL CERTIFICATE
The undersigned, ___________________________, a ________ ("Landlord"), with a
mailing address of California 9______, Attn:________, and _________________, a
________________ ("Tenant"), hereby certify to ________________________, as
follows:
1. Attached hereto is a true, correct and complete copy of that certain
lease dated ___________________, 19___, between Landlord and Tenant (the
"Lease"), which demises premises which are located at
______________________[city], California 9____. The Lease is now in full force
and effect and has not been amended, modified or supplemented, except as set
forth in Paragraph 4 below.
2. The term of the Lease commenced on _________________, 19___.
3. The term of the Leases will expire on _________________, 19___.
4. The Lease has: (Initial one)
(_) not been amended, modified, supplemented, extended, renewed or
assigned.
(_) been amended, modified, supplemented, extended, renewed or
assigned by the following described agreements, copies of which
are attached hereto:
5. Tenant has accepted and is now in possession of said Premises.
6. Tenant and Landlord acknowledge that the Lease will be assigned
to___________ and that no modification, adjustment, revision or cancellation of
the Lease or amendments thereto shall be effective unless written consent
of________________ is obtained, and that until further notice, payments under
the Lease may continue as heretofore.
7. The amount of current monthly rent is $______; current monthly parking
charges are $________.
8. The amount of security deposits (if any) is $_________. No other
security deposits have been made.
9. Tenant is paying the full lease rental, which has been paid in full as
of the date hereof. No rent under the Lease has been paid for more than
thirty (30) days in advance of its due date.
10. All work required to be performed by Landlord under the Lease has been
completed.
11. There are no defaults on the part of the Landlord or Tenant under the
Lease.
12. Tenant has no defense as to its obligations under the Lease and claims
no set-off or counterclaim against Landlord.
13. Tenant has no right to any concession (rental or otherwise) or similar
compensation in connection with renting the space it occupies, except as
provided in the Lease.
14. All provisions of the Lease and the amendments thereto (if any)
referred to above are hereby ratified.
The foregoing certification is made with the knowledge that _________________ is
about to [fund a loan to Landlord/purchase the property from Landlord], and
that_________________ is relying upon the representations herein made in
[funding such loan/purchasing the property].
Dated:___________, 19____
TENANT:
_________________
Signature: _____________________________________
By:_____________________________________________________
Its:____________________________________________________
Date:___________________________________________________
LANDLORD:
MARRIOTT PLAZA ASSOCIATES L.P.,
A California Limited Partnership
By: Menlo Equities Associates IV LLC, a California Limited Liability Company,
Its General Partner
By: Menlo Equities LLC, a California Limited Liability Company, Its Manager
By: ______________________________________________
Its: Member
Date: ____________________________________________
<PAGE>
EXHIBIT F
COMMENCEMENT DATE CERTIFICATE
Commencement Date Certificate is entered into by landlord and Tenant pursuant to
Exhibit D of the Lease.
(a) Landlord: Marriott Plaza Associates L.P., a California
limited partnership
(a) Tenant: Maker Communications
(b) Lease: Office Lease Dated December 10, 1997 between
landlord and Tenant
(c) Premises: Suite 204
(d) Building Address: 2901 Tasman Drive, Santa Clara, California
CONFIRMATION OF LEASE COMMENCEMENT.
Landlord and Tenant confirm that the Commencement Date of the lease is
1-9-98 and the Expiration Date is 1-15-2000 and that the Basic Lease Information
is amended accordingly.
Landlord and Tenant have executed this Commencement Date Certificate as the
dates set forth below.
LANDLORD:
MARRIOTT PLAZA ASSOCIATES L.P.,
a California Limited Partnership
Menlo Equities Associates IV LLC, a California Limited Liability Company,
Its General Partner
By: Menlo Equities LLC,
a California Limited Liability Company, Member
By: /s/ [Illegible]
------------------------
Its: Member
Date: 1/28/98
TENANT:
MAKER COMMUNICATIONS, a Delaware corporation
By: /s/ Mitchell Mackoff
- ----------------------------------
Mitchell Mackoff
- ----------------------------------
Vice President & CFO
- ----------------------------------
1/20/98
PERINI CORPORATION
COMMERCIAL LEASE
for
TABLE OF CONTENTS
ARTICLE
ARTICLE NUMBER
- ------- -------
Summary of Terms 1
Lease Term 2
Rent 3
Security Deposit 4
Use of Premises 5
Operating Expense 6
Real Estate Tax 7
Late Payment 8
Utilities 9
Compliance with Laws 10
Fire Insurance 11
Maintenance of Premises 12
Alterations 13
Assignment or Subleasing 14
Subordination 15
Estoppel Certificates 16
Lessors Access 17
Snow Removal 18
Access and Parking 19
Lessee's Liability Insurance 20
Waiver of Subrogation 21
Fire, Casualty, Eminent Domain 22
Interruptions 23
Brokerage 24
Signs 25
Default, Bankruptcy and Acceleration of Rent 26
No Accord and Satisfaction 27
Notices 28
Occupancy 29
Fire Prevention 30
Outside Area 31
Environment 32
Responsibility 33
Surrender 34
Legal 35
General 36
Waivers, Etc 37
Additional Provisions 38
This lease consists of nineteen (19) pages including the Table of Contents.
1
<PAGE>
PERINI CORPORATION
COMMERCIAL LEASE
In consideration of the covenants herein contained, Perini Corporation, a
Massachusetts corporation with a usual place of business at 73 Mount Wayte
Avenue, P0 Box 9160, Framingham, Massachusetts 01701-9160, hereinafter called
LESSOR, which expression shall include successors and assigns where the context
so admits, does hereby lease to:
Maker Communications, Inc.
486 Totten Pond Road
Waltham, MA 02154
hereinafter called LESSEE, which expression shall include successors, executors,
administrators, and assigns where the context so admits, and LESSEE hereby
leases from LESSOR the premises hereinafter described, to have and to hold and
to quietly enjoy from the Lease Commencement Date until the Lease Termination
Date (the Lease Term) as hereinafter specified, subject to the terms and
conditions hereinafter set forth:
1. SUMMARY OF TERMS.
Description of the Leased Premises: The premises located at 73 Mt. Wayte
Avenue, Framingham, Massachusetts 01701, As shown on plan (Lease Exhibit A)
attached hereto and made a part hereof (hereinafter the "Leased Premises").
The Leased Premises contain approximately ten thousand eight hundred
eighty-seven (10,887) rentable square feet (hereinafter the `Total Floor
Area of the Leased Premises").
Parking Spaces: 40
Permitted Uses: Normal office use and research and development uses for
software
Lease Term: Three years commencing on the Lease Commencement Date and
expiring three years thereafter ("Initial Term') together with the
extension options as set forth in Section 38(b).
Lease Commencement Date: July 1, 1997
Lease Termination Date: June 30, 2000 unless sooner terminated as herein
provided.
Annual Fixed Rent for the Lease Term: $185,079 per annum ($15,423.25/month)
for each Lease Year during the Initial Lease Term which includes Tenant's
electricity charge for the Leased Premises.
As used in this Lease, Lease Year shall mean a period of twelve (12)
calendar months, with the first Lease Year to commence upon the Lease
Commencement Date and end upon the anniversary thereof, and with successive
Lease Years continuing for twelve (12) month intervals thereafter until the
Lease Termination Date.
LESSEE's Share of Base Operating Expenses Included in Annual Fixed Rent
Those
2
<PAGE>
incurred during calendar year ending December 31, 1996, or $3.25 per square
foot, whichever is higher.
LESSEE's Share of Real Estate Tax Expenses Included in Annual Fixed Rent
$1.90 per rentable square foot of the Leased Premises.
LESSEE's Proportionate Share of Operating Expenses: 10.5% Percent
LESSEE's Proportionate Share of Real Estate Tax Expenses: 10.5% Percent
Total Rentable Floor Area of the Building: approximately 103,455 rentable
square feet, including fifteen (15) percent common area factor.
Security Deposit: $92,539.50 - see Section 4
2. LEASE TERM. The Lease Term shall commence on the Lease Commencement
Date, unless such date is advanced or extended as herein provided, and continue
until the Lease Termination Date.
3. RENT. LESSEE shall pay to LESSOR, without any offset or deduction
whatever except as made in accordance with the provisions of this Lease, the
Annual Fixed Rent as specified in Article 1 above in monthly installments at the
rate of $15,423.25 during the Initial Term and the greater of $15,423.25 per
month or fair market value during the extension term described in Section 39(b),
payable in advance on the first day of each calendar month, the first monthly
payment to be made on the Commencement Date, including payment in advance of
appropriate fractions of a monthly payment for any portion of a month at the
commencement of said Lease Term. All payments are to be made to Perini
Corporation, 73 Mount Wayte Avenue, Framingham, Massachusetts 01701, or at such
other place as LESSOR shall from time to time in writing designate.
4. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in the
amount of $92,539.50 upon the execution of this Lease, which amount shall be
held as security by LESSOR (and may be commingled with other fund of LESSOR) for
LESSEE's performance as herein provided and refunded to LESSEE with interest at
the prevailing money market rate at the end of this Lease subject to LESSEE'S
satisfactory compliance with the conditions hereof. The security deposit shall
not be mortgaged, assigned, transferred or encumbered by LESSEE without the
written consent of LESSOR. In the event of any default or breach of this Lease
by LESSEE, LESSOR shall immediately apply the security deposit first to any
unamortized improvements completed for LESSEE's occupancy, then to offset any
outstanding invoice or other payment due to LESSOR, with the balance applied to
outstanding rent, and LESSEE shall forthwith upon demand restore said security
to the original sum deposited. LESSEE's failure to remit the full security
deposit when due shall constitute a default of this Lease.
Notwithstanding the foregoing, LESSEE may request that LESSOR reimburse to
LESSEE $46,269.75 of the security deposit if and when LESSEE's net worth,
calculated in accordance with generally accepted accounting principles, equals
or exceeds $5,500,000. Any such request shall be accompanied by appropriate
financial statements and a certificate of LESSEE's chief financial officer to
the effect that LESSEE's net worth has increased as aforesaid. In the event at
the time of such request LESSEE is not in default under this Lease, LESSOR shall
release to LESSEE $46,269.75.
3
<PAGE>
Following any release of monies as aforesaid, LESSEE shall submit to LESSOR
quarterly financial statements on a continuing basis certified by LESSEE's chief
financial officer showing LESSEE's net worth. In the event LESSEE'S net worth at
any time falls below $5,500,000, LESSEE shall thereupon become obligated,
without notice from LESSOR, to forthwith increase the security deposit to
$92,539.50.
5. USE OF PREMISES. LESSEE shall use the Leased Premises only for the
purpose specified in Article 1 and for no other purpose.
6. OPERATING EXPENSES. If, with respect to any Lease Year or fraction
thereof, LESSOR'S 0perating Expenses Allocable to the Leased Premises, as
hereinafter defined, shall for such Lease Year of fraction thereof exceed the
product of (a) LESSEE's Share of Operating Expenses Included in Annual Fixed
Rent multiplied by (b) the Total Rentable Floor Area of the Leased Premises,
then on or before the thirtieth day following receipt by LESSEE of written
notice from LESSOR as provided below, LESSEE shall pay to LESSOR, as Additional
Rent, the amount of such excess.
For any Lease Year or fraction thereof for which LESSEE shall owe Operating
Expenses as herein provided, LESSOR shall deliver to LESSEE a statement in
reasonable detail showing for said Lease Year or fraction thereof, as the case
may be, LESSOR's operating expenses for the Property ("Operating Expenses'),
excluding costs of special services rendered to lessees (including LESSEE) for
which a separate charge is otherwise made, but including, without limitation:
premiums for insurance for fire and extended casualty, general and excess
liability, rent insurance, and any necessary endorsements pertaining to these
policies or, if there be any mortgage (5) of the lot or improvements, or both,
insurance as may be required by the holder of the mortgage(s); compensation and
all fringe benefits, workmen's compensation insurance premiums and payroll taxes
paid by LESSOR to, for, or with respect to all persons engaged in the operating,
maintaining, or cleaning of the Property in proportion to the percentage of such
employee's time spent with respect to such property, as evidenced by time cards
or other record keeping mechanisms; steam, water, sewer, gas, telephones, and
other utility charges, and electricity charges attributable to the common areas;
cost of providing conditioned water for HVAC services attributable to the common
areas; cost of building and cleaning supplies and equipment; rental costs for
equipment used in the operating, cleaning, maintaining, or repairing of the
property; cost of maintenance, cleaning, repairs, including those with respect
to elevators, (other than repairs and other expenditures not properly chargeable
against income or for which LESSOR has received reimbursement from contractors
under guaranties or insurance proceeds under insurance). LESSOR's reasonable
accounting and legal costs applicable to the operation and management of the
Property; management costs incurred in respect of the Property; cost of snow and
trash removal and care of landscaping; payments under service contracts with
contractors including security services and janitorial services attributable to
the common areas; costs of any road or parking lot maintenance allocable to the
Property; the cost of any capital improvement made for the purpose of reducing
operating expenses which costs shall be amortized over such reasonable period as
the LESSOR shall reasonably determine equals the useful life of such capital
improvement together with interest on the unamortized balance at the base
lending rate charged by a major commercial bank designated by the LESSOR on
funds said bank ordinarily loans for the purpose of constructing, installing or
making similar, and all other reasonable and necessary expenses paid in
connection with the operation, cleaning, maintenance and repair of the Property.
The following shall be excluded from Operating Expenses: any costs or
expenses incurred by LESSOR in construction and development of the Building;
payment of principal, interest and other changes on mortgages and ground rent;
salaries of executives and principals of LESSOR (except as may be attributable
to actual building operations), expenses for repairs, replacement or other work
4
<PAGE>
necessitated by insured fire or other casualty (including the action of any
public authority in consequence thereof) or by any taking by eminent domain; the
cost of correcting defects, except that conditions (not occasioned by
construction defects) resulting from ordinary wear and tear shall not be deemed
defects for this purpose; depreciation or amortization; costs relating to
lessees' alterations; principal and interest on LESSOR's indebtedness; costs for
which LESSOR, by the terms of this Lease or any other lease for space within the
Property makes a separate charge; charges for utilities exclusively serving
other Lessees or LESSOR; and all other items, or portions thereof, which under
generally accepted accounting principles as generally applied in the real estate
industry for similar properties are not properly classified as Operating
Expenses for the Property or are properly classified as capital expenditures.
Cost of all LESSOR's services provided by LESSOR or its affiliates shall not
exceed the commercially comparable rates for such services to similar first
class buildings in the city where the building is located.
LESSOR reserves the right at any time during a Lease Year to bill LESSEE in
equal monthly payments, on account, but as Additional Rent due with the next
succeeding month's payment of Annual Fixed Rent, for the amount of increases in
Operating Expenses in the event the LESSOR's Operating Expenses Allocable to the
Leased Premises (as hereinafter defined) exceed the product of (a) LESSEE's
Proportionate Share of Operating Expenses Included in Annual Fixed Rent and (b)
the Total Rentable Floor Area of the Leased Premises.
LESSOR's Operating Expenses Allocable to the Leased Premises shall exclude
any expenses otherwise separately billed to LESSEE, and shall be the sum of the
following:
(a) in the case of certain of the Operating Expenses attributable to the
entire Property but not to any specific lessees, said Operating
Expenses multiplied by LESSEE's Proportionate Share of Operating
Expenses as set forth in Article 1 above;
(b) in the case of certain Operating Expenses attributable not to the
entire Property but to certain specific lessees including LESSEE, said
Operating Expenses multiplied by the fraction the numberator of which
is the Total Rentable Floor Area of the Leased Premises, and the
denominator of which is the total rentable floor area of all leased
premises within the Property, including the Leased Premises, to which
such Operating Expenses are attributable;
(c) any Operating Expenses attributable specifically to LESSEE.
Operating Expenses, if any, attributable to LESSEE's use of the Property
during other than normal business hours (8:00 a.m. until 6:00 p.m., Monday
through Friday, and 8:00 a.m. until 12: noon Saturdays, locally observed state
and federal holidays excepted) may at LESSOR's option be billed separately and
directly to LESSEE as Additional Rent except the LESSOR agrees that there shall
be no additional costs assessed to LESSEE for building or HVAC for the Leased
Premises and common areas outside of such regular business hours long as LESSEE
operates its use at customary levels. The HVAC will be functional 7 days a week,
24 hours a day, but will be reduced by not more than 10 degrees, plus or minus,
outside normal business hours which are 8:00 am to 6:00 pm Monday through
Friday.
LESSOR shall have the right from time to time to change the period of
accounting for Operating Expenses to any period other than a Lease Year, and
upon any such change, all expense items referred to in this Article shall be
appropriately reapportioned. In all statements rendered to LESSEE under this
Section amounts for periods partially within and partially without the
accounting periods shall be appropriately apportioned. Any cost which is not
determinable at the time of a statement may at LESSOR's discretion be included
therein on the basis of LESSOR's estimate, and LESSOR shall render to LESSEE
after determination of such cost if different from LESSOR's estimate, a
supplemental statement
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and appropriate adjustment shall be made according thereto.
7. REAL ESTATE TAX. If, in any Tax Year (as herein defined) or the portion
of a Tax Year which begins with LESSEE'S first occupancy of the Leased Premises
and ends on June 30, LESSOR's Real Estate Tax Expenses per square foot of
rentable floor area of the Building exceed LESSEE's share of Real Estate Tax
Expenses Included in Annual Fixed Rent as specified in Article 1 herein, then,
on or before the thirtieth day following receipt by LESSEE of written notice
from LESSOR that such increased taxes are payable, LESSEE shall pay to LESSOR,
as Additional Rent, the difference between (a) LESSOR's Real Estate Tax Expenses
Allocable to the Leased Premises, as hereinafter defined, less (b) the product
of (i) LESSEE's Share of Real Estate Tax Expenses Included in Annual Fixed Rent
and (ii) the Total Rentable Floor Area of the Leased Premises. LESSOR shall
promptly pay to LESSEE. LESSEE's proportionate share of any refund or abatement
of Real Estate Tax Expenses received by LESSOR.
LESSOR's Real Estate Tax Expense Allocable to the Leased Premises shall be
determined by multiplying LESSOR'S Real Estate Tax Expenses, as hereinafter
defined, for the Property times LESSEE's Proportionate Share of Real Estate Tax
Expenses as set forth in Article 1 herein. "Tax Year" shall mean the
twelve-month period beginning July 1 each year, or if the appropriate
governmental tax fiscal period shall begin on any date other than July 1, such
other date.
As used in this Lease the term Real Estate Tax Expenses shall mean all
taxes and special assessments of every kind and nature assessed by any
governmental authority on the Property and which the LESSOR shall become
obligated to pay because of or in connection with the ownership, leasing and
operation of the Property, and reasonable expenses of any proceedings for
abatement of taxes and assessments including appeals thereof, subject to the
following: (a) the amount of special taxes or special assessments to be included
shall be limited to the amount of the installment (plus any interest, other than
penalty interest, payable thereon) of such special tax or special assessment
(which shall be payable over the longest period permitted by law) required to be
paid during the Tax Year in respect of which such taxes are being determined;
(b) there shall be excluded from such taxes all income, estate, succession,
inheritance and transfer taxes; provided, however, that if at any time during
the Lease Term the present system of ad valorem taxation of real property shall
be changed so that in lieu of the whole or any part of the ad valorem tax on
real property, there shall be assessed on LESSOR a capital levy or other tax on
the rents received with respect to the Property, or a Federal, State, County,
Municipal, or other local income, franchise, excise or similar tax, assessment,
levy or charge (distinct from any now in effect in the jurisdiction in which the
Property is located) measured by or based, in whole or in part, upon any such
gross rents, then any and all of such taxes, assessments, levies or charges, to
the extent so measured or based, shall be deemed to be included within the term
"Real Estate Tax Expenses". A payment shall be deemed to be in lieu of the ad
valorem tax on real property only if by reason thereof and to the extent that
LESSOR is relieved of the payment of such tax or any increase thereof
8. LATE PAYMENT. LESSEE shall pay interest (which shall be considered
additional rent) at an annual rate which shall be the lesser of eighteen (18)
percent or the maximum rate allowed by law, from the date due, for any
installment of Annual Fixed Rent which is not received by LESSOR within 10 days
of due date.
9. UTILITIES. LESSOR shall provide equipment as presently existing and
installed to heat and cool the Leased Premises in season at temperatures
customarily maintained in similar buildings used for general office space,
without consideration of any special furniture, equipment or uses installed or
operated by LESSEE. Electricity will be furnished by LESSOR for building and
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Leased Premises electricity and for use in common area lighting and other normal
common area purposes. No plumbing, construction or electrical work of any type
shall be done without LESSOR's prior written approval which shall not be
unreasonably withheld and the appropriate State, Municipal and other permits and
inspectors' approval. Water and sewer (or septic) for domestic type sanitary
purposes shall be supplied by LESSOR to the common area lavatories and Leased
Premises. The HVAC will be functional 7 days a week, 24 hours a day, but will be
reduced by not more than 10 degrees, plus or minus, outside normal business
hours which are 8:00 am to 6:00 pm Monday through Friday.
10. COMPLIANCE WITH LAWS. LESSEE acknowledges that no trade, occupation, or
activity shall be conducted in the Leased Premises or use made thereof which
will be unlawful, improper, noisy or offensive, or contrary to any statute,
regulation, or ordinance in force in the city or town which the Leased Premises
are situated. LESSEE shall keep all employees working in the Leased Premises
covered with Workers Compensation Insurance in accordance with law. LESSEE shall
be responsible for causing any work conducted in the Leased Premises to be in
full compliance with the Occupational Safety and Health Act of 1970 and any
amendments thereof.
11. FIRE INSURANCE. LESSEE shall not permit any use of the Leased Premises
which will adversely affect, increase the premium of or make voidable, any
insurance on the Property or on any building or portion of the Property or the
contents thereof or which shall be contrary to any law or regulation form time
to time established by the Insurance Services Office (or successor), local Fire
Department, or any similar body. LESSEE shall on demand reimburse LESSOR, and
all other tenants, all extra insurance premiums caused by LESSEE's use of the
premises.
12. MAINTENANCE OF PREMISES. LESSOR shall be responsible for all structural
maintenance of the Leased Premises and other portions of the Property as
necessary to maintain tenantable conditions, and for the normal maintenance
within and upon said areas of all heating and cooling equipment, doors, locks,
plumbing, electrical wiring, landscaping, snow removal, fluorescent light bulbs
used in lighting provided by LESSOR, window glass, and janitorial services
including regular cleaning of the Leased Premises. LESSOR shall not be
responsible for any maintenance of equipment or alterations provided by or
installed by LESSEE, nor shall LESSOR be responsible for any damage caused by
the careless, malicious, willful, or negligent acts of LESSEE or its servants,
agents, customers, contractors, employees, invitees, visitors or licensees.
LESSEE agrees to maintain at its expense all aspects of the Leased Premises in
the same condition as they are at the commencement of the Lease Term or as they
may be put in during the Lease Term, normal wear and tear and damage by fire or
other casualty only excepted. LESSEE will properly control or vent all solvents,
degreasers, etc. and shall not cause the area surrounding the Leased Premises to
be in anything other than a neat and clean condition, depositing all waste in
appropriate receptacles. LESSEE shall be solely responsible for any damage to
plumbing equipment sanitary lines, or any other portion of the Property which
results from the improper discharge or improper use of any material or substance
by LESSEE. LESSEE shall not permit the Leased Premises to be overloaded,
damaged, stripped or defaced, nor suffer any waste, and will not keep animals
within the Leased Premises. Any increase in air conditioning equipment or
electrical capacity, or mechanical maintenance or operating expense which is
necessitated by some specific aspect of LESSEE's use of the premises shall be at
LESSEE's expense. All maintenance provided by LESSOR shall be during LESSOR's
normal weekday business hours. LESSOR agrees to use good faith efforts not to
interfere with LESSEE's business
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activities while performing its maintenance responsibilities.
13. ALTERATIONS. Except as set forth in Exhibit A, LESSEE shall not make
structural alterations or additions of any kind to the Leased Premises, but may
make nonstructural alterations provided LESSOR consents thereto in advance in
writing, which consent shall not be unreasonably withheld provided said
alterations are consistent in appearance and quality with the rest of the
Building and Property. However, LESSOR shall not be obligated to approve any
such alterations which would subject LESSOR to additional expense to readapt or
prepare the Leased Premises for re-leasing upon the termination of this Lease or
which would increase the Operating Expenses or Real Estate Tax Expenses of the
Property. All such allowed alterations shall be at LESSEE's sole risk and
expense, shall conform with LESSOR's construction specifications, shall be
performed in good and workmanlike manner, and shall comply with all applicable
codes and regulations. If LESSOR performs any services for LESSEE in connection
with such alterations or otherwise, any just invoice will be considered
additional rent and will be promptly paid. LESSEE shall not permit any
mechanics' liens, or similar liens, to remain upon the Leased Premises in
connection with work of any character performed at the direction of LESSEE and
shall cause any such lien to be released or removed without cost to LESSOR
within ten (10) days of written request by LESSOR. Any alterations or
improvements shall become part of the real estate and the property of LESSOR.
LESSEE shall remove any alteration or addition made by it and restore the Leased
Premises and other affected area(s), if any, to the same condition as they were
in on the Lease Commencement Date upon the expiration or termination of this
Lease if LESSOR so directs, unless prior written approval for the alterations
was granted by LESSOR. Any alterations completed by LESSOR shall be `building
standard" unless noted otherwise. LESSOR shall have the right at any time to
change the arrangement and layout of parking areas, stairs, walkways, common
areas and other areas of the Property not contained within the Leased Premises,
to install, repair, replace, remove, use, maintain and relocate for service to
the Leased Premises and to other parts of the Property, pipes, ducts, conduits,
wires and appurtenant fixtures wherever located inside or outside of the
Building and the Property, to change the boundaries of the lot upon which the
Building is located, to construct additions to existing buildings on the
Property, and to construct additional buildings and improvements on the
Property, LESSOR hereby agreeing that any such alterations shall not
unreasonably reduce LESSEE's access to the Leased Premises or unreasonably
inconvenience the operation of LESSEE's business on the Leased Premises or
LESSEE's employees or invitees.
14. ASSIGNMENT OR SUBLEASING. LESSEE shall not assign, mortgage, pledge,
hypothecate or otherwise transfer this Lease or sublet (which term, without
limitation, shall include granting of concessions, licenses, and the like) or
allow any other firm or individual to occupy the whole or any part of the Leased
Premises without the prior written consent of LESSOR, which consent shall not be
unreasonably withheld, or suffer or permit this Lease or the leasehold estate
hereby created or any other rights arising under this Lease to be assigned,
transferred, or encumbered, in whole or in part, whether voluntarily,
involuntarily, or by operation of law without the prior written consent of
LESSOR, which consent shall not be unreasonably withheld. In the event of any
intent to assign this Lease or sublet any portion or all of the Leased Premises,
LESSEE shall notify LESSOR in writing of LESSEE's intent and the proposed
effective date of such subletting or assignment, and shall request in such
notification that LESSOR consent thereto, provided that LESSOR may terminate
this LEASE in the case of a proposed assignment, or suspend this Lease for the
period and with respect to the space involved in the case of a proposed
subletting, by giving written notice of termination or suspension to LESSEE,
with such termination or suspension to be effective as of the effective date of
such assignment or subletting. LESSEE will
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reimburse LESSOR, as additional rent, for reasonable legal and other expenses
incurred by LESSOR in connection with any request by LESSEE for consent to
assignment or subletting. In the event that the fixed rental to be paid by any
sublessee, assignee or transferee of LESSEE shall exceed the Annual Fixed Rent
as set forth in Article 3 herein payable by LESSEE to LESSOR, or in the event
that any sublessee, assignee or transferee shall pay to LESSEE a sum of money in
consideration for such sublease, assignment or transfer, then LESSEE shall pay
to LESSOR, as additional rent, a sum equal to fifty (50) percent of the amount
by which the fixed rent payable by such sublessee, assignee or transferee
exceeds the Annual Fixed Rent payable under Article 3 herein or an amount equal
to such sum of money. No assignment or subletting and no consent of LESSOR
thereto shall affect the continuing primary liability of LESSEE (which,
following assignment, shall be joint and several with the assignee) for the
payment of all rent and for the full performance of the covenants and conditions
of this Lease. No consent to any of the foregoing in a specific instance shall
operate as a waiver in any subsequent instance, and no assignment shall be
binding upon LESSOR or any of LESSOR's mortgagees, unless LESSEE shall deliver
to LESSOR an instrument in recordable form which contains a covenant of
assumption by the assignee running to LESSOR and all persons claiming by,
through or under LESSOR, but the failure or refusal of the assignee to execute
such instrument of assumption shall not release or discharge assignee from its
liability as a lessee for the payment of all rent and for the full performance
of the covenants and conditions of this Lease, nor shall execution of such
instrument of assumption affect the continuing primary liability of LESSEE for
the payment of all rent and for the full performance of the covenants and
conditions of this Lease. Notwithstanding anything contained herein to the
contrary, LESSEE may assign this Lease or sublet the premises to any Parent,
affiliate or subsidiary company of LESSEE without the need to obtain LESSOR'S
consent so long as LESSEE remains primarily liable on the Lease and so long as
LESSEE provides LESSOR fifteen (15) days written notice prior to such assignment
or subletting. Affiliate shall include any entity which directly or indirectly
controls LESSEE or is a successor to LESSEE by name, merger, consolidation or
other operation of law or any entity to whom all or substantially all of the
assets of LESSEE are conveyed.
15. SUBORDINATION. LESSEE agrees at the request of LESSOR to subordinate
this Lease to any first mortgage or other security interest hereafter created
covering the Leased Premises or any portion of the Leased Premises and to any
renewal, modification, replacement or extension or any existing first mortgage,
or any mortgage or security interest hereinafter created and to any and all
advances made or to be made thereunder or to any ground Lease of the Property or
the Building, provided that the mortgagee or holder of such security interest or
ground Lessor agrees, for itself and its successors and assigns in writing with
the LESSEE that so long as LESSEE shall not be in default under this Lease, the
mortgagee or other holder of such security interest or ground LESSOR and its
successors and assigns will not disturb the peaceful quiet enjoyment of the
Leased Premises by the LESSEE. LESSEE also agrees that if this Lease is so
subordinated, no entry under any mortgage or sale for the purpose of foreclosing
the same or entry for termination of any ground Lease shall be regarded as an
eviction of LESSEE, constructive or otherwise, or give LESSEE any right to
terminate this Lease, whether it attorns or becomes LESSEE of the mortgagee or
new owner, and such mortgage, or security interest to which this Lease shall
become subordinated may contain such other terms, provisions and conditions as
are usual and customary. LESSEE agrees that it will, within ten (10) days of
receipt of written request of the LESSOR, execute and deliver any and all
instruments necessary or desirable to give effect to or notice of such
subordination in such forms as may be required by such mortgagee or other holder
of such security interest or ground Lessor, and LESSOR shall deliver a
Non-Disturbance Agreement executed by such mortgagee or other holder of such
security interest or ground lessor to LESSEE within 30 days thereafter.
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16. ESTOPPEL CERTIFICATES. Upon ten (10) days prior written request by
LESSOR or LESSEE, the other party agrees to execute and deliver an estoppel
certificate certifying that this Lease is unmodified and in full force and
effect (or, if there have been any modifications that this Lease is in full
force and effect as modified and stating the modifications) and the dates to
which the Annual Fixed Rent, additional rent and other charges have been paid
through and any other information reasonably requested. Any such statement
delivered pursuant to this Article may be relied upon by any prospective
purchaser, mortgagee or lending source.
17. LESSOR'S ACCESS. LESSOR or agents of LESSOR may upon at least 24 hours
advance notice at reasonable times enter to view the Leased Premises and may,
after providing notice to LESSEE, remove at LESSEE's expense any signs,
alterations or additions not approved and constructed or installed as herein
provided, may make such repairs and alterations as LESSOR may deem necessary to
avert an emergency, may make any repairs which LESSEE is required but has failed
to do, and may show the leased premises to others. LESSOR agrees to use its good
faith efforts to avoid interfering with LESSEE's use of the Leased Premises in
carrying out the activities permitted by this Paragraph 17.
18. SNOW REMOVAL. The plowing of snow from all common roadways: accessways
and unobstructed parking and loading areas, and the clearing of snow from common
walkways sufficient to provide access to the Building, shall be performed by
LESSOR or its agents.
19. ACCESS AND PARKING. LESSEE shall have the non-exclusive right, without
additional charge, to use the number of parking spaces specified in Article 1,
said spaces to be located within the parking area provided for the Leased
Premises in common with others entitled to the use thereof. LESSEE may not
sublease any parking space so allocated. Neither LESSOR or LESSEE will obstruct
in any manner any portion of the Building or the Property, including the parking
area, walkways or approaches to said Building or Property, so as to unreasonably
interfere with either party's access to the Building or to the Leased Premises
and LESSEE will conform to all reasonable rules now or hereafter made by LESSOR
for parking, and for the care, use, or alteration of the Property, its
facilities and approaches. LESSOR shall have the right to impose reasonable
controls on the operation of the parking area, including but not limited to the
installation of access gates. The issuance of identifying cards and/or stickers
to those employees, guests and invitees of LESSEE who will be using the parking
area, and the designation of certain portion(s) of the parking area as reserved
for such purpose(s) as LESSOR in its sole judgement may determine, provided that
such designation shall not reduce the number of spaces allocated to LESSEE and
shall not materially interfere with LESSEE's use of the Leased Premises.
LESSEE further warrants that LESSEE will not permit any employee, visitor
or invitee to violate this or any other covenant or obligation of LESSEE. No
vehicle shall be stored or left in any parking area for more than seven (7)
consecutive nights without LESSOR's written approval. From December 1 through
March 30 annually, however, all unattended parking will be prohibited between
12:00 AM and 5:00 AM except in those areas which may at LESSOR's discretion be
specifically designated for assigned overnight parking as shown on Exhibit B,
with a minimum of ten (10) spaces. Unregistered or disabled vehicles, or storage
trailers of any type, may not be parked overnight at any time. LESSEE agrees to
assume all expense and risk for towing of any misparked vehicle belonging to
LESSEE or LESSEE's agents, employees, business invites, or callers, at any time.
LESSEE shall have access to the termination points for telephone wiring and data
wiring on a 24 hours basis. LESSEE shall have the right to use, in common with
LESSOR and any other
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tenants, facilities for deliveries and handicapped access during normal business
hours which are 8:00 am to 6:00 pm Monday through Friday.
20. LESSEE'S LIABILITY INSURANCE. LESSEE will secure and carry at its own
expense a comprehensive general liability policy insuring LESSEE and LESSOR
against any claims based on bodily injury (including death) or property damage
arising out of the condition of the Leased Premises or their use by LESSEE, such
policy to insure LESSEE and LESSOR against any claim up to One Million Dollars
($1,000,000) per occurrence for injury or death to one person, Three Million
Dollars ($3,000,000) for injury or death to more than one person in the same
accident, and One Million Dollars ($1,000,000) for damage to property. Such
limits shall be subject to increase from time to time during the Lease Term. The
amount of such insurance shall not limit LESSEE's liability nor relieve LESSEE
of any obligation hereunder.
Upon the commencement of the Lease Term LESSEE will promptly file with
LESSOR certificates reasonably satisfactory to LESSOR showing that such
insurance is in force, accompanied by evidence of the payment of the premium for
the policy, and thereafter will file renewal certificates at least thirty (30)
days prior to the expiration of any such policies. All such insurance
certificates shall provide that such policies shall not be cancelled nor
materially changed without at least ten (10) days prior written notice to each
assured named therein. LESSEE may, at LESSEE's cost maintain such other
liability insurance as LESSEE may deem necessary to protect it.
LESSEE shall assume exclusive control of the Leased Premises, and all tort
liabilities incident to the control or ownership thereof and agrees to indemnify
and hold the LESSOR free and harmless from any and all liability, penalties,
losses, damages, costs and expenses, causes of action, claims or judgements or
encumbrances created or suffered by the LESSEE, and from any and all liability,
penalties, losses, damages, costs and expenses, causes of action, claims, or
judgements arising from injury to persons or property of any nature on the
Leased Premises or the Property, occasioned by any acts or omissions of the
LESSEE or of its employees, agents, invitees, visitors, callers, servants,
subtenants, or independent contractors, and arising out of the use or occupation
of said Leased Premises by LESSEE from any neglect or misuse on the Leased
Premises or by any reason of nuisance made or suffered on the Leased Premises by
LESSEE excluding in all cases, loss or damage due to LESSOR's acts or omissions
and also against all legal costs and charges, including counsel fees, reasonably
incurred in and about such matters and the defense of any action arising out of
the same, or in discharging the Leased Premises or any part thereof from any and
all liens that may be placed thereon from charges incurred by LESSEE, except as
caused by LESSORS negligence. If LESSOR intervenes in or becomes a party to any
such action or actions growing out of this Lease to protect its rights, then the
LESSEE shall pay LESSOR's reasonable attorneys' fees in such action or actions.
LESSOR agrees to carry, at its own expense, liability insurance covering
injuries or damage to persons or property arising out of LESSOR's negligence on
or about the Building or Property.
21. WAIVER OF SUBROGATION. Any casualty and liability insurance carried by
LESSEE or LESSOR with respect to the Leased Premises, the Property, or
occurrences thereon shall include a clause or endorsement denying to the insurer
rights of subrogation against the other party to the extent rights have been
waived by the insured prior to the occurrence of injury or loss. Each party,
notwithstanding any provisions of this Lease to the contrary, hereby waives any
rights of recovery against the other for injury or loss due to hazards covered
by such insurance containing such antisubrogation clause or endorsement to the
extent of the indemnification received
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thereunder.
22. FIRE, CASUALTY, EMINENT DOMAIN. Should a substantial portion of the
Leased Premises be substantially damaged by fire or other casualty, or if
substantial damage as a result of fire or casualty to the Building or Property
or taking by eminent domain, shall deprive LESSEE of access or use of the Leased
Premises, this Lease shall terminate at LESSEE's election by written notice
given to LESSOR within sixty (60) days after occurrence of the event giving rise
to the election to terminate which notice shall specify the effective date of
termination. Should a substantial portion of the Leased Premises, or of the
Property, be substantially damaged by fire or other casualty, or by action of
public or other authority in consequence thereof or be taken by eminent domain,
or should LESSOR receive compensable damage by reason of anything lawfully done
in pursuance of public or other authority, this Lease shall terminate at
LESSOR's election, which may be made notwithstanding LESSOR's entire interest
may have been divested, by written notice given to LESSEE within sixty (60) days
after the occurrence of the event giving rise to the election to terminate,
which notice shall specify the effective date of termination.
The effective date of any termination by LESSOR or LESSEE under this
Article shall be not less than fifteen (15) nor more than thirty (30) days after
the date of such notice of termination. For the purpose of this Article, damage
or taking shall be considered substantial if the time needed for LESSOR to
perform repairs and/or construction necessary to put the Leased Premises or such
remainder in proper condition for use and occupation is estimated by LESSOR to
exceed two (2) months, or if more than thirty (30) percent of the non-wetlands
land area of the Property, or if more than ten (10) percent of the Building, or
if more than ten (10) percent of the Leased Premises are so taken. In case of
any such damage or taking, LESSOR shall notify LESSEE within thirty (30) days
after the occurrence thereof of LESSOR's estimate of the time needed to perform
the repairs and/or construction necessary to put the Leased Premises or such
remainder in proper condition for use and occupancy, or of the percentage of the
non-wetlands land area, or of the Building, or of the Leased Premises taken.
If in any such case the Leased Premises are rendered unfit for use and
occupation and the Lease is not so terminated, LESSOR shall use due diligence to
put the Leased Premises, or in case of taking what may remain thereof (excluding
any items installed or paid for by Tenant, which Tenant may be required to
remove), into proper condition for use and occupation and a just proportion of
the Annual Fixed Rent and any additional rent according to the nature and extent
of the injury shall be abated until the Leased Premises or such remainder shall
have been put by LESSOR in such condition and in case of a taking which
permanently reduces the area of the Leased Premises, a just proportion of the
Annual Fixed Rent and additional rent shall be abated for the remainder of the
Lease Term.
LESSOR reserves to itself any and all rights to receive awards made for
damages to the Leased Premises and the Property and the leasehold hereby
created, or any one or more of them, accruing by reason of exercise of eminent
domain or by reason of anything lawfully done in pursuance of public or other
authority. LESSEE hereby releases and assigns to LESSOR all of LESSEE's rights
to such awards, and covenants to deliver such further assignments and assurances
thereof as LESSOR may from time to time request It is agreed and understood,
however, that LESSOR does not reserve to itself and LESSEE does not assign to
LESSOR, any damages payable for (i) movable trade fixtures installed by LESSEE
or anybody claiming under LESSEE at its own expense or fixtures or items the
removal of which is required or permitted by any agreement given pursuant the
Lease, or (ii) relocation expenses recoverable by LESSEE from
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such authority in a separate action.
23. INTERRUPTIONS. LESSOR shall not be liable to LESSEE for any
compensation or reduction of rent by reason of inconvenience or annoyance or for
loss of business arising from power and other utility losses, shortages or
malfunctions, the necessity of LESSOR's entering the Leased Premises for any of
the purposes in this Lease authorized, or for repairing the Leased Premises or
any other portion of the Property however the necessity may occur unless due to
LESSOR's gross negligence or malfeasancy. In case LESSOR is prevented or delayed
from making any repairs, alterations or improvements, or furnishing any services
or performing any other covenant or duty to be performed on LESSOR's part, by
reason of any and all causes reasonably beyond LESSOR'S control, LESSOR shall
not be liable to LESSEE therefor, nor shall the same give rise to a claim in
LESSEE's favor that such failure constitutes actual or constructive, total or
partial, eviction from the Leased Premises. LESSOR reserves the right to stop
any service or utility system, when necessary by reason of accident or
emergency, or until necessary repairs have been completed, provided, however,
that in each instance of stoppage, LESSOR shall exercise reasonable diligence to
eliminate the cause thereof
24. BROKERAGE. LESSEE warrants and represents to LESSOR that LESSEE has
dealt with no broker other than R.W. Holmes Realty Co., Inc. ("BROKER") with
respect to this Lease and LESSEE agrees to indemnify LESSOR against any
brokerage claims arising by virtue of this Lease, other than from the BROKER.
LESSOR warrants and represents to LESSEE that LESSOR has employed no exclusive
broker or agent in connection with the letting of the Leased Premises other than
the BROKER, and agrees to indemnify LESSEE against any brokerage claims arising
by virtue of this Lease, other than from the BROKER. Pursuant to its exclusive
agency agreement with the BROKER, LESSOR shall only be responsible for the
brokerage commission due the BROKER.
25. SIGNS. LESSEE may display signs on the Leased Premises including one
(1) free standing sign by road entrance and one free standing sign near the
building entrance. LESSEE shall, however, first obtain the written consent of
LESSOR, which consent shall not be unreasonably withheld and any approvals
required under applicable by-laws or regulations, before erecting any sign on
the Property, and shall obtain written approval as to size, content, appearance,
and location of all authorized signs.
26. DEFAULT. BANKRUPTCY AND ACCELERATION OF RENT. In the event that (a)
LESSEE files a petition for adjudication as a bankrupt or shall be declared
bankrupt or insolvent according to law, or if an involuntary petition under any
of the provisions of the Bankruptcy Act is filed against LESSEE and is not
dismissed within sixty (60) days thereafter, or if any assignment shall be made
of LESSEE's property for the benefit of creditors; or (b) LESSEE shall default
in the observance or performance of any of LESSEE's covenants, agreements, or
obligations hereunder, other than substantial monetary payments as provided
below, and such default shall not be corrected with thirty (30) days after
written notice thereof, then LESSOR shall have the right thereafter, while such
default continues, and without demand or further notice to re-enter and take
complete possession of the Leased Premises, or declare the term of this Lease
ended, and to remove LESSEE's effects, without being guilty of any manner of
trespass, and without prejudice to any remedies which might be otherwise used
for arrears of rent or other default or breach of covenant. In addition to the
foregoing, if LESSEE shall default in the payment of Annual Fixed Rent, taxes,
or additional rent, and such default shall continue for ten (10)
13
<PAGE>
days after written notice thereof and, because both parties agree that
nonpayment of said sums when due is a considerable and significant breach of the
Lease, and, because the payment of rent in monthly installments is for the sole
benefit and convenience of LESSEE, then, if Landlord elects to terminate this
Lease, the net present value of the entire balance of rent over and above the
net present value of the Fair Market Rental Value of the Leased Premises for the
balance of the term shall, at the option of LESSOR, become immediately due and
payable, and, in addition, LESSOR shall have all other rights of LESSOR, as set
forth in this Article, for a default by LESSEE.
LESSOR, without being under any obligation to do so and without thereby
waiving any default, may remedy same for the account and at the expense of
LESSEE. If LESSOR pays or incurs any obligations for the payment of money in
connection therewith, including but not limited to reasonable attorney's fees in
instituting, prosecuting or defending any action or proceeding, such sums paid
or obligations incurred and costs, shall be paid to LESSOR by LESSEE as
additional rent. Any sums received by LESSOR shall be applied first to offset
any outstanding invoice or other payment due to Lessor, with the balance applied
to outstanding rent. Notwithstanding the foregoing, LESSEE agrees to pay
reasonable attorney's fees incurred by LESSOR in enforcing any or all
obligations of LESSEE under this Lease at any time. LESSOR agrees to use good
faith efforts to relet the Premises in the event of a termination of the Lease
pursuant to this Paragraph 26.
Any and all rights and remedies which LESSOR may have under this Lease, at
law and equity, shall be cumulative and shall not be deemed inconsistent with
each other, and any two or more of all such rights and remedies may be exercised
at the same time insofar as permitted by law.
27. NO ACCORD AND SATISFACTION. No acceptance by LESSOR of a lesser sum
than the Annual Fixed Rent and additional rent then due shall be deemed to be
other than on account of the earliest installment of such rent due, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and LESSOR may accept
such check or payment without prejudice to LESSOR's right to recover the balance
of such installment or pursue any other remedy provided in this Lease.
28. NOTICES. Any notice from LESSOR to LESSEE relating to the Leased
Premises or to the occupancy thereof shall be deemed duly served, if delivered
to LESSEE by certified mail, return receipt requested, postage prepaid,
addressed to LESSEE at the Leased Premises.
with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, Massachusetts 02110
Attn: Jennifer C. Platt
Any notice from LESSEE to LESSOR relating to the Leased Premises, the occupancy
thereof or this Lease shall be deemed duly served if delivered to LESSOR by
certified mail, return receipt requested postage prepaid addressed to LESSOR as
follows:
14
<PAGE>
Perini Corporation
73 Mount Wayte Avenue, P0 Box 9160
Framingham, MA 01701-9160
Attn: John Rizzo/John Bolis
or at such other address as LESSOR or LESSEE may from time to time in writing
designate.
29. OCCUPANCY. In the event that LESSEE takes possession of said premises
prior to the Lease Commencement Date, LESSEE will perform and observe all of
LESSEE's covenants from the date upon which LESSEE takes possession except the
obligation for the payment of extra rent for any period of less than one month.
LESSEE shall not remove LESSEE's goods or property from the Leased Premises
other than in the ordinary and usual course of business, without having first
paid and satisfied LESSOR for all rent which may become due during the entire
term of this Lease. In the event that LESSEE continues to occupy or control all
or any part of the Leased Premises after the agreed termination date of this
Lease without the written permission of LESSOR, then all other terms of this
Lease shall continue to apply except that rent shall be due in full monthly
installments at a rate of one hundred fifty (150) percent of that which would
otherwise be due under this Lease, it being understood between the parties that
such extended occupancy as a tenant at sufferance is solely for the benefit and
convenience of LESSEE and such has greater rental value and, in the event that
LESSEE continues to occupy or control the Leased Premises for a period of more
than one month after the Lease termination date, LESSEE shall be liable to
LESSOR for any and all loss, damages or expenses incurred by LESSOR. LESSEE's
control or occupancy of all or any part of the Leased Premises beyond midnight
on the last day of any monthly rental period shall constitute LESSEE's occupancy
for an entire additional month, and increased rent as provided in this Article
shall be due and payable immediately in advance.
30. FIRE PREVENTION. LESSEE agrees to use every reasonable precaution
against fire and LESSOR agrees that the Leased Premises (upon delivery to
LESSEE) and the Building shall comply with the local Fire Marshall's
requirements for approved, labeled fire extinguishers and emergency lighting
equipment
31. OUTSIDE AREA. Except for permitted parking, no goods, equipment or
things of any type or description shall be held or stored outside the Leased
Premises at any time without express written approval from LESSOR. Any goods,
equipment or things left outside the Leased Premises without LESSOR'S prior
written consent shall be deemed abandoned and may be removed after 24 hours
notice by LESSOR. LESSEE agrees to pay upon written notice all reasonable
charges, as additional rent associated with said removal.
32. ENVIRONMENT. LESSEE will so conduct and operate the Leased Premises as
not to interfere in any way with the use and enjoyment of other portions of the
same or neighboring buildings by others by reason of odors, smells, noise,
vibration, pets, accumulation of garbage or trash, vermin or other pests, or
otherwise, and will at its expense employ a professional pest control service if
necessary. LESSEE agrees to maintain efficient and effective devices for
preventing damage to heating equipment from harmful solvents, degreasers,
cutting oils, etc. which may be used within the Leased Premises. No hazardous
wastes or chemical wastes of any sort shall be used, generated, stored, disposed
of or allowed to remain within the Leased Premises or the Property at any time,
except in compliance with applicable laws and regulations and LESSEE
15
<PAGE>
shall be solely responsible for any and all corrosion or other damage associated
with the improper use, generation, storage, disposal and control of same by
LESSEE.
33. RESPONSIBILITY. LESSOR shall not be held liable to anyone for loss or
damage caused in any way by the use, leakage, seepage or escape of water from
any source, or for the cessation of any service rendered customarily to the
Property, or agreed to by the terms of this Lease, due to any accident, to the
making of repairs, alterations or improvements, to labor shortages or disputes,
weather conditions, or mechanical breakdowns, to trouble or scarcity in
obtaining fuel, electricity, service or supplies from the sources from which
they are usually obtained for the Property, or to any cause beyond LESSOR's
reasonable control.
34. SURRENDER. LESSEE shall at the expiration or other termination of this
Lease remove all of LESSEE'S goods and effects from the Leased Premises. LESSEE
shall deliver to LESSOR the Leased Premises and all keys, access control cards
(if used in the Building) locks, and other fixtures and equipment connected
therewith, and all alterations, additions and improvements made to or upon the
Leased Premises, including but not limited to any offices, partitions, floor
coverings (including computer floors), window shades and blinds, plumbing an&
plumbing fixtures, air conditioning equipment and duct work of any type, exhaust
fans or heaters, water coolers, burglar alarms telephone wiring, telephone
equipment (excluding telephone handsets and switching equipment), wooden or
metal shelving which has been bolted, welded or otherwise attached to the
Building, air or gas distribution piping, compressors, overhead cranes, hoists,
trolleys or conveyors, counters or signs attached to wails or floors, and all
electrical work, including but not limited to lighting fixtures of any type,
wiring, conduit, EMT, distribution panels, bus ducts, raceways, outlets and
disconnects, unless otherwise directed by LESSOR in writing. Anything to the
contrary notwithstanding LESSOR shall not request that LESSEE remove any
improvements from the Leased Premises which were installed as part of LESSOR's
original improvements delivered with the Leased Premises at the commencement of
this Lease. LESSEE shall deliver the Leased Premises broom clean and in the same
condition as they were at commencement of the Lease Term, or as they were put in
during the Lease Term, reasonable wear and tear and damage by fire or other
casualty only excepted. In the event of LESSEE's failure to remove any of
LESSEE's property from the Leased Premises, LESSOR is hereby authorized, without
liability to LESSEE for loss or damage thereto, and at the sole risk of LESSEE,
to remove and store any such property at LESSEE's expense, or to retain same
under LESSOR's control, or to sell at public or private sale (with notice), any
or all of the property not so removed and to apply the net proceeds of such sale
to the payment of any sum due hereunder, or to destroy such property which shall
be conclusively deemed to have been abandoned. In no case shall the Leased
Premises be deemed surrendered to LESSOR until the expiration date provided
herein or such other date as may be specified in a written agreement between the
parties and attached hereto.
35. LEGAL. In case LESSOR shall be made party to any litigation commenced
by or against LESSEE or by or against any parties in possession of the Leased
Premises or any party thereof claiming under LESSEE, LESSEE shall pay, as
additional rent, all costs, including without limitation reasonable counsel fees
incurred by or imposed upon LESSOR in connection with such litigation, and shall
also pay, as additional rent all such reasonable costs and fees incurred by
LESSOR in connection with the enforcement by LESSOR of any obligations of LESSEE
under this Lease. LESSEE shall defend, with counsel approved by LESSOR, save
harmless and indemnify LESSOR from any liability or injury, loss, accident or
damage to any person or property, and from any claims, actions, proceedings and
reasonable expenses and costs in connection therewith (including without
limitation reasonable counsel fees) (i) arising from the omission, fault,
willful act,
16
<PAGE>
negligence or other misconduct of LESSEE on the Leased Premises not due to the
omission, fault, willful act, negligence or other misconduct of LESSOR or (ii)
resulting from the failure of LESSEE to perform and discharge its covenants and
obligations under this Lease. Notwithstanding the foregoing and unless
prohibited by applicable law, in the event of any litigation between LESSOR and
LESSEE, the prevailing party by court order, decree or judgment shall be
reimbursed by the other party for its reasonable legal fees and costs incurred
in such litigation.
36. GENERAL.
(a) The invalidity or unenforceability of any provision of this Lease shall not
affect or render invalid or unenforceable any other provision hereof.
(b) The obligations of this Lease shall run with the land, and this Lease shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that LESSOR shall be liable only for
obligations occurring before the beginning of the Lease Term, or thereafter
while owner of the Leased Premises.
(c) If LESSOR is acting under any trust or corporation the obligations of LESSOR
shall be binding upon the trust estate or corporation, but not upon any trustee,
officer, corporate officer, shareholder, or beneficiary of the trust or
corporation individually.
(d) This Lease is made and delivered in the state of Massachusetts, and shall be
interpreted, construed, and enforced in accordance with the laws thereof.
(e) This Lease was the result of negotiations between parties of equal
bargaining strength, and when executed by both parties shall constitute the
entire agreement between said parties. No other oral or written representation
shall have any effect hereon, and this agreement may not be altered, extended or
amended except by written agreement attached hereto or as otherwise provided
herein.
(f) Notwithstanding any other statements herein, LESSOR makes no warranty,
express or implied, concerning the suitability of the Leased Premises for
LESSEE's Permitted Use, but does represent that the Leased Premises conform to
building laws and regulations applicable to the Leased Premises as of the
execution of the Lease.
(g) LESSEE agrees that if LESSOR does not deliver possession of the Leased
Premises as herein provided, LESSOR shall not be liable for any damages to
LESSEE for such failure, but LESSOR agrees to use reasonable efforts to obtain
possession for LESSEE on or before the Lease Commencement Date, as it may be
extended pursuant to the provisions of this Lease.
(h) The submission of this Lease to LESSEE does not constitute a reservation of
or option for the Leased Premises, or an offer to lease, it being expressly
understood and agreed as between LESSEE and LESSOR that this Lease shall not
bind either party in any manner whatsoever until it has been executed by both
parties.
(i) LESSEE agrees that each owner of the Property from time to time shall not be
liable to LESSEE for breach of any of the LESSOR's obligations herein contained
committed by any prior or subsequent owner.
17
<PAGE>
(j) LESSOR shall have the right to issue to lessees including LESSEE, and from
time to time to revise, reasonable written Rules and Regulations pertaining to
the Property, and LESSEE shall upon receipt of said Rules and Regulations, and
any revision(s) thereof, abide by same.
37. WAIVERS. ETC. No consent of waiver, express or implied, by LESSOR, to
or of any breach of any covenant, condition or duty of LESSEE shall be construed
as a consent or waiver to or of any other breach of the same or any other
covenant, condition or duty. If LESSEE is several persons or a partnership
LESSEE's obligations are joint and also several. Unless repugnant to the
context, "LESSOR" and "LESSEE" mean the person or persons, natural or corporate,
named above as "LESSOR and as LESSEE respectively, and their respective heirs,
executors, administrators, successors and assigns."
38. ADDITIONAL PROVISIONS.
(a) Lessors Improvements.
(a) LESSOR, at an expense incorporated entirely into the Annual Fixed Rent
and at no further cost to LESSEE, shall construct LESSEE's improvements within
the Leased Premises, which shall consist solely of three demising walls and two
security doors as shown in Exhibit A ("Lessor's Work"). Lessors Work, including,
if necessary, the issuance of a certificate of occupancy permitting such use,
shall be performed prior to the Lease Commencement Date.
(b) Extension Options. Provided LESSEE is not in default hereunder, the
LESSEE shall have the option, exercisable by written notice from LESSEE to
LESSOR given not less than nine (9) months prior to the end of the Initial Term,
to extend the term of this Lease for an additional three (3) years on all of the
terms and conditions of this Lease except that the Annual Fixed Rent shall be
the greater of fair market value or $15,423 per month.
(c) Right of First Offer. In the event Landlord, in its sole and absolute
discretion, determines to rent additional space on the second floor adjacent to
the Leased Premises, it shall first offer such space to Tenant. Tenant shall
have five (5) business days to notify Landlord whether it wishes to rent such
space.
IN WITNESS WHEREOF, LESSOR AND LESSEE have hereunto set their hands and common
seals and intend to be legally bound hereby this 6th day of May 1997.
LESSOR: PERINI CORPORATION
By: /s/ JOHN H. SCHWARZ JOHN H. SCHWARZ
----------------------------- -----------------------------
Signature Print or type name
Exec. V.P. 5/6/97
----------------------------- -------------
Title Date
18
<PAGE>
LESSOR: MAKER COMMUNICATIONS, INC.
--------------------------
By: /s/ WILLIAM N. GIUDICE William N. Giudice
----------------------------- -----------------------------
Signature Print or type name
President May 2, 1997
----------------------------- -------------
Title Date
19
<PAGE>
Perini Corporation
First Amendment to Commercial Lease
Reference is made to a Lease dated May 6, 1997 between Perini Corporation, a
Massachusetts Corporation with a usual place of business at 73 Mount Wayte
Avenue, P0 Box 9160, Framingham, Massachusetts 01701-9160, hereinafter called
LESSOR, and Maker Communications, Inc. 486 Totem Pond Road, Waltham,
Massachusetts 02154, hereinafter called LESSEE;
Now therefore both the LESSOR and LESSEE agree to amend the terms of the LEASE
as follows:
Description of the Leased Preemies: The premises located at 73 Mt. Wayte Avenue,
Framingham, Massachusetts 01701, as shown on plan (Lease Exhibit B) attached
hereto and made part hereof (hereinafter the "Leased Premises"). The Leased
premises contain approximately Eleven Thousand Seven Hundred Ninety Nine
(11,799) rentable square feet (hereinafter the "Total Floor Area of the Leased
Premises").
Annual Fixed Rent for the Lease Term: Two Hundred Thousand Five Hundred Eighty
Three and 00/100 Dollars ($200,583.00) annually, Sixteen Thousand Seven Hundred
Fifteen and 25/100 ($16,715.25) monthly commencing January 1, 1998 for the
remainder of the initial Lease Term, which includes Tenant's electricity charge
for the Leased Premises.
As used in this Lease, Lease Year shall mean a period of 12 calendar months,
with the first Lease Year to commence upon the Lease Commencement Date and end
upon the anniversary thereof and with successive Lease Years continuing for
twelve (12) month intervals thereafter until the Lease Termination Date.
Unless modified herein, all other terms and conditions of the LEASE remain in
full force and effect.
Executed as of the 18th. day of December, 1997
LESSOR: PERINI CORPORATION
By: /s/ CARL P. GAUTHIER Carl P. Gauthier
----------------------------- -----------------------------
Signature Print or type name
December 18, 1997
----------------------------- -----------------------------
Title V.P. Perini Land & Date
Development Co.
<PAGE>
LESSEE: MAKER COMMUNICATIONS, INC.
By: /s/ MITCHELL MACKOFF Mitchell Mackoff
----------------------------- -----------------------------
Signature Print or type name
Vice President & CFO December 18, 1997
----------------------------- -----------------------------
Title Date
<PAGE>
Perini Corporation
Second Amendment to Commercial Lease
Reference is made to a Lease dated May 6, 1997 and First Lease Amendment dated
December 18, 1997, between Perini Corporation, a Massachusetts Corporation with
a usual place of business at 73 Mount Wayte Avenue, P0 Box 9160, Framingham,
Massachusetts 01701-9160, hereinafter called LESSOR, and Maker Communications,
Inc. 486 Totem Pond Road, Waltham, Massachusetts 02154, hereinafter called
LESSEE;
Now therefore both the LESSOR and LESSEE agree to amend the terms of the LEASE
as follows:
Description of the Leased Preemies: The premises located at 73 Mt. Wayte Avenue,
Framingham, Massachusetts 01701, as shown on plan (Lease Exhibit C) attached
hereto and made a part hereof (hereinafter the "Leased Premises"). The Leased
premises contain approximately Twelve Thousand Six Hundred Seventeen (12,617)
rentable square feet (hereinafter the "Total Floor Area of the Leased
Premises").
Annual Fixed Rent for the Lease Term: Two Hundred Fourteen Thousand Four Hundred
Eighty Eight and 00/100 Dollars ($214,488.00) annually, Seventeen Thousand Eight
Hundred Seventy-Four and 00/100 ($17,874.00) monthly commencing July 1, 1998 for
the remainder of the initial Lease Term, which includes Tenant's electricity
charge for the Leased Premises.
As used in this Lease, Lease Year shall mean a period of 12 calendar months,
with the first Lease Year to commence upon the Lease Commencement Date and end
upon the anniversary thereof, and with successive Lease Years continuing for
twelve (12) month intervals thereafter until the Lease Termination Date.
Unless modified herein, all other terms and conditions of the LEASE remain in
full force and effect.
Executed as of the 29th. day of June, 1998
LESSOR: PERINI CORPORATION
By: /s/ CARL P. GAUTHIER Carl P. Gauthier
----------------------------- -----------------------------
Signature Print or type name
June 29, 1998
----------------------------- -----------------------------
Title V.P. Perini Land & Date
Development Co.
<PAGE>
LESSEE: MAKER COMMUNICATIONS, INC.
By: /s/ MICHAEL RUBINO Michael Rubino
----------------------------- -----------------------------
Signature Print or type name
Vice President & CFO June 29, 1998
----------------------------- -----------------------------
Title Date
<PAGE>
[FLOOR PLAN]
[GRAPHIC OMITTED]
|_| GROUP EXECUTIVE
|_| SAFETY
|_| CORPORATE DEVELOPMENT
<PAGE>
Perini Corporation
Third Amendment to Commercial Lease
Reference is made to a Lease dated May 6, 1997, the First Lease Amendment dated
December 18, 1997 and the Second Lease Amendment dated June 29, 1998, between
Perini Corporation, a Massachusetts Corporation with a usual place of business
at 73 Mount Wayte Avenue, P0 Box 9160, Framingham, Massachusetts 01701-9160,
hereinafter called LESSOR, and Maker Communications, Inc. 486 Totem Pond Road,
Waltham, Massachusetts 02154, hereinafter called LESSEE;
Now therefore both the LESSOR and LESSEE agree to amend the terms of the LEASE
as follows:
Description of the Leased Premises: The premises located at 73 Mt. Wayte Avenue,
Framingham, Massachusetts 01701, as shown on plan (Lease Exhibit D) attached
hereto and made a part hereof (hereinafter the "Leased Premises"). The Leased
premises contain approximately Eighteen Thousand Four Hundred Ninety-Eight
(18,498) rentable square feet (hereinafter the "Total Floor Area of the Leased
Premises").
Annual Fixed Rent for the Lease Term: Three Hundred Fourteen Thousand Four
Hundred Sixty-Six and 00/100 Dollars ($314,466.00) annually, Twenty-Six Thousand
Two Hundred Five and 50/100 Dollars ($26,205.50) monthly commencing January 1,
1999 for the remainder of the initial Lease Term, which includes Tenant's
electricity charge for the Leased Premises.
As used in this Lease, Lease Year shall mean a period of 12 calendar months,
with the first Lease Year to commence upon the Lease Commencement Date and end
upon the anniversary thereof, and with successive Lease Years continuing for
twelve (12) month intervals thereafter until the Lease Termination Date.
38. Additional Provisions.
(C) Deleted
(d) Right of First Refusal LESSOR shall provide LESSEE with the First Right of
Refusal as long as LESSEE is not in default of the Lease, LESSOR shall grant to
LESSEE a First Right of Refusal on 6,612 square feet of space on the first floor
as marked on Exhibit E, option space. The rental rate for the option space shall
be $17.00 per square foot. This First Right of Refusal must be accepted by
LESSEE within 15 days of notification from LESSOR, that the space is available.
If the LESSEE decides not to take the additional space this Right of First
Refusal will terminate upon the expiration of the 15 day acceptance period.
<PAGE>
Unless modified herein, all other terms and conditions of the LEASE remain in
full force and effect.
Executed as of the 8th day of December, 1998
LESSOR: PERINI CORPORATION
By: /s/ DOUGLAS V. MURE Douglas V. Mure
----------------------------- -----------------------------
Signature Print or type name
December 15, 1998
----------------------------- -----------------------------
Title V.P. Perini Corp Date
LESSEE: MAKER COMMUNICATIONS, INC.
By: /s/ MICHAEL RUBINO Michael Rubino
----------------------------- -----------------------------
Signature Print or type name
Vice President & CFO December 8, 1998
----------------------------- -----------------------------
Title Date
<PAGE>
EXHIBIT "D"
THIRD LEASE AMENDMENT
PERINI CORP. & MAKER COMMUNICATIONS
[GRAPHIC OMITTED]
18,498 Sq. Ft. SECOND FLOOR
|_| GROUP EXECUTIVE
|_| SAFETY
|_| CORPORATE DEVELOPMENT
|_| LEGAL
|_| CORPORATE CONTROLLER
|_| INTERNAL AUDIT
|_| GENERAL EXECUTIVE
|_| CORPORATE FINANCE
|_| TAX
|_| TREASURY
|_| HUMAN RESOURCES
|_| ACCOUNTING DEPARTMENT
|_| PAYROLL
<PAGE>
EXHIBIT "E"
THIRD LEASE AMENDMENT
PERINI CORP. & MAKER COMMUNICATIONS
[GRAPHIC OMITTED]
6,612 Sq. Ft. FIRST FLOOR
|_| GROUP EXECUTIVE
|_| SAFETY
|_| CORPORATE DEVELOPMENT
|_| LEGAL
|_| CORPORATE CONTROLLER
|_| INTERNAL AUDIT
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.
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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.
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6.0 PURCHASE ORDERS
6.1 [**]
6.2 [**]
6.3 [**]
6.4 Purchase orders issued to IBM shall include the following:
6.4.1 NRE Services and/or Product(s) being ordered;
6.4.2 quantity of units of Product requested (in increments of the
minimum ship pack quantity ("SPQ") only);
6.4.3 NRE Charges and/or unit price per Attachment C;
6.4.4 billing address;
6.4.5 shipping instructions, including carrier, destination address and
requested shipment dates; and
6.4.6 reference to this Agreement and Agreement Number.
6.5 This Agreement shall take precedence over and govern in case of any
additional, different or conflicting terms and conditions in any
purchase order(s) or any other form of either party. Purchase orders and
other forms of either party may not vary the terms of this Agreement.
Additional, different or conflicting terms and conditions on a purchase
order or other form shall be of no effect, unless in writing and signed
by both parties.
6.6 Notwithstanding any other provision of this Agreement, in the event that
IBM's ability to supply the Product is constrained (except as caused by
Buyer) for reasons which include, but are not limited to, component
availability, and the Scheduled Shipment Date cannot be met, IBM will
reduce the quantities of Products to be supplied to Buyer in proportion
to the reduction in quantities of products of the same technology or
utilizing the same manufacturing process to be supplied to satisfy
others. Receipt of such allocated supply and later delivery of all
undelivered ordered quantities after the constraint ends shall
constitute Buyer's exclusive remedy in the event of such supply
constraint.
7.0 PRICING
7.1 Buyer shall pay IBM the NRE Charge applicable to such Product as set
forth in Attachment C, as well as other sums for special services as are
separately ordered by Buyer and listed or referenced in Attachment C, or
as otherwise agreed to in writing by the parties.
7.2 The unit price for each unit of Product ordered shall be determined at
the time the applicable purchase order is accepted using the Product's
Price Quantity Matrix set forth in Attachment C. The quantity used as an
input into such Price Quantity Matrix shall be the cumulative quantity
of units of a Products determined by the purchase orders accepted by IBM
after the Commencement Date, including the units of Product requested in
the purchase order that is the subject of such price determination.
8.0 TITLE AND SHIPMENT
8.1 Title and risk of loss for a Product pass to Buyer when IBM delivers the
Product to the carrier.
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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8.2 Products shall be shipped from the manufacturing location FOB for
domestic U.S. destinations and ExWorks (as defined in the 1990 INCO
Terms) for international shipments.
8.3 In no event shall IBM be deemed to assume any liability in connection
with any shipment, nor shall the carrier be construed as an agent of
IBM.
9.0 INVOICING, PAYMENT TERMS, TAXES
9.1 NRE Charges shall accrue and be invoiced on the schedule set forth in
Section 2.0 of Attachment C. IBM shall invoice Buyer for all units of
Product upon shipment. All payments under this Agreement shall be due
within thirty (30) days of the date of invoice. If Buyer's account
becomes in arrears or if Buyer exceeds its credit limit with IBM, in
addition to any other right under this Agreement, IBM reserves the right
to cease development work or stop shipment to Buyer or ship to Buyer on
a cash-in-advance basis, or other mutually agreeable terms, until
Buyer's account is again current.
9.2 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 [**]
11.1 Buyer may cancel a purchase order or any portion thereof upon written
notice to IBM. If Buyer cancels a purchase order for NRE Services or
Prototypes, or if Buyer unreasonably withholds its signature from the
RTL or RTM, IBM will cease further work in connection with the Product
and invoice Buyer for (i) the total of all unpaid NRE Charges applicable
to the next development Milestone (Section 2.0 of Attachment C) and (ii)
an NRE cancellation charge pursuant to Section 3.0 of Attachment C and
the applicable unit price for any canceled Prototype devices that were
ordered pursuant to Section 4.5 of this Agreement. For purchase orders
for units of Product, if the written notice is less than the Purchase
Order Lead Time, then a cancellation charge, as specified in Section 9.0
of Attachment C, will immediately become due for each canceled unit.
11.2 For a purchase order for production units which is more than thirty (30)
days, but less than the Purchase Order Lead Time from its Scheduled
Shipment Date, Buyer may request in writing a one-time deferral of the
Scheduled Shipment Date for not more than ninety (90) days, with no
cancellation charge imposed. However, if this purchase order is
subsequently deferred or canceled, then the cancellation charge
specified in Section 9.0 of Attachment C will be due.
11.3 [**]
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
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12.0 ENGINEERING CHANGES
12.1 [**]
12.2 [**]
12.3 [**]
12.4 [**]
13.0 TERMINATION OF AGREEMENT
13.1 If either party is in material default of a provision of this Agreement
and such default is not corrected within thirty (30) days of receipt of
written notice, this Agreement may be terminated by the party not in
default.
13.1.1 If Buyer terminates due to IBM default, all previously accepted
purchase orders shall be automatically canceled without charge to Buyer,
except for any specific purchase order(s) that the parties mutually
agree in writing not to cancel.
13.1.2 If IBM terminates due to Buyer default, at IBM's discretion, all
previously accepted purchase orders shall be automatically canceled and
adjustment charges and cancellation charges will apply in addition to
any other amounts then due.
13.2 Notwithstanding the provisions of Section 13.1, either party shall have
the right to terminate this Agreement immediately if:
13.2.1 The other party files a petition in bankruptcy, undergoes a
reorganization pursuant to a petition in bankruptcy, is adjudicated a
bankrupt, becomes insolvent, becomes dissolved or liquidated, files a
petition for dissolution or liquidation, makes an assignment for benefit
of creditors, or has a receiver appointed for its business; or
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.
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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.
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20.0 LIMITATION OF REMEDIES
20.1 IBM's entire liability and Buyer's exclusive remedy are set forth in
this Section:
20.1.1 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.
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25.0 NOTICES
25.1 All notices shall be in writing and shall be deemed delivered when sent
by certified mail return receipt requested.
IBM Maker Communications, Inc.
Dept. LJGV-965-3J 73 Mount Wayte Avenue
1000 River Street Framingham, MA 01702
Essex Junction, VT 05452
Attn: Contract Administrator Attn: Chief Financial Officer
25.2 Day to day technical activities under this Agreement will be directed by
the Technical Coordinators identified in Attachment A, who will be
responsible for maintaining technical liaison between the parties.
Either party may change its respective representative designated for
receipt of notices, or its Technical Coordinator and their addresses
designated for notices by notifying the other party in the same manner
as any other notice.
25.3 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: By:
----------------------------- -------------------------------
Authorized Signature Authorized Signature
Name: Peter D. Hansen Name: Michael Rubino
Title: VP North American Sales Title: VP and CFO
Dated: Dated:
------------------------- ----------------------------
IBM/Maker Page 7 of 7
Phoenix Technologies Ltd./Confidential Phoenix Agreement Number 14820100
PHOENIX TECHNOLOGIES LTD.
TECHNOLOGY LICENSE AGREEMENT
This Technology License Agreement ("Agreement") is entered into and is
effective as of February 12, 1998 ("Effective Date") between Phoenix
Technologies Ltd., a Delaware corporation having its principal place of business
at 411 East Plumeria Drive, San Jose, California 95134 ("PTL"), and Maker
Communication, Inc., a corporation having its principal place of business at 73
Mount Watye Avenue, Framingham, Massachusetts 01702 ("Licensee"). In
consideration of the premises and covenants contained herein, the parties agree
as follows:
1.0 DEFINITIONS
1.1 "Competitor" means a company, corporation, or other entity that develops,
markets, and/or license software similar in function to PTL's Virtual Chips line
of commercially available products.
1.2 "Contractor(s)" means a company, corporation, or other entity that provides
services for Licensee's Design Group, as set forth in Section 3.1.5 below. No
Competitor will be a Contractor.
1.3 "Core" means PTL's Virtual Chips synthesizable core software product in
source code form and any associated design files, as licensed under this
Agreement.
1.4 "Defect(s)" wil1 mean any mistake, problem, or error which is capable of
reproduction by PTL and which causes (a) an incorrect functioning or
non-functioning of the Software, or (b) renders the Software inoperable, or (c)
causes the Software to fail to meet its specifications.
1.5 "Derivative Work" means a computer program and any subsequent design,
including any resultant integrated circuit, which is a Modification made by
Licensee based on or incorporating material from the Software so that the
Modification, as a whole, represents an original work of authorship.
1.6 "Design Group" means a group within Licensee which is a single design team
designated to design Licensee's IC and/or test Licensee's IC. Such Design Group
will be designated on the Purchase Order. Each such group may have no more than
three locations, anywhere in the world. Each such location will be identified by
Licensee to PTL, in writing. Additional locations must be agreed to, in writing,
by PTL.
1.7 "Licensee's IC" means (a) the device created from integrated circuit designs
by the Design Group, as identified in the Purchase Order accepted by PTL, and
which incorporates the Core; and/or (b) the device created from integrated
circuit designs by the Design Group which is tested using the Test Environment.
l.8 "Modification(s)" means a revision, augmentation, abridgment, upgrade,
addition, adaptation, or other modification to the Software.
1.9 "Purchase Order(s)" means the order form issued to PTL by Licensee stating
the Software, Reuse, New Design Group, training, and/or services Licensee
requests from PTL.
1.10 "Reuse" means use of the Core by the Design Group on a new and functionally
different integrated circuit design. A Reuse occurs at synthesis of Licensee's
IC. Changes to fix functional problems (bugs), timing problems or other errors
in Licensee's IC will not be considered a Reuse.
1.11 "SGN Format" means Core represented in a synthesized gate level net list
format and subsequent formats as part of the process of creating an integrated
circuit.
1.12 "Software" means Core and Test Environment, collectively, as licensed under
this Agreement.
1.13 "Test Environment" means PTL's Virtual Chips simulation and test software
in source code form and any associated design files, as licensed under this
Agreement.
1.14 "Licensee Simulation Model" means a simulation program developed by
Licensee that contains the Core or derivatives thereof.
2.0 QUOTATIONS AND PURCHASE ORDERS
2.1 PTL will provide a written quotation for any Associated Fees, defined below,
for Software, Reuse, new Design Group, training, and/or other services requested
by Licensee ("Official Quotation").
2.2 Licensee will have no obligation to license any particular Software from
PTL, except as expressly set forth in Purchase Orders executed by authorized
representatives of Licensee, and accepted by PTL. The Purchase Order will
contain all of the information set forth on the Official Quotation.
Notwithstanding anything to the contrary on the Purchase Order, should Licensee
accept delivery of any Software or services from PTL, the information on the
Official Quotation will take precedence over the Purchase Order, and the
Official Quotation will be subject to the terms and conditions of this
Agreement.
2.3 Licensee will notify PTL, if Licensee desires to license additional Software
and/or an additional Design Group, and/or obtain other services, and PTL will
issue an Official Quotation to Licensee pursuant to this Section 2. Such other
services, including maintenance and support, and consulting will be subject to
execution of a separate addendum to this Agreement.
3.0 LICENSE
3.1 Subject to the terms and conditions of this Agreement and contingent upon
payment of all amounts due hereunder, PTL grants to Licensee the following non-
exclusive, nontransferable, worldwide licenses for use of the Software by the
Design Group:
3.1.1 A license to make Modifications to the Core, and use the derivative
implementation of the Core solely for incorporation into and distribution with
Licensee's IC, and for no other purpose.
3 1.2 A license to manufacture or have manufactured Licensee's IC, the
design of which is based in part on the Core, by a third party semiconductor
manufacturer, located anywhere in the world, and which may include Licensee
("Manufacturer(s)"). Provided, however, that during such manufacturing process,
any disclosure to Manufacturer is made
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.
<PAGE>
Phoenix Technologies Ltd./Confidential Phoenix Agreement Number 14820100
in the SGN Format for the limited purpose of manufacturing Licensee's IC. Prior
to disclosure of the SGN Format, such Manufacturer(s) will sign an agreement
With Licensee which includes (a) a confidently provision at least as restrictive
as set form in Section 9 below, (b) a provision that Manufacturer may not use
the SGN Format for the production of any device except Licensee's IC, and (c) a
provision that Manufacturer may not sell or make available Licensee's IC to any
party other than Licensee.
3.1.3 A license to Reuse the Core for design and development of additional
Licensee's IC by the Design Group. Provided, however, that prior to synthesis of
Licensee's IC, Licensee agrees to notify PTL, in writing, of Licensee's intent
to Reuse the Core. Such Reuse will be subject to an Official Quotation as set
forth in Section 2 above. Licensee does not have the right to produce any
Licensee's IC, the design of which is based upon the Core, until there is a
Purchase Order for such Reuse accepted by PTL under this Agreement
3.1.4 A license to make Modifications to the Test Environment, and use the
Test Environment for the sole purpose of testing one or more Licensee's IC, and
for no other purpose.
3.15 A license to (a) provide tile Core to Contractors, for the purpose of
making Modifications or maintaining the Core for use in Licensee's IC, and for
no other purpose and (b) provide the Test Environment to Contractors, for the
purpose of making Modifications and/or testing one or more Licensee's IC, and
for no other purpose. Prior to disclosure of the Software, such Contractors will
sign an agreement with Licensee which includes (x) a confidentiality provision
at least as restrictive as set forth in Section 9 below, (y) a provision which
allows PTL the right to inspect during regular business hours, upon five (5)
days written notice, Contractors use of the Software, and (z) a provision
indicating that Contractor will not disclose, redistribute, or sublicense the
Software, in whole or in part or in any form to any third party. Such Contractor
shall only be allowed to use the Software at Licensee's Design Group location.
Licensee accepts responsibility and liability for the actions of such
Contractors. PTL will notify Licensee of the basis for initiating an Inspection,
pursuant to subsection A), and allow Licensee to provide an explanation or cure
to the satisfaction of PTL. If PTL is not satisfied with the explanation or cure
provided by Licensee, PTL may, upon five (5) days notice, initiate the
inspection. PTL agrees to conduct the inspection in accordance with Licensee's
confidentiality and security policies.
3.1.6 A license to provide Licensee's customers the Simulation Model, in an
encrypted SGN Format or object code format, provided: (i) Licensee's customers
have first entered into an agreement with Licensee having confidentiality
restrictions similar to those contained in this Agreement to prohibit said
customer from disclosing the Simulation Model, or portions thereof, to third
parties; and (ii) that said agreement further restricts said customers from
reverse engineering, decompiling or performing any other acts to discover the
Simulation Model's means of operation.
3.2 Under no circumstances may Licensee disclose, sublicense distribute,
transfer, use or allow access to the Software, except as permitted under this
Section 3, to a third-party without prior written consent signed by an
authorized representative of PTL.
3.3 Licensee has the sole responsibility for supporting Licensee's
Modifications. PTL will have no liability or responsibility for Software
modified by anyone other then PTL. Nothing in the foregoing sentence is intended
to limit PTL's liability or responsibility for the unmodified Software.
3.4 Licensee will not alter or remove, and will not permit or authorize any
third party to alter or remove the copyright notices from the Software.
3.5 Licensee will not be obligated to provide PTL with Licensee's Modifications.
If Licensee provides PTL with a copy of any Modification, unless otherwise
agreed in a separate writing signed by authorized representatives of the
parties, Licensee will be deemed to have granted PTL a non-exclusive, perpetual,
worldwide, royalty free license to use and sublicense any such Modification for
any purpose PTL deems fit.
3.6 PTL may include third party intellectual property in the Software. PTL will
inform Licensee of such third party property, and Licensee will have the option
to refine disclosure of such Software. If Licensee receives such Software, then
Licensee agrees to be bound by the additional obligations or restrictions
required by the third parties with respect to such intellectual property.
3.7 Licensee is prohibited from using PTL's intellectual property to develop,
market and/or license (a) a stand alone synthesizable core software product
which is similar in function to the Core, or (b) a stand alone test environment
product which is similar in function to the Test Environment. ("Competitive
Product"). Licensee is not prohibited from independently (without any use of any
of PTL's intellectual property) developing, marketing, and/or licensing a
Competitive Product.
4.0 DELIVERY
PTL will deliver the Software and any other deliverables within ten (10)
business days following the acceptance of the Purchase Order by PTL, unless the
parties agree, in writing, to a different delivery schedule.
5.0 ASSOCIATED FEES AND PAYMENT
5.1 Licensee will pay PTL the associated fees for the Software, any applicable
per unit royalties, Reuse, new Design Group, training, and/or other services
["Associated Fee(s)"], as set forth in the Official Quotation and invoiced by
PTL. Per unit royalties are applicable, Licensee will report and pay such
royalties as set forth in this Section 5. Licensee's commitment to pay the
Associated Fees to PTL will be non-cancelable and the payment due will be an
absolute commitment and no payment will be refundable under any circumstances,
except as set forth in Section 8.3 below. All payments are payable in United
States dollars and will be due within thirty (30) days after the date of PTL's
invoice to Licensee, except with regard to per unit royalties where payment will
be due and payable as set forth in this Section 5.
5.2 Licensee is required to pay per unit royalties, Licensee will submit royalty
reports to PTL, on a form approved by PTL before the end of the month following
each calendar quarter
Page 2 of 6
<PAGE>
Phoenix Technologies Ltd./Confidential Phoenix Agreement Number 14820100
after the Effective Date of this Agreement. Each report will accurately set
forth the number of units of each Licensee's IC (the design of which is based in
part on the Core) sold, or otherwise distributed or disposed of by Licensee
during such quarter. Each such report will be accompanied by payment of all
Associated Fees due to PTL pursuant to said report. Licensee's obligations to
furnish quarterly royalty reports and to make quarterly royalty payments to PTL
will continue as long as Licensee sells or distributes Licensee's IC, the design
of which is based in part on the Core. Royalty reports are required even if
Licensee reports no such sales or other distributions or disposals of Licensee's
IC, the design of which is based in part on the Core. If Licensee stops selling
Licensee's IC (the design of which is based in part on the Core), Licensee will
promptly submit to PTL a written notice, a find quarterly royal report, a final
royalty payment in the full amount of all Associated Fees due to PTL and a
written certification that it has stopped selling Licensee's IC (the design of
which is based in part on the Core).
5.3 Associated Fees and all other amounts payable by Licensee to PTL hereunder
do not include any taxes or charges imposed by any federal, state, local or
foreign jurisdiction. Licensee will pay any and all such tomes and charges
(other than tax based on PTL's net income) and will provide PTL with
satisfactory evidence of Such payment on request.
5.4 If a foreign government requires taxes to be withheld on payments to be made
by Licensee hereunder, then to the extent PTL is entitled to and can utilize a
U.S. Foreign Tax Credit for such taxes, Licensee may deduct such taxes from the
amount owed to PTL and pay them to the appropriate tax authority. Licensee will
obtain and deliver to PTL a receipt and a11 other documents necessary for PTL to
claim a Foreign Tax Credit.
5.5 If Licensee purchases licenses for Software other then the Test Environment
or uses the Test Environment in any manner not contemplated under this
Agreement, PTL may have a third party audit, no more than once per calendar
year, Licensee's records relating to the Software to determine whether Licensee
has correctly reported and calculated all of the Associated Fees due PTL. The
auditor shall be an accredited independent auditor from a recognized accounting
firm, and be mutually agreed upon by Licensee and PTL, with Licensee's
acceptance of the selected auditor not to be unreasonably withheld. If Licensee
will give the auditors reasonable access during normal business hours to
Licensee's premises where such records and documentation arc located. If an
audit discloses an underpayment of Associated Fees, Licensee will immediately
pay PTL the additional fees due with interest, from the original payment due
date, at the rate of [**]. PTL and Licensee will bear their own expenses
incurred in the audit; however, if an audit discloses an underpayment of
Associated Fees of five percent (5%) or more of the total Associated Fees
originally due for the period being audited, Licensee will reimburse PTL for all
reasonable expenses incurred by PTL the audit.
6.0 TRAINING
Subject to payment of fees by Licensee to PTL, PTL will provide to licensee
certain training of the Software. Such training will be provided at a regularly
scheduled PTL training class at PTL's San Jose, Ca1ifoniia facility. Licensee
will be solely responsible for all travel, accommodation, and miscellaneous
expenses for Licensee's attendance at such training. Training is subject to an
Official Quotation pursuant to Section 2 above.
7.0 OWNERSHIP
7.1 Title and full ownership in the Software, deliverables, related
documentation and all copies thereof will remain with PTL and/or its suppliers.
PTL retains the right to use, copy, modify, sublicense, and distribute the
Software and modifications thereto made by PTL. Licensee will not knowingly
infringe upon any rights of PTL or others in the Software, any other
deliverables or documentation.
7.2 Any and all Modifications, including Derivative Works, to the Software made
solely by Licensee will remain the sole property and responsibility of Licensee.
Licensee will have the right to register copyrights of its Derivative Works (as
a derivative work) and will have the responsibility of defending them. Any
Derivative Work will contain PTL and its suppliers' copyright polices embedded
in the code and displayed in the source code of the Derivative Work.
8.0 LIMITED WARRANT AND REMEDIES
8.1 PTL warrants that the Software, as delivered by PTL to Licensee hereunder
will, for a period of three (3) months after delivery of such Software to
Licensee, conform the respective industry standards set forth for said Software,
subject to mutually agreed upon exceptions.
8.2 During the warranty period, PTL will repair, at PTL's sole expense, any
Defect in the Software which causes the Software to fail to conform to such
specifications, provided that Licensee gives PTL written police of such Defect.
8.3 If the Software is found defective, PTL'S sole obligation under this
warranty, is, at PTL's option, to: (a) remedy such defect using commercially
reasonable efforts; or (b) refund to Licensee all amounts paid hereunder with
respect to the defective Software, and this Agreement with respect to the
defective Software will terminate.
8.4 THIS SECTION 8 SETS FORTH LICENSEE'S SOLE AND EXCLUSIVE REMEDIES FOR THE
PERFORMANCE OR NONPERFORMANCE OF THE SOFTWARE AND FOR ANY WARRANTY CLAIM WITH
RESPECT TO THE SOFTWARE. THE WARRANTY ABOVE WILL BECOME NULL AND VOID WITH
RESPECT TO ANY SOFTWARE THAT HAS BEEN MODIFIED IN AWAY WAY BY ANYONE OTHER THAN
PTL, WHETHER OR NOT SUCH MODIFICATIONS WERE PERMN1ITTED HEREUNDER.
8.5 PTL MAKES NO WARRANTIES, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE
SOFTWARE OTHER THAN THE ONES EXPRESSLY SET FORTH IN THIS SECTION 8, AND PTL
EXPRESSLY DISCLAIMS ANY SUCH WARRANTIES, INCLUDING BUT NOT LIMITED TO THE
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NONINFRINGEMENT. NO AGENT OF PTL IS
[**] Indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
Page 3 of 6
<PAGE>
Phoenix Technologies Ltd./Confidential Phoenix Agreement Number 14820100
AUTHORIZED TO ALTER OR EXPAND THE WARRANTY OBLIGATIONS OF PTL.
9.0 CONFIDENTIALITY
9.1 The parties agree that any and all Software, business, and technica1 data
and information supplied by one party to the other party hereunder are and will
remain the confidential and proprietary information of the party disclosing the
information and/or its third party suppliers. All such information disclosed and
received hereunder will be held in confidence. Said information will be used
only by those employees and Contractors, as authorized in Section 3.1.5 above,
of the receiving party who have a need to know such information for purposes
related to this Agreement. Unless otherwise provided for herein, the
information, not including the Software, will be safeguarded for a period of
five (5) years from the disclosure date using at least the same degree of care
the receiving party uses to protect its own most confidential information, but
in no event less than reasonable care. The confidentiality provisions regarding
disclosure of the Software will continue in effect until such time as PTL may
make the Software available to the public without restrictions on disclosure.
The confidentiality provisions of this Agreement will survive any termination of
this Agreement. No obligations of confidentiality extend to information that (a)
is or becomes publicly available; without breach of this Agreement by the
receiving party, (b) is independently developed by the receiving party without
reliance on the confidential information, (c) is rightfully received with no
restriction on confidentiality.
9.2 Neither party will disclose the terms of this Agreement other then to
business, financial and legal advisors, or as required by law or regulation, or
make any reference to the other party in any press release, brochure or other
communication to the public, without the express written consent of the other
party. Notwithstanding the foregoing, PTL may publicly indicate that Licensee is
a customer of PTL, without disclosing any particular terms of the Agreement. Any
additional information related to the licensing of the Software that either
party wishes to make public shall be mutually agreed upon in writing prior to
disclosure.
10.0 INTELLECTUAL PROPERTY INDEMNIFICATION
10.1 Except as otherwise provided below, PTL will, at its own expense, defend or
settle any claim made or threatened or any suit or proceeding brought against
Licensee so far as it is based on an allegation that any Software furnished
hereunder infringe a North America or a European Community patent or copyright
in existence on the date of this Agreement, if Licensee notifies PTL in writing
within twenty (20) days of such claim, suit or proceeding, and gives PTL all
information, assistance and authority to defend or settle the same at PTL's
expense. PTL will have no responsibility hereunder for any settlement of any
such claim or suit made by Licensee without PTL's prior written approval. PTL
will reimburse Licensee for the actual and reasonable expenses incurred by it in
providing PTL with such information, assistance and authority but PTL will not
reimburse Licensee for any cost of counsel retained by it in connection with
such claim suit or proceeding.
10.2 If any Software is held to infringe and the use of said Software is
enjoined, or if PTL believes that the Software is likely to become the subject
of a claim of infringement or to be enjoined, PTL will have the option, at its
expense, (a) to procure for Licensee the right to continue using the infringing
or potentially infringing Software; or (b) to replace the infringing or
potentially infringing Software with a non-infringing functionally equivalent
Software; or (c) to modify the infringing or potentially infringing Software so
it becomes non-infringing but functionally equivalent.
10.3 PTL's obligations stated under this Section 10 will not apply to any claim,
suit or proceeding (a) to the extent it is based upon any Modification of the
Software other than by PTL or the combination of the Software with non-PTL
hardware or software, if the claim, suit or proceeding would have been avoided
if the Software had not been so modified or combined, (b) based on Licensee's
use of other than the latest release of the Software, if the claim, suit or
proceeding would have been avoided by use of such latest release, (c) based on
the use of the Software in practicing any process that is not inherent in the
operation of the Software itself, and/or (d) based on a modified version of the
Software made by PTL in compliance with Licensee's instructions, designs or
specifications.
10.4 This Section 10 sets forth the entire obligation of PTL, and Licensee's
exclusive remedy, for the actual or alleged infringement of any patent,
copyright, trade secret or other intellectual property right, of any person or
entity by any Software or other item, material, or service provided by PTL
under, or in collection with, this Agreement.
11.0 LIMITATION OF LIABILITY
11.1 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY REASON OTHER
THAN AS EXPRESSLY SET FORTH HEREIN. WITH THE EXCEPTION OF ANY BREACH OF THE
CONFIDENTIALITY OBLIGATIONS SET FORTH IN SECTION 9.0, THE PARTIES AGREE THAT
REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL
PURPOSE, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY, OR ANY
THIRD PARTY FOR ANY CONSEQUENTIAL, INDIRECT, INCIDENTAL OR SPECIAL DAMAGES, EVEN
IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT
SHALL EITHER PARTY'S TOTAL LIABILITY UNDER ANY OR ALL PROVISIONS OF THIS
AGREEMENT FOR ALL CAUSES OF ACTION ON A CUMULATIVE BASIS EXCEED FIVE HUNDRED
THOUSAND DOLLARS ("LIMITATION CAP"). THIS PARAGRAPH NOTWITHSTANDING, LICENSEE
UNDERSTANDS AND AGREES THAT THE LIMITATION CAP AND THE WAIVER OF CONSEQUENTIAL,
INDIRECT, INCIDENTAL AND SPECIAL DAMAGES SHALL NOT APPLY TO ANY INTENTIONAL, OR
WILLFUL ACTS, OR ACTS OF GROSS NEGLIGENCE, BY EITHER LICENSEE OR ITS CONTRACTORS
THAT RESULTS IN THE
Page 4 of 6
<PAGE>
Phoenix Technologies Ltd./Confidentia1 Phoenix Agreement Number 14820100
UNAUTHORIZED DISCLOSURE OR UNAUTHORIZED USE OF THE SOFTWARE. FOR THE PURPOSES OF
THIS SECTION CONSEQUENTIAL DAMAGES SHALL MEAN THOSE DAMAGES WHICH MAY BE AWARDED
BY A COMPETENT COURT OF LAW FOR RELATED TO THE LOST REVENUE AND/OR COST OF
CREATING OR RESTORING PROPERTY DAMAGED OR INJURED AS A RESULT OF LICENSEE'S
UNLAWFUL CONDUCT OR BREACH OF THIS AGREEMENT.
11.2 Licensee agrees that the limitations of liability and disclaimers of this
Agreement will apply regardless of whether Licensee has accepted any Software or
any other product or service delivered by PTL. The parties agree that PTL has
set its prices and entered into this Agreement reliance upon such limitations
and disclaimers, that the same reflect an allocation of risk between the parties
(including the risk that a contract remedy may fail of its essential purpose and
cause consequential loss), and that the same form an essential basis of the
bargain between the parties.
12.0 INDEMNITY OF PTL
Except for PTL's obligations as expressly set forth herein, Licensee will at its
expense defend, indemnify and hold PTL harmless PTL, from any and all actions,
claims, costs, liabilities, losses, and expenses including, but not limited to,
reasonable attorneys' fees and cost of suit, incurred by PTL as a result of or
arising from Licensee's: (l) use, misuse, or modification of the Software, as
well as its reliance thereon or interpretations thereof in creating any
resulting designs and/or products; or (2) its sublicensing, sale or other
disposition of said designs or products. The foregoing obligations upon Licensee
apply only if: (a) PTL gives Licensee written notice of any claims and/or
settlement claims within twenty (20) days of such claim and/or threatened claim;
(b) PTL allows Licensee to solely direct and control the defense and/or
settlement of the claim; and (c) PTL provides Licensee with the authority,
information and assistance (at Licensee's expense) that Licensee reasonably
requests to defend the claim, gives all relevant and available evidence PTL's
possession (subject to an acceptable confidentiality agreement and/or the
securing of a protective order if disclosure is required pursuant to a court
order), and gives reasonable assistance to Licensee in the defense of such claim
or threatened claim.
13.0 TERM AND TERMINATION
13.1 The term of this Agreement will begin upon the Effective Date and will
continue until terminated, as set forth herein.
13.2 If either party breaches a material provision and where capable of remedy
does not cure such breach within thirty (30) days after written notice from the
other party, such other party will have the right at its option to: (a) suspend
performance or payment until such breach is cured; (b) terminate this Agreement,
(c) seek a combination of (a) and (b) and those remedies available at law or
equity to the extent not limited by the terms of this Agreement. If the breach
involves a delay in or failure to pay money when due, the cure period will be
ten (10) days rather than thirty (30) days. The election of (a), (b) or (c)
above wil1 not excuse the breaching party from any obligation arising prior to
the date of such election.
13.3 Should either party: (a) become insolvent; (b) make an assignment for the
benefit of creditors; (c) file or have filed against it a petition in bankruptcy
or seeking reorganization; (d) have a receiver appointed; and/or (e) institute
any proceedings for 1iquidation or winding up; then the other party may, in
addition to other rights and remedies it may have, terminate this Agreement
immediately by written notice.
13.4 Upon termination of this Agreement, the licenses and rights granted
hereunder and the obligations imposed hereunder will cease except as otherwise
expressly set forth herein. Upon termination, Licensee will return the Software
including all copies and documentation pertaining thereto in Licensee's
possession and those copies furnished to any Manufacturer, and will notify
through one of Licensee's officers, in writing, of such return within thirty
(30) days of termination. The ownership, confidentiality, warranties, indemnity,
1imitation of liability, payment of fees, obligations upon termination, and
general provisions of this Agreement will survive the termination of this
Agreement indefinitely, unless otherwise specified in the respective section.
14.0 GENERAL
14.1 Licensee and PTL agree that this Agreement constitutes the complete
Agreement and understanding between the parties with respect to the subject
matter herein. This Agreement supersedes all prior agreements, understandings,
and negotiations, whether written or verbal, with respect to the subject matter
herein. No amendment or modification of this Agreement will be effective unless
it is set forth in a writing which refers to the particular provisions so
amended or modified and is executed by authorized representatives of both
parties.
14.2 Notices will be sent by first class mail or express mail, postage prepaid,
by courier or other personal delivery, or by facsimile (with telephonic
confirmation of receipt) to the parties at the addresses specified at the
beginning of this Agreement or to such other address as a party designates in
writing to the other party. Notices to PTL will be sent to the attention of the
Legal Department.
14.3 Licensee agrees that it will not export any Software or other materials
provided by PTL hereunder in violation of any law, statute or regulation,
including the United States Export Administration Act and regulations
thereunder.
14.4 This Agreement will be governed by and construed in accordance with the
internal laws of the State of California, without regard to or application of
choice of law rules. All disputes which arise in connection with this Agreement
will be resolved in the state and federal Courts in California and Licensee
hereby submits to the personal jurisdiction of such courts.
14.5 No third party will have any rights under this Agreement. The parties are
independent contractors, and neither party will have any right or power to
create any obligation or responsibility on behalf of the other party.
Page 5 of 6
<PAGE>
Phoenix Technologies Ltd./Confidential Phoenix Agreement Number 14820100
14.6 The disclosing party shall be entitled to seek temporary and/or permanent
equitable relief (including injunctive relief in the event of any actual or
threatened breach of this Agreement by the receiving party, it being agreed that
monetary damages may be insufficient to adequately compensate the disclosing
party.
14.7 Licensee may not assign its rights or delegate its duties under this
Agreement without the prior written consent of PTL, which consent will not be
unreasonably withheld. Any attempted assignment or delegation by Licensee
without PTL's prior written consent will be void and will give PTL the right to
terminate this Agreement on written notice to Licensee. Subject to the foregoing
this Agreement will inure to the benefit of and be binding on the respective
successors and assigns of the parties.
14.8 Waiver by either party of nonperformance or any breach of any provision of
this Agreement will not operate as a waiver of any subsequent nonperformance or
other breach of the same or any other provision. The failure by a party to
exercise any of its rights under this Agreement will not be deemed to constitute
a waiver of any of such rights, or other rights or remedies available to such
party.
14 9 Each party represents to the other that it has all authority to enter into
this Agreement and to perform the obligations hereunder. PTL further represents
it has all right, title, and interest and/or license rights in the Software
necessary to grant the licenses and has not taken any action or suffered any
action to be taken with respect to the Software which would restrict or affect
the license rights granted hereunder.
This Agreement is entered into on behalf of the parties by their duly authorized
representatives.
PTL: Phoenix Technologies, Ltd.
Signature /s/ Stuart J. Nichols
-----------------------------------
Print Name: Stuart J. Nichols
-----------------------------------
Title: V.P. General Counsel, and Secretary
-----------------------------------
Date: 3/5/98
-----------------------------------
Licensee: Maker Communications, Inc.
Signature: /s/ Mitchell Mackoff
-----------------------------------
Print Name: Mitchell Mackoff
-----------------------------------
Title: Vice President & CFO
-----------------------------------
Date: 2/27/98
-----------------------------------
Page 6 of 6
<PAGE>
Confidential Phoenix Agreement Number 14820200
PHOENIX TECHNOLOGIES LTD.
SUPPORT AND MAINTENANCE ADDENDUM
This Support and Maintenance Addendum ("Addendum") is entered into and is
effective as of February 12, 1998, ("Effective Date") between Phoenix
Technologies Ltd., a Delaware corporation having its principal place of business
at 411 East Plumeria Drive, San Jose, California 95134 U.S.A. ("Phoenix") and
Maker Communication, Inc., a Delaware corporation having its principal place of
business at 73 Mount Wayte Avenue, Framingham, Massachusetts 01702 ("Licensee").
Phoenix and Licensee have previously entered into a Technology License
Agreement, Phoenix Agreement Number 14820100, dated February 12, 1998
("Controlling Agreement"), where Licensee has licensed certain Phoenix Virtual
Chips software ("Software").
1.0 SUPPORT AND MAINTENANCE
1.1 Phoenix will provide response to questions Licensee has with regard to the
Software ("Support"). Such Support shall be between the hours of 8:00 am. and
5:00 p.m. Pacific Time, Monday through Friday (exclusive of Phoenix holidays),
and is limited to by (a) telephone at 1-888-482-4477, (b) Facsimile at
(408)570-1230, or (c) electronic mail at [email protected]. Licensee shall
advise Phoenix, in writing, of no more than four users of the Software who will
be the contact with Phoenix for such Support ("Contact Persons"). Any additional
Contact Persons must be agreed to, in writing, by Phoenix.
1.2 Phoenix will provide Maintenance Updates, herein defined, to the Software
and documentation.
1.2.1 Maintenance Updates shall mean all changes, corrections, additions,
and bug fixes to the Software made by Phoenix which are not Major Enhancements,
herein defined.
1.2.2 Major Enhancements shall mean upgrades or new versions of the
Software that provide substantial additional value, or substantial1y extend the
performance or improve the performance functionality of the Software. Major
Enhancements shall be considered new Software under the Controlling Agreement.
1.3 Phoenix will respond to requests with regard to a Software and/or
documentation problem(s) ["Maintenance"]. Such assistance will be prioritized
based upon Licensee's assessment, in good faith, of the severity of the problem
into one of the following categories:
1.3.1 Level I Priority: Defect which severely hampers Licensee
productivity. Phoenix will use commercially reasonable efforts to fix Defect
with a satisfactory work around solution within ten (10) business days and
provide a solution in the next scheduled Software or documentation release.
1.3.2 Level II Priority: Defect which minimally inconveniences Licensee.
Phoenix will use commercially reasonable efforts to resolve these Defects and to
correct them in the next scheduled Software or documentation release.
2.0 TERM AND FEES
2.1 Support, Maintenance Updates, and Maintenance ("Support Program"), is
available for twelve (12) month periods. Support fees for such Support Program
are due and payable as set forth in Section 6 of the Controlling Agreement. The
Support Program will begin on the date of acceptance of the Purchase Order by
Phoenix.
2.2 If Licensee desires to renew such Support Program, Licensee will notify
Phoenix, in writing, at least thirty (30) days prior to such Support Program
expiration. In the event that Licensee allows the Support Program to expire and
subsequently decides to obtain the Support Program then Licensee shall notify
Phoenix, in writing. In addition, Licensee shall pay Support Fees and any
applicable reinstatement fees to Phoenix.
2.3 Phoenix will issue an Official Quotation to Licensee for such Support
Program pursuant to Section 2 of the Controlling Agreement.
3.0 GENERAL
3.1 EXCEPT AS SET FORTH HEREIN, PHOENIX MAKES AND LICENSEE RECEIVES NO OTHER
WARRANTY EXPRESS OR IMPLIED WITH RESPECT TO SUPPORT PROGRAM PROVIDED UNDER THIS
ADDENDUM, INCLUDING ALL WARRANTS OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. NEITHER PARTY SHALL HAVE ANY LIABILITY WITH RESPECT TO ITS OBLIGATIONS
UNDER OR PERFORMANCE OF THIS ADDENDUM FOR CONSEQUENTIAL, EXEMPLARY, OR
INCIDENTAL DAMAGES EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. THE STATED EXPRESS WARRANTY IS IN LIEU OF ALL LIABILITIES OR
OBLIGATIONS OF PHOENIX FOR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE
DELIVERY USE, OR PERFORMANCE OF TO SUPPORT PROGRAM OR SERVICES PROVED BY PHOENIX
UNDER THIS ADDENDUM.
3.2 Each party acknowledges that it has read this Addendum, understands it, and
agrees to be bound by its terms. This Addendum may only be modified by a written
instrument duly executed by both parties to this Addendum. The terms and
conditions not stated herein shall be as set forth in the Controlling Agreement.
3.3 Licensee may not assign this Addendum, except as set forth in the
Controlling Agreement and only in conjunction with the Controlling Agreement.
This Addendum is entered into on behalf of the parties by their duly
authorized representatives.
Phoenix: Phoenix Technologies Ltd.
Signature: /s/ Stuart J. Nichols
------------------------------------------------------
Print Name/Title: Stuart J. Nichols, V.P. General Counsel, and Secretary
------------------------------------------------------
Date: 3/5/98
------------------------------------------------------
Licensee: Maker Communications, Inc.
------------------------------------------------------
Signature: /s/ Mitchell Mackoff
------------------------------------------------------
Print Name/Title: Mitchell Mackoff/ V.P. & CFO
------------------------------------------------------
Date: 2/27/98
------------------------------------------------------
LOAN AND SECURITY AGREEMENT
$1,000,000 WORKING CAPITAL LINE
$1,000,000 EQUIPMENT LINE
PROVIDED BY
SILICON VALLEY BANK
TO
MAKER COMMUNICATIONS, INC.
February 18, 1997
<PAGE>
This LOAN AND SECURITY AGREEMENT is entered into as of February 18, 1997,
by and between SILICON VALLEY BANK, a California-chartered bank with its
principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with
a loan production office located at Wellesley Office Park, 40 William Street,
Suite 350, Wellesley, MA 02181, doing business under the name Silicon Valley
East ("Bank"), and MAKER COMMUNICATIONS, INC., a Delaware corporation with its
principal place of business at 486 Totten Pond Road, Waltham, Massachusetts
02154 ("Borrower).
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
imitation, the licensing of software and other technology) or the rendering
of services by Borrower, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrowers Books
relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person
that is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, (including fees and
expenses of appeal or review, or those incurred in any Insolvency
Proceeding) whether or not suit is brought
"Borrowers Books" means all of Borrowers books and records including,
without limitation: ledgers; records concerning Borrowers assets or
liabilities, the Collateral, business operations or financial condition;
and all computer programs, or tape files, and the equipment, containing
such information.
"Borrowing Base" means an amount equal to EIGHTY PERCENT (80%) of
Eligible Accounts, as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
<PAGE>
"Committed Revolving Line" means a credit extension of up to ONE
MILLION AND NO/100THS Dollars ($1,000,000).
"Committed Equipment Line" means a credit extension of up to SEVEN
HUNDRED FIFTY THOUSAND AND NO/100THS Dollars ($750,000); provided, however,
that effective the first day of the month following Bank's receipt of
Borrowers financial statements showing that Borrower has received an
additional ONE MILLION Dollars ($1,000,000) in outside equity capital, the
Committed Equipment Line shall be increased to ONE MILLION Dollars
($1,000,000).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to
(i) any indebtedness, lease, dividend, letter of credit or other obligation
of another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business.
The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that
such amount shall not in any event exceed the maximum amount of the
obligations under the guarantee or other support arrangement
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished
and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held.
"Credit Extension" means each Advance, Equipment Advance, Letter of
Credit Term Loan, Exchange Contract or any other extension of credit by
Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such
date.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on
the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding
Credit Extensions made under this Agreement including all Indebtedness that
is payable upon demand or within one year from the date of determination
thereof unless such Indebtedness is renewable or extendable at the option
of Borrower or any Subsidiary to a date more than one year from the date of
determination, but excluding Subordinated Debt
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrowers business that comply with all of Borrowers
representations and warranties to Bank set forth in Section 5.4; provided
that standards of eligibility, with respect to categories of accounts not
described in subparagraphs (a) through (j) immediately below, may be fixed
and revised from time to time by Bank in Bank's reasonable judgment and
upon thirty (30) days prior notification thereof to Borrower in accordance
with the provisions hereof. Unless otherwise agreed to by Bank in writing,
Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within ninety
(90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent (50%) of
whose Accounts the account debtor has failed to pay within ninety (90) days
of invoice date;
2
<PAGE>
(c) Accounts with respect to an account debtor, including Affiliates,
whose total obligations to Borrower exceed thirty percent (30%) of all
Accounts, except with respect to Cisco Systems and Fore Systems, as to
which the percentage shall be forty percent (40%), to the extent such
obligations exceed the aforementioned percentage, except as approved in
writing by Bank;
(d) Accounts with respect to which the account debtor does not have
its principal place of business in the United States or Canada;
(e) Accounts with respect to which the account debtor is a federal,
state, or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which Borrower is liable to the account
debtor, but only to the extent of any amounts owing to the account debtor
(sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional equipment or
with respect to which goods are placed on consignment, guaranteed sale,
sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an Affiliate,
officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim), or
is subject to any insolvency Proceeding, or becomes insolvent or goes out
of business; and
(j) Accounts the collection of which Bank reasonably determines to be
doubtful.
"Equipment" means all present and future machinery, equipment tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in Section 2.1.2.
"Equipment Availability Date" has the meaning set forth in Section
2.1.2.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds
and letters of credit (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement or other relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service,
of every kind and description now or at any time hereafter owned by or in
the custody or possession, actual or constructive, of Borrower, including
such inventory as is temporarily out of its custody or possession or in
transit and including
3
<PAGE>
any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing
and any documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance
or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement
entered into between Borrower and/or for the benefit of Bank in connection
with this Agreement, all as amended, extended or restated from time to
time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan
Documents.
"Equipment Maturity Date" means JUNE 5, 2000.
"Negotiable Collateral" means all of Borrowers present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after
the commencement of an Insolvency Proceeding and including any debt
liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Payment Date" means the FIFTH (5th) calendar day of each month
commencing on the first such date after the Closing Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document,
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Subordinated Debt
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State
thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Corporation or Moody's investors Service, Inc.,
and (iii) certificates of deposit maturing no more than one (1) year from
the date of investment therein issued by Bank.
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"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrowers Books in accordance with GAAP, provided the same have no priority
over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by Borrower or
any of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition
of such Equipment, or (ii) existing on such equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment; and
(d) Liens on Equipment leased by Borrower or any Subsidiary pursuant
to an operating lease in the ordinary course of business (including
proceeds thereof and accessions thereto) incurred solely for the purpose of
financing the lease of such Equipment (including Liens pursuant to leases
permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement).
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental
agency.
"Prime Rate" means the variable rate of interest per annum, most
recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities
of fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means February 17, 1998.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business
entity of which more than fifty percent (50%) of the voting stock or other
equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication,
(i) the sum of any amounts attributable to (a) goodwill, (b) intangible
items such as unamortized debt discount and expense, patents, trade and
service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from
assets, and (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any date as of
which the amount thereof shall be determined, all obligations that should,
in accordance with GAAP be classified as liabilities on the
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consolidated balance sheet of Borrower, including in any event all
Indebtedness, but specifically excluding Subordinated Debt
1.2 Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions of this Agreement, Bank
agrees to make Advances to Borrower in an aggregate outstanding amount not to
exceed the Committed Revolving Line or the Borrowing Base, whichever is less.
Subject to the terms and conditions of this Agreement, amounts borrowed pursuant
to this Section 2.1 may be repaid and reborrowed at any time during the term of
this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on the
Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1 to Borrower's deposit account
(c) The Committed Revolving Line shall terminate on the Revolving Maturity
Date, at which time all Advances under this Section 2.1 and other amounts due
under this Agreement (except as otherwise expressly specified herein) shall be
immediately due and payable.
2.1.2 Equipment Advances.
(a) Subject to and upon the terms and conditions of this Agreement at any
time from the date hereof through December 31, 1997 (the "Equipment Availability
End Date"), Bank agrees to make advances (each an "Equipment Advance" and
collectively, the "Equipment Advances") to Borrower in an aggregate outstanding
amount not to exceed the Committed Equipment Line. To evidence the Equipment
Advance or Equipment Advances, Borrower shall deliver to Bank, at the time of
each Equipment Advance request an invoice for the equipment to be purchased or
financed. The Equipment Advances shall be used only to purchase or finance
Equipment purchased on or after January 1, 1996 and shall not exceed ONE HUNDRED
Percent (100%) of the invoice amount of such equipment approved from time to
time by Bank, excluding taxes, shipping, warranty charges, freight discounts and
installation expense, provided, however, that tooling equipment may constitute
no more than THREE HUNDRED THOUSAND AND NO/100THS Dollars ($300,000) of
aggregate Equipment Advances. Software may constitute up to TWO HUNDRED FIFTY
THOUSAND AND NO/100THS Dollars ($250,000) of aggregate Equipment Advances.
(b) Interest on Equipment Advances made prior to JULY 1, 1997 shall accrue
from the date of each Equipment Advance at the rate specified in Section 2.3(a),
and shall be payable on the Payment Date of each month through JUNE, 1997. Any
Equipment Advances that are outstanding on JUNE 30,
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1997 will be payable in THIRTY SIX (36) equal monthly installments of principal,
plus all accrued and unpaid interest, beginning on the Payment Date of each
month starting JULY, 1997 and ending on the Equipment Maturity Date.
(c) Interest on Equipment Advances made after JUNE 30, 1997 shall accrue
from the date of each Equipment Advance at the rate specified in Section 2.3(a),
and shall be payable on the Payment Date of each month through the Equipment
Availability End Date. Any Equipment Advances made after JUNE 30, 1997 that are
outstanding on the Equipment Availability End Date falls will be payable in
THIRTY (30) equal monthly installments of principal, plus all accrued and unpaid
interest, beginning on the Payment Date of each month following the Equipment
Availability End Date and ending on the Equipment Maturity Date. Equipment
Advances may be repaid at any time, but once repaid, may not be reborrowed.
(d) When Borrower desires to obtain an Equipment Advance, Borrower shall
notify Bank (which notice shall be irrevocable) by facsimile transmission to be
received no later than 3:00 p.m. Pacific time one (1) Business Day before the
day on which the Equipment Advance is to be made. Such notice shall be
substantially in the form of Exhibit B. The notice shall be signed by a
Responsible Officer or its designee and include a copy of the invoice(s) for the
Equipment to be financed.
2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 of this Agreement
is greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. (i) Except as set forth in Section 2.3(b), any Advances
shall bear interest, on the average daily balance thereof at a per annum rate
equal to ONE QUARTER (0.25) percentage points above the Prime Rate.
(ii) Except as set forth in Section 2.3(b), any Equipment Advances shall
bear interest, on the average daily balance thereof, at a per annum rate equal
to ONE (1.0) percentage point above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and after the
occurrence of an Event of Default at a rate equal to five (5) percentage points
above the interest rate applicable immediately prior to the occurrence of the
Event of Default
(c) Payments. Interest hereunder shall be due and payable on each Payment
Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number 700786870 for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to time
hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless
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and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon Pacific time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. (i) A Committed Revolving Line Facility Fee equal to FIVE
THOUSAND AND NO/100THS Dollars ($5,000), which fee shall be due on the Closing
Date and on each anniversary thereof on which Advances are outstanding, and
shall be fully earned and non-refundable;
(ii) An Equipment Line Facility Fee equal to FIVE THOUSAND AND NO/100THS
Dollars ($5,000), which fee shall be due on the Closing Date and shall be fully
earned and non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's customary fees and
out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for each
appraisal of Collateral and financial analysis and examination of Borrower
performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without limitation,
upon the date hereof, all Bank Expenses incurred through the date hereof,
including reasonable attorneys' fees and expenses, and, after the date hereof,
all Bank Expenses, including reasonable attorneys fees and expenses, as and when
they become due.
2.6 Additional Costs. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of principal or
interest or any other amounts payable hereunder by Borrower or otherwise
with respect to the transactions contemplated hereby (except for taxes on
the overall net income of Bank imposed by the United States of America or
any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof Borrower agrees to pay to Bank the
amount of such increase in cost, reduction in income or additional expense as
and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall become
effective on the Closing Date and, subject to Section 12.7, shall continue in
full force and effect for a term ending on the Revolving Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
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3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement, the Revolving Promissory Note and the Equipment
Line Promissory Note each duly executed by Borrower;
(b) a certificate of the Secretary of Borrower with respect to
charter, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) financing statements (Forms UCC-1);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof and
(f) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank
to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in
Section 2.1; and
(b) the representations and warranties contained in Section 5 shall be
true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the
accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall from time
to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of or any other
matter relating to, the Collateral.
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5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound Borrower is
not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof The chief executive office of
Borrower is located at the address indicated in Section 10 hereof
5.7 Litigation. Except as set forth in the Schedule, there are no actions
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.8 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.9 Solvency. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement and Borrower is able to pay its debts (including
trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect Borrower is not an
"investment company" or a company `controlled" by an "investment company within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors
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of the Federal Reserve System). Borrower has complied with all the provisions of
the Federal Fair Labor Standards Act Borrower has not violated any statutes,
laws, ordinances or rules applicable to it violation of which could have a
Material Adverse Effect
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that until payment in full of all outstanding
Obligations, and for so long as Bank may have any commitment to make a Credit
Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet the minimum funding requirements of ERISA with respect to any
employee benefit plans subject to ERISA. Borrower shall comply, and shall cause
each Subsidiary to comply, with all statutes, laws, ordinances and government
rules and regulations to which it is subject, noncompliance with which could
have a Material Adverse Effect or a material adverse effect on the Collateral or
the priority of Bank's Lien on the Collateral.
6.3 Financial Statements Records. Certificates. Borrower shall deliver to
Bank:
(a) as soon as available, but in any event within fifteen (15) days
after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during
such period, in a form and certified by an officer of Borrower reasonably
acceptable to Bank;
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(b) as soon as available, but in any event within ninety (90) days
after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an unqualified opinion on such financial statements
of an independent certified public accounting firm reasonably acceptable to
Bank;
(c) within five (5) days of filing, copies of all statements, reports
and notices sent or made available generally by Borrower to its security
holders or to any holders of Subordinated Debt and all reports on Form
10-K, 10-Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000) or more;
(e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable.
Within fifteen (15) days after the last day of each month, Borrower shall
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.
6.4 Inventory Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement Borrower shall promptly
notify Bank of all returns and recoveries and of all disputes and claims, where
the return, recovery, dispute or claim involves more than Fifty Thousand Dollars
($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is (i) contested in good faith by
appropriate proceedings, (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured against
loss or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where Borrower's business is
conducted on the date hereof. Borrower shall also maintain insurance relating to
Borrower's ownership and use of the Collateral in amounts and of a type that are
customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable endorsement
in a form satisfactory to Bank, showing Bank as an additional loss payee
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thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal depository
and operating accounts with Bank.
6.8 Adjusted Quick Ratio. Borrower shall maintain, as of the last day of
each calendar month, a ratio of (i) Quick Assets to (ii) Current Liabilities
less current deferred revenues of at least 2.0 to 1.0.
6.9 Adjusted Debt-Net Worth Ratio. Borrower shall maintain, as of the last
day of each calendar month, a ratio of (i) Total Liabilities less Subordinated
Debt and deferred revenues to (ii) Tangible Net Worth plus Subordinated Debt of
not more than 1.0 to 1.0.
6.10 Tangible Net Worth. Borrower shall maintain, as of the last day of
each calendar month through December 31,1996, a Tangible Net Worth of not less
than FOUR MILLION AND NO/100THS Dollars ($4,000,000), as of the last day of each
calendar month from January 31, 1997 through March 31, 1997, a Tangible Net
Worth of not less than THREE MILLION TWO HUNDRED FIFTY THOUSAND AND NO/100THS
Dollars ($3,250,000), as of the last day of each calendar month from April 30,
1997 through June 30, 1997, a Tangible Net Worth of not less than TWO MILLION
FIVE HUNDRED THOUSAND AND NO/100THS Dollars ($2,500,000), as of the last day of
each calendar month from July 31, 1997 and thereafter, a Tangible Net Worth of
not less than ONE MILLION FIVE HUNDRED THOUSAND AND NO/100THS Dollars
($1,500,000).
6.11 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business, (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business, or (iv) of worn-out or
obsolete Equipment
7.2 Chances in Business, Ownership, or Management Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a change in Borrower's ownership or management. Borrower will not without
at least thirty (30) days prior written notification to Bank, relocate its chief
executive office or add any new offices or business locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with respect
to any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.
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7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distibutions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or similar
party unless Bank has received a pledge of any warehouse receipt covering such
Inventory. Except for Inventory sold in the ordinary course of business and
except for such other locations as Bank may approve in writing, Borrow& shall
keep the inventory only at the location set forth in Section 10 hereof and such
other locations of which Borrower gives Sank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest
7.11 Compliance. Become an "investment company" or a company controlled by
an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose or purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2 Covenant Default
(a) If Borrower fails to perform any obligation under Sections 6.3, 6.6,
6.7, 6.8, 6.9 or 6.10 or violates any of the covenants contained in Article 7 of
this Agreement or
(b) If Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such
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reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse change
in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations, or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof provided that none of the foregoing shall
constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period often (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to. Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document
8.10 Guaranty Any guaranty of all or a portion of the Obligations ceases
for any reason to be in full force and effect, or any Guarantor fails to perform
any obligation under any guaranty of all or a portion of the Obligations, or any
material misrepresentation or material misstatement exists now or hereafter in
any warranty or representation set forth in any guaranty of all or a portion of
the Obligations or in any certificate delivered to Bank in connection with such
guaranty, or any of the circumstances described in Sections 8.4, 8.5 or 8.8
occur with respect to any Guarantor.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance of
an Event of Default, Bank may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
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(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable
without any action by Bank);
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower
and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to
be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's
premises, Borrower hereby grants Bank a license to enter such premises and
to occupy the same, without charge in order to exercise any of Banks rights
or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(h) Ship, reclaim, recover, store, finish; maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein)
the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section
9.1, to use, without charge, Borrower's labels, patents, copyrights, mask
works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature,
as it pertains to the Collateral, in completing production of, advertising
for sale, and selling any Collateral and, in connection with Bank's
exercise of its rights under this Section 9.1, Borrower's rights under all
licenses and all franchise agreements shall inure to Bank's benefit;
(i) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to
the Obligations in whatever manner or order it deems appropriate;
(j) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(k) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Banks possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrowers policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; provided Bank may exercise such power of attorney to
sign the name of Borrower on any of the documents described in
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<PAGE>
Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrowers attorney in fact, and each and every one of
Banks rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully repaid and performed and Bank's
obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not expressly set forth herein as provided
under the Code, by law, or in equity. No exercise by Bank of one right or remedy
shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.
9.7 Demand: Protest Borrower waives demand, protest, notice of protest
notice of default or dishonor, notice of payment and nonpayment notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower Maker Communications, Inc.
486 Totten Pond Road
Waltham, MA 02154
Attn: William Guidice, President
FAX: 617-672-0256
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If to Bank Silicon Valley Bank
40 William Street
Wellesley, MA 02181
Attn: David B. Fischer
FAX: 617-431-9906
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE
The laws of the Commonwealth of Massachusetts shall apply to this Agreement
BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY. THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS. AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement
12.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing Integration. This Agreement cannot be amended or
terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
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12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement
12.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
MAKER COMMUNICATIONS, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ William Guidice By:
---------------------------- -------------------------------
William Guidice, President Gerard F. Benson
By: SILICON VALLEY BANK
----------------------------
By:
------------------------------
Title:
---------------------------
(Signed in Santa Clara County, California)
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EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located:
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment property,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
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EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M. P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ___________________
FAX #: (408) ______________ TIME: ___________________
FROM: __________________________________________________________________________
BORROWER'S NAME
FROM: __________________________________________________________________________
AUTHORIZED SIGNER'S NAME
________________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE: _________________________________________________________________________
FROM ACCOUNT #________________________ TO ACCOUNT #____________________________
- --------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $_______________________________________
PRINCIPAL PAYMENT (ONLY) $_______________________________________
INTEREST PAYMENT (ONLY) $_______________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_______________________________________
OTHER INSTRUCTIONS: __________________________________________________________
- --------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and Security
Agreement dated as of February 18, 1997 are true, correct and complete in all
material respects as of the date of the telephone request for and Advance
confirmed by this Advance Request; provided, however, that those representations
and warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
- --------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
________________________________________
Authorized Requester
_______________________________________
Authorized Signature (Bank)
Phone#_________________________________
- --------------------------------------------------------------------------------
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EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Maker Communications, Inc. Lender: Silicon Valley Bank
486 Totten Pond Road 3003 Tasman Drive
Waltham, MA 02154 Santa Clara, CA 95054
Commitment Amount: $1,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of __________ $_________
2. Additions (please explain on reverse) $_________
3. TOTAL ACCOUNTS RECEIVABLE $_________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days due $_________
5. Balance of 50% over 90 day accounts $_________
6. Concentration Limits $_________
7. Ineligible Foreign Accounts $_________
8. Governmental Accounts $_________
9. Contra Accounts $_________
10. Promotion or Demo Accounts $_________
11. Intercompany/Employee Accounts $_________
12. Other (please explain on reverse) $_________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_________
14. Eligible Accounts (#3 - #13) $_________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $_________
BALANCES
16. Maximum Loan Amount $1,000,000
17. Total Funds Available (Lesser of #16 or #15) $_________
18. Present balance owing on Line of Credit $_________
19. Outstanding under Sublimits ( ) $_________
20. RESERVE POSITIVE (#17 minus #18 and #19) $_________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement dated as of February 18, 1997, as may be amended from time to
time, between the undersigned and Silicon Valley Bank.
-------------------------------
COMMENTS: BANK USE ONLY
Rec'd By: _____________________
Date: _________________________
Reviewed By: __________________
Compliance Status: Yes / No
-------------------------------
MAKER COMMUNICATIONS, INC.
By: _____________________________
Authorized Signer
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EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: Maker Communications, Inc. Lender: Silicon Valley Bank
486 Totten Pond Road 3003 Tasman Drive
Waltham, MA 02154 Santa Clara, CA 95054
The undersigned authorized officer of Maker Communications Inc. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement dated as of February 18, 1997 between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
____________ of all required conditions and terms except as noted below and (ii)
all representations and warranties of Borrower stated in the Agreement are true,
accurate and complete in all material respects as of the date hereof. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principals (GAAP) and are consistent from one period to the
next except as explained in an accompanying letter or footnotes. The Officer
further expressly acknowledges Borrower may not request any borrowings at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that such compliance is determined not just at the
date this certificate if delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column
Reporting Covenant Required Complies
------------------ -------- --------
Monthly financial statements Monthly within 15 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R Agings Monthly within 15 days Yes No
A/R Audit Initial and Semi-Annual Yes No
Financial Covenants Required Actual Complies
------------------- -------- ------ --------
Maintain on a Monthly Basis:
Minimum Adjusted Quick Ratio 2.0:1.0 ____:1.0 Yes No
Minimum TNW as of 12/31/96 $4,000,000 $_______ Yes No
Minimum TNW 1/31/97 through 3/31/97 $3,250,000 $_______ Yes No
Minimum TNW 4/30/97 through 6/30/97 $2,500,000 $_______ Yes No
Minimum TNW 7/31/97 and thereafter $1,500,000 $_______ Yes No
Maximum Adjusted Debt/TNW 1.0:1.0 ____:1.0 Yes No
Comments Regarding Exceptions:
Sincerely,
-------------------------------
_____________________________ BANK USE ONLY
Signature Received by: __________________
Date: _________________________
_____________________________ Reviewed by:___________________
TITLE Compliance Status: Yes No
-------------------------------
_____________________________
DATE
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REVOLVING PROMISSORY NOTE
$1,000,000 Waltham, Massachusetts
February 18, 1997
FOR VALUE RECEIVED, the undersigned, MAKER COMMUNICATIONS, INC., a Delaware
corporation (the "Borrower), promises to pay to the order of Silicon Valley
Bank, a California-chartered bank ("Bank"), at such place as the holder hereof
may designate, in lawful money of the United States of America, the aggregate
unpaid principal amount of all advances ("Advances") made by Bank to Borrower in
accordance with the terms of the Loan and Security Agreement between Borrower
and Bank of even date herewith, as amended from time to time (the "Loan
Agreement"), up to a maximum principal amount of ONE MILLION AND NO/100THS
Dollars ($1,000.000), until paid in full. Borrower shall also pay interest on
the aggregate unpaid principal amount of such Advances at the rates and in
accordance with the terms of the Loan Agreement. The entire principal amount and
all accrued interest shall be due and payable on February 17, 1998.
Borrower irrevocably waives the right to direct the application of any and
all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any error in
notation) shall not affect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of this
Note and to pay all reasonable attorneys' fees incurred in such collection,
whether or not there is a suit or action, or in any suit or action to collect
this Note or in any appeal thereof. Borrower waives presentment, demand, protest
notice of protest, notice of dishonor, notice of nonpayment and any and all
other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statutes of limitations. No delay by Bank in exercising any power or right
hereunder shall operate as a waiver of any power or right. Time is of the
essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement which shall govern the
rights and obligations of Borrower with respect to all obligations hereunder.
This Note shall be deemed to be made under, and shall be construed in
accordance with and governed by, the laws of the Commonwealth of Massachusetts,
excluding conflicts of laws principles.
Executed as an instrument under seal.
MAKER COMMUNICATIONS, INC.
By: /s/ WILLIAM GUIDICE
---------------------------
William Guidice, President
ATTEST /s/ TERRENCE P. LYNCH
----------------------
<PAGE>
EQUIPMENT LINE PROMISSORY NOTE
$1,000,000 Waltham, Massachusetts
February 18, 1997
FOR VALUE RECEIVED, the undersigned, MAKER COMMUNICATIONS, INC., a Delaware
corporation (the "Borrower"), promises to pay to the order of Silicon Valley
Bank, a California-chartered bank ("Bank"), at such place as the holder hereof
may designate, in lawful money of the United States of America, the aggregate
unpaid principal amount of all advances ("Equipment Advances") made by Bank to
Borrower in accordance with the terms of the Loan and Security Agreement between
Borrower and Bank of even date herewith, as amended from time to time (the "Loan
Agreement"), up to a maximum principal amount of ONE MILLION AND NO/100THS
Dollars ($1,000,000), until paid in full. Borrower shall also pay interest on
the aggregate unpaid principal amount of such Equipment Advances at the rates
and in accordance with the terms of the Loan Agreement. The entire principal
amount and all accrued interest shall be due and payable on JUNE 5, 2000.
Borrower irrevocably waives the right to direct the application of any and
all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any error in
notation) shall not affect the obligations of Borrower with respect to Equipment
Advances made hereunder, and payments of principal by Borrower shall be credited
to Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of this
Note and to pay all reasonable attorneys' fees incurred in such collection,
whether or not there is a suit or action, or in any suit or action to collect
this Note or in any appeal thereof. Borrower waives presentment, demand, protest
notice of protest, notice of dishonor, notice of nonpayment, and any and all
other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statutes of limitations. No delay by Bank in exercising any power or right
hereunder shall operate as a waiver of any power or right. Time is of the
essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern the
rights and obligations of Borrower with respect to all obligations hereunder.
This Note shall be deemed to be made under, and shall be construed in
accordance with and governed by, the laws of the Commonwealth of Massachusetts,
excluding conflicts of laws principles.
Executed as an instrument under seal.
MAKER COMMUNICATIONS, INC.
By: /s/ WILLIAM GUIDICE
---------------------------
William Guidice, President
ATTEST /s/ TERRENCE P. LYNCH
----------------------
LOAN MODIFICATION AGREEMENT
This LOAN MODIFICATION AGREEMENT is entered into as of May 12, 1998, by and
between SILICON VALLEY BANK, a California-chartered bank with its principal
place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02181, doing business under the name "Silicon Valley East
("Bank"), and MAKER COMMUNICATIONS, INC., a Delaware corporation with its
principal place of business at 73 Mount Wayte Avenue, Framingham, Massachusetts
01702 ("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to certain Existing Loan
Documents, as defined below. In consideration of certain financial
accommodations from Bank, and Borrower's continuing obligations under the
Existing Loan Documents, Borrower and Bank agree as follows:
AGREEMENT
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, an Equipment Line Promissory Note dated February 18, 1997 in
the original principal amount of ONE MILLION AND NO/100THS DOLLARS ($1,000,000)
(the "Equipment Note"). The Equipment Note is governed by the terms of a Loan
and Security Agreement dated February 18, 1997 between Borrower and Bank, as
such Loan and Security Agreement may be amended from time to time (the "Loan
Agreement").
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred
to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured
pursuant to the Loan Agreement. Hereinafter, the Loan Agreement and the
Equipment Note, together with all other documents securing payment of the
Indebtedness, shall be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGES IN TERMS.
3.1 Modifications to Definitions. Section 1.1 of the Loan Agreement is
hereby amended by substituting the following definitions for those set forth
therein for the same terms, and in the case of new definitions, by adding those
new definitions to that Section 1.1:
"Committed Revolving Line" means a credit extension of up to TWO
MILLION AND NO/100THS Dollars ($2,000,000).
"Credit Extension" means each Advance, Equipment Advance, 1998
Equipment Advance, Letter of Credit, Term Loan, Exchange Contract
or any other extension of credit by Bank for the benefit of
Borrower hereunder.
Subsection (d) of the definition of Eligible Accounts in the Loan
Agreement is hereby replaced in its entirety with the following:
(d) Accounts with respect to which the account debtor does
not have its principal place of business in the United
States or Canada except for Eligible Foreign Accounts;
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business
in the United States and Canada that Bank approves on a
case-by-case basis.
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"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.4.
"Letter of Credit Reserve" has the meaning set forth in Section
2.1.4.
"1998 Committed Equipment Line" means a credit extension of up to
ONE MILLION FIVE HUNDRED THOUSAND AND NO/100THS Dollars
($1,500,000).
"1998 Equipment Advance" has the meaning set forth in Section
2.1.3.
"Revolving Maturity Date" means May 11, 1999.
3.2 Modifications to Revolving Advance Provisions. Section 2.1 .1(a) of the
Loan Agreement is hereby replaced in its entirety with the following:
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an
aggregate outstanding amount not to exceed (i) the Committed
Revolving Line or the Borrowing Base, whichever is less, minus
(ii) the face amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit). Subject to
the terms and conditions of this Agreement, amounts borrowed
pursuant to this Section 2.1 may be repaid and reborrowed at any
time during the term of this Agreement.
3.3 Addition of 1998 Committed Equipment Line. Section 2.1.3 is hereby
added to the Loan Agreement as follows:
2.1.3 1998 Equipment Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through May 11, 1999,
Bank agrees to make advances (each an "1998 Equipment Advance"
and collectively, the "1998 Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the Committed
Equipment Line. To evidence the 1998 Equipment Advance or 1998
Equipment Advances, Borrower shall deliver to Bank, at the time
of each 1998 Equipment Advance request, an invoice for the
equipment to be purchased or financed. The 1998 Equipment
Advances shall be used only to purchase or finance Equipment
purchased on or after January 1,1997 and prior to January 1,
1999, and shall not exceed ONE HUNDRED Percent (100%) of the
invoice amount of such equipment approved from time to time by
Bank, excluding taxes, shipping, warranty charges, freight
discounts and installation expense, provided, however, that
tooling equipment may constitute no more than ONE HUNDRED
THOUSAND AND NO/100THS Dollars ($100,000) of aggregate 1998
Equipment Advances. Software may constitute up to FOUR HUNDRED
THOUSAND AND NO/100THS Dollars ($400,000) of aggregate 1998
Equipment Advances.
(b) Interest on 1998 Equipment Advances shall accrue from the
date of each 1998 Equipment Advance at a per annum rate equal to
ONE QUARTER (0.25) percentage points above the Prime Rate, and
shall be payable on the Payment Date of each month through MAY
5,1999. Any 1998 Equipment Advances that are outstanding on MAY
11, 1999 will be payable in THIRTY SIX (36) equal monthly
installments of principal, plus all accrued and unpaid interest
beginning on the Payment Date of each month starting JUNE 5, 1999
and ending on MAY 5, 2002.
(c) When Borrower desires to obtain an 1998 Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to
2
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be received no later than 3:00 p.m. Pacific time one (1) Business
Day before the day on which the 1998 Equipment Advance is to be
made. Such notice shall be substantially in the form of Exhibit
B. The notice shall be signed by a Responsible Officer or its
designee and include a copy of the invoice(s) for the Equipment
to be financed.
3.4 Addition of Letters of Credit Sublimit. Section 2.1.4 is hereby added
to the Loan Agreement as follows:
2.1.4 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an aggregate outstanding face amount not
to exceed (i) the lesser of the Committed Revolving Line or the
Borrowing Base, whichever is less, minus (ii) the then
outstanding principal balance of the Advances; provided that the
face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve)
shall not in any case exceed FIVE HUNDRED THOUSAND AND NO/100THS
Dollars ($500,000). Each Letter of Credit shall have an expiry
date no later than one hundred eighty (180) days after the
Revolving Maturity Date provided that Borrowers Letter of Credit
reimbursement obligation shall be secured by cash on terms
acceptable to Bank at any time after the Revolving Maturity Date
if the term of this Agreement is not extended by Bank. All
Letters of Credit shall be in form and substance acceptable to
Bank in its sole discretion and shall be subject to the terms and
conditions of Banks form of standard Application and Letter of
Credit Agreement.
(b) The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letters of
Credit, under all circumstances whatsoever. Borrower shall
indemnify, defend, protect and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation,
reasonable attorneys' fees, arising out of or in connection with
any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as an Advance to Borrower of the
equivalent of the amount thereof (plus cable charges) in United
States currency at the then prevailing rate of exchange in San
Francisco, California, for sales of that other currency for cable
transfer to the country of which it is the currency.
(d) Upon the issuance of any Letter of Credit payable in a
currency other than United States Dollars, Bank shall create a
reserve under the Committed Revolving Line for letters of credit
against fluctuations in currency exchange rates, in an amount
equal to ten percent (10%) of the face amount of such Letter of
Credit (the "Letter of Credit Reserve"). The amount of such
Letter of Credit Reserve may be amended by Bank from time to time
to account for fluctuations in the exchange rate. The
availability of funds under the Committed Revolving Line shall be
reduced by the amount of such Letter of Credit Reserve for so
long as such Letter of Credit remains outstanding.
3.5 Modifications to Overadvance Provisions. Section 2.2 of the Loan
Agreement is hereby replaced in its entirety with the following:
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2.2 Overadvances. If at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Sections 2.1.1
and 2.1.4 of this Agreement is greater than the lesser of (i) the
Committed Revolving Line or (ii) the Borrowing Base, Borrower
shall immediately pay to Bank, in cash, the amount of such
excess.
3.6 Modifications to Financial Reporting Covenants. Section 6.3 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.3 Financial Statements, Reports, Certificates. (i) Borrower
shall deliver to Bank:
(a) as soon as available, but in any event within twenty-five
(25) days after the end of each month, a company prepared
consolidated balance sheet and income statement covering
Borrowers consolidated operations during such period, in a form
and certified by an officer of Borrower reasonably acceptable to
Bank;
(b) as soon as available, but in any event within one hundred
twenty (120) days after the end of Borrowers fiscal year, audited
consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably
acceptable to Bank;
(c) within five (5) days of filing, copies of all statements,
reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt
and all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof a report of any legal
actions pending or threatened against Borrower or any Subsidiary
that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more;
(e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to
time.
(f) prior to any Advances, and within twenty-five (25) days after
the last day of each month in which any Advances are outstanding,
a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable.
(g) within twenty-five (25) days after the last day of each
month, Borrower shall deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible
Officer in substantially the form of Exhibit D hereto.
(ii) Bank shall have a right from time to time hereafter to audit
Borrowers Accounts at Borrowers expense, provided that such
audits will be conducted no more often than every twelve (12)
months unless an Event of Default has occurred and is continuing.
3.7 Modifications to Adjusted Quick Ratio Covenant. Section 6.8 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.8 Adjusted Quick Ratio. Borrower shall maintain, as of the last
day of each calendar quarter, a ratio of (i) Quick Assets to (ii)
Current Liabilities less current deferred maintenance revenues of
at least 1.25 to 1.0.
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3.8 Modifications to Debt: Net-Worth Ratio. Section 6.9 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.9 Adjusted Debt-Net Worth Ratio. INTENTIONALLY DELETED.
3.9 Modifications to Tangible Net Worth Covenant. Section 6.10 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.10 Tangible Net Worth. Borrower shall maintain, as of the last
day of each calendar quarter a Tangible Net Worth of not less
than THREE MILLION FIVE HUNDRED THOUSAND AND NO/1OOTHS Dollars
($3,500,000), and intraquarterly, as of the last day of each
calendar month, a Tangible Net Worth of not less than THREE
MILLION AND NO/1OOTHS Dollars ($3,000,000).
3.10 Addition of Default Right and Remedy. Section 9.1(b.1) is hereby added
to the Loan Agreement as follows:
(b.1) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining
undrawn, as collateral security for the repayment of any future
drawings under such Letters of Credit, and Borrower shall
forthwith deposit and pay such amounts, and (ii) pay in advance
all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
3.11 Modifications to Exhibits. Exhibits C and D of the Loan Agreement are
hereby replaced in their entirety with Exhibits C and D, respectively, to this
Agreement.
4. FACILITY FEE. Borrower shall pay to Bank a variance fee of FIVE THOUSAND
DOLLARS ($5,000) as well as any out-of-pocket expenses incurred by the Bank
through the date hereof including reasonable attorneys' fees and expenses, and
after the date hereof all Bank Expenses, including reasonable attorneys' fees
and expenses, as and when they become due.
5. CONDITIONS PRECEDENT TO FURTHER ADVANCES. The obligation of Bank to make
further advances to Borrower under this line is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Loan Modification Agreement duly executed by Borrower;
(b) payment of the fees and Bank Expenses then due specified in
Section 4 hereof and
(c) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described in this Loan Modification
Agreement.
7. NO DEFENSES OF BORROWER. Borrower agrees that as of this date, it has no
defenses against any of the obligations to pay any amounts under the
Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that (i) in
modifying the Existing Loan Documents, Bank is relying upon Borrower's
representations, warranties and agreements, as set forth in the Existing Loan
Documents, (ii) except as expressly modified pursuant to this Loan Modification
Agreement (including the effects of Section 6 hereof), the Existing Loan
Documents remain unchanged and in full force and effect, (iii) Bank's agreement
to modify the Existing Loan Documents pursuant to this Loan Modification
Agreement shall in no way obligate Bank to make any future modifications to the
Existing Loan Documents, (iv) it is the
5
<PAGE>
intention of Bank and Borrower to retain as liable parties all makers and
endorsers of the Existing Loan Documents1 unless a party is expressly released
by Bank in writing, (v) no maker, endorser or guarantor will be released by
virtue of this Loan Modification Agreement and (vi) the terms of this Section 8
apply not only to this Loan Modification Agreement but also to all subsequent
loan modification agreements, if any.
9. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER. The laws of the Commonwealth
of Massachusetts shall apply to this Agreement BORROWER ACCEPTS FOR ITSELF AND
IN CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND
AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS AGREEMENT; PROVIDED,
HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION OF THE COURTS AND
VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK EACH HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
10. EFFECTIVENESS. This Agreement shall become effective only when it shall
have been executed by Borrower and Bank (provided, however, in no event shall
this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower' "Bank"
MAKER COMMUNICATIONS, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ William Guidice, President By: [illegible]
------------------------------ -------------------------------
William Guidice, President for Pamela J. Aldsworth, VP
SILICON VALLEY BANK
By: /s/ Michelle D. Giannini
--------------------------------
Title: MICHELLE D. GIANNINI
-----------------------------
ASST. VICE PRES.
EXHIBITS C AND D FOLLOWS
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EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Maker Communications, Inc. Lender: Silicon Valley Bank
73 Mount Wayte Avenue 3003 Tasman Drive
Framingham, MA 01702 Santa Clara, CA 95054
Commitment Amount: $2,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of __________ $_________
2. Additions (please explain on reverse) $_________
3. TOTAL ACCOUNTS RECEIVABLE $_________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days due $_________
5. Balance of 50% over 90 day accounts $_________
6. Concentration Limits $_________
7. Ineligible Foreign Accounts $_________
8. Governmental Accounts $_________
9. Contra Accounts $_________
10. Promotion or Demo Accounts $_________
11. Intercompany/Employee Accounts $_________
12. Other (please explain on reverse) $_________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_________
14. Eligible Accounts (#3 - #13) $_________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $_________
BALANCES
16. Maximum Loan Amount $2,000,000
17. Total Funds Available (Lesser of #16 or #15) $_________
18. Present balance owing on Line of Credit $_________
19. Outstanding under Sublimits ( ) $_________
20. RESERVE POSITIVE (#17 minus #18 and #19) $_________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement dated as of February 18, 1997, as may be amended from time to
time, between the undersigned and Silicon Valley Bank.
-------------------------------
COMMENTS: BANK USE ONLY
Rec'd By: _____________________
Date: _________________________
Reviewed By: __________________
Compliance Status: Yes / No
-------------------------------
MAKER COMMUNICATIONS, INC.
By: _____________________________
Authorized Signer
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EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: Maker Communications, Inc. Lender: Silicon Valley Bank
73 Mount Wayte Avenue 3003 Tasman Drive
Framingham, MA 01702 Santa Clara, CA 95054
The undersigned authorized officer of Maker Communications, Inc. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement dated as of February 18, 1997 between Borrower and Bank, as
amended from time to time (the "Agreement"), (i) Borrower is in complete
compliance for the period ending ____________ of all required conditions and
terms except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true, accurate and complete in all material
respects as of the date hereof. Attached herewith are the required documents
supporting the above certification. The Officer further certifies that these are
prepared in accordance with Generally Accepted Accounting Principals (GAAP) and
are consistent from one period to the next except as explained in an
accompanying letter or footnotes. The Officer further expressly acknowledges
Borrower may not request any borrowings at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate if
delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column
Reporting Covenant Required Complies
------------------ -------- --------
Monthly financial statements Monthly within 25 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
A/R Agings Monthly within 25 days Yes No
A/R Audit Initial and Annual Yes No
Financial Covenants Required Actual Complies
------------------- -------- ------ --------
Maintain on a Monthly Basis:
Minimum TNW - intra-quarterly $3,000,000 $_______ Yes No
Maintain on a Quarterly Basis:
Minimum Adjusted Quick Ratio 1.25:1.0 1.0 Yes No
Minimum TNW $3,500,000 $_______ Yes No
Comments Regarding Exceptions:
Sincerely,
-------------------------------
_____________________________ BANK USE ONLY
Signature Received by: __________________
Date: _________________________
_____________________________ Reviewed by:___________________
TITLE Compliance Status: Yes No
-------------------------------
_____________________________
DATE
8
SECOND LOAN MODIFICATION AGREEMENT
This Second Loan Modification Agreement is entered into as of February
3,1999, by and between MAKER COMMUNICATIONS, INC., a Delaware corporation with
its principal place of business at 73 Mount Wayte Avenue, Framingham,
Massachusetts 01702 ("Borrower" and SILICON VALLEY BANK, a California-chartered
bank ("Bank"), with its principal place of business at 3003 Tasman Drive, Santa
Clara, CA 95054 and with a loan production office located at Wellesley Office
Park, 40 William Street, Suite 350, Wellesley, MA 02481, doing business under
the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan
arrangement dated as of February 18, 1997, evidenced by, among other documents,
(i) an Equipment Line Promissory Note in the original principal amount of One
Million Dollars ($1,000,000.00) (the "Equipment Note"), and (ii) a Revolving
Promissory Note in the original principal amount of One Million Dollars
($1,000,000.00) (the "Revolving Promissory Note"). The Equipment Note and the
Revolving Note are governed by the terms of a certain Loan and Security
Agreement dated as of February 18, 1997 between Borrower and Bank, as amended by
a certain Loan Modification Agreement dated as of May 12, 1998 (as amended, the
"Loan Agreement"). Capitalized terms used but not otherwise defined herein shall
have the same meaning as in the Loan Agreement
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by the
Collateral as described in the Loan Agreement (together with any other
collateral security granted to Bank, the "Security Documents").
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement.
1. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Committed Revolving Line" means a credit extension of up
to Two Million Dollars ($2,000,000.00)."
and inserting in lieu thereof the following:
""Committed Revolving Line" means a credit extension of up
to Two Million Five Hundred Thousand Dollars
($2,500,000.00)."
2. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Equipment Advance" has the meaning set forth in Section
2.1.2."
and inserting in lieu thereof the following:
""Equipment Advance" or "Equipment Advances" shall mean any
advance made hereunder pursuant to Sections 2.1.2,2.1.3 and
2.1.5."
<PAGE>
3. The Loan Agreement shall be amended by inserting immediately
after the definition of "Material Adverse Effect" appearing in
Section 1.1 thereof the following definition:
""Maturity Date" means, as applicable, (i) the Revolving
Maturity Date for Advances pursuant to Section 2.1.1; (ii)
the Equipment Maturity Date for Equipment Advances pursuant
to Section 2.1.2; (iii) the 1998 Equipment Maturity Date for
1998 Equipment Advances pursuant to Section 2.1.3; and (iv)
the 1999 Equipment Maturity Date for Equipment Advances
pursuant to Section 2.1.5."
4. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""1998 Committed Equipment Line" means a credit extension of
up to One Million Five Hundred Thousand Dollars
($1,500,000.00)."
and inserting in lieu thereof the following:
""1998 Committed Equipment Line" means a credit extension of
up to One Million One Hundred Thirty-Nine Thousand Dollars
($1,139,000.00)."
5. The Loan Agreement shall be amended by inserting immediately
after the definition of "1998 Equipment Advance" appearing in
Section 1.1 thereof the following definitions:
""1999 Committed Equipment Line" means a credit extension of
up to One Million Dollars ($1,000,000.00).
"1999 Equipment Availability End Date" has the meaning set
forth in Section 2.1.5.
"1999 Equipment Maturity Date" means thirty-six (36) months
after the 1999 Equipment Availability End Date."
6. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Revolving Maturity Date" means May 11, 1999."
and inserting in lieu thereof the following:
""Revolving Maturity Date" means February 3, 2000."
7. The outstanding principal balance of all 1998 Equipment Advances
made pursuant to Section 2.1.3, as of January 25, 1999, is Six
Hundred Eighty-Nine Thousand Dollars ($689,000.00).
All Equipment Advances currently amortizing under Section 2.1.2
shall continue to be repaid as provided in Section 2.1.2. The
outstanding principal balance of all Equipment Advances made
pursuant to Section 2.1.2, as of January 25, 1999, is Two Hundred
Forty-Six Thousand Seven Hundred Fifty-Two Dollars ($246,752.00).
-2-
<PAGE>
8. The Loan Agreement shall be amended by deleting the following
text appearing as the first sentence of paragraph (a) of Section
2.1.3 thereof entitled "1998 Equipment Advances":
"Subject to and upon the terms and conditions of this
Agreement, at any time through May 11, 1999, Bank agrees to
make advances (each an "1998 Equipment Advance" and
collectively, the "1998 Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the Committed
Equipment Line."
and inserting in lieu thereof the following:
"Subject to and upon the terms and conditions of this
Agreement, at any time through February 15, 1999 (the "1998
Equipment Availability End Date"), Bank agrees to make
Equipment Advances (each a "1998 Equipment Advance" and
collectively, the "1998 Equipment Advances") to Borrower
under this Section 2.1.3 in an aggregate outstanding amount
not to exceed the 1998 Committed Equipment Line."
9. The Loan Agreement shall be amended by deleting paragraph (b) of
Section 2.1.3 entitled "1998 Equipment Advances" and inserting in
lieu thereof the following:
"(b) Interest shall accrue from the date of each 1998
Equipment Advance made pursuant to this Section 2.1.3 at a
per annum rate equal to the aggregate of Prime Rate, plus
One Quarter of One percent (0.25%), and shall be payable
monthly on the Payment Date of each month through the month
in which the 1998 Equipment Availability End Date falls. Any
1998 Equipment Advances made pursuant to this Section 2.1.3
that are outstanding on the 1998 Equipment Availability End
Date will be payable in thirty-nine (39) equal monthly
installments of principal, plus all accrued interest,
beginning on the Payment Date of each month following the
1998 Equipment Availability End Date and ending on May 5,
2002 (the "1998 Equipment Maturity Date"). Equipment
Advances, once repaid, may not be reborrowed."
10. The Loan Agreement shall be amended by inserting after Section
2.1.4 thereof the following new section entitled "1999 Equipment
Advances".
"2.1.5 1999 Equipment Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time through February 3, 2000 (the "1999
Equipment Availability End Date"), Bank agrees to make Equipment
Advances (each an "Equipment Advance" and collectively, the
"Equipment Advances") to Borrower under this Section 2.1.5 in an
aggregate outstanding amount not to exceed the 1999 Committed
Equipment Line. To evidence the Equipment Advances, Borrower
shall deliver to Bank, at the time of each Equipment Advance
request, an invoice for the equipment to be purchased. The
Equipment Advances shall be used only to purchase or refinance
Equipment purchased after November 30, 1998 and shall not exceed
One Hundred Percent (100%) of the invoice amount of such
equipment approved from time to time by Bank, excluding taxes,
shipping, warranty charges, freight discounts and installation
expense. Software may only constitute up to twenty-five percent
(25%) of aggregate Equipment Advances under this Section 2.1.5.
-3-
<PAGE>
(b) Interest shall accrue from the date of each Equipment Advance
made pursuant to this Section 2.1.5 at a per annum rate equal to
the aggregate of the Prime Rate, plus One Quarter of One percent
(0.25%), and shall be payable monthly on the Payment Date of each
month through the month in which the 1999 Equipment Availability
End Date falls. Any Equipment Advances made pursuant to this
Section 2.1.5 that are outstanding on the 1999 Equipment
Availability End Date will be payable in thirty-six (36) equal
monthly installments of principal, plus all accrued interest,
beginning on the Payment Date of each month following the 1999
Equipment Availability End Date and ending on the 1999 Equipment
Maturity Date. Equipment Advances, once repaid, may not be
reborrowed.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m.
Eastern time one (1) Business Day before the day on which the
Equipment Advance is to be made, Such notice shall be
substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a
copy of the invoice for the Equipment to be financed."
11. The Loan Agreement shall be amended by deleting the following
text appearing as the first sentence of Section 2.7 thereof
entitled "Term":
"Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect for a term
ending on the Revolving Maturity Date."
and inserting in lieu thereof the following:
"Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect for a term
ending on the Maturity Date."
12. The Loan Agreement shall be amended by deleting paragraph (f) of
Section 6.3 thereof entitled "Financial Statements, Reports,
Certificates" and inserting in lieu thereof the following:
"(f) Within twenty-five (25) days after the last day of each
month with respect to which either (i) Obligations are
outstanding, or (ii) Credit Extensions were made, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by
a Responsible Officer in substantially the form of Exhibit C
hereto, together with aged listings of accounts receivable."
13. The Loan Agreement shall be amended by deleting in its entirety
Section 6.8 thereof entitled "Adjusted Quick Ratio".
14. The Loan Agreement shall be amended by deleting the following
text appearing as Section 6.10 thereof entitled "Tangible Net
Worth" and inserting in lieu thereof the following:
"6.10 Tangible Net Worth. Borrower shall maintain, as of the
last day of each calendar month, a Tangible Net Worth of not
less than: (i) Seven Million Dollars ($7,000,000.00) for
each month through the month ending June 30, 1999, and (ii)
Four Million Five Hundred Thousand Dollars ($4,500,000.00)
for each month thereafter."
-4-
<PAGE>
15. The Borrower shall execute and deliver to the Bank
contemporaneously with the execution of this Loan Modification
Agreement each of the following instruments in form and substance
acceptable to the Bank: (i) an Amended and Restated Revolving
Promissory Note in the original principal amount of Two Million
Five Hundred Thousand Dollars ($2,500,000.00), (ii) an Equipment
Line Promissory Note in the original principal amount of One
Million Dollars ($1,000,000.00), and (iii) an Equipment Line
Promissory Note dated as of May 12, 1998 in the original
principal amount of One Million Five Hundred Thousand Dollars
($1,500,000.00).
16. The Borrowing Base Certificate appearing as Exhibit C to the Loan
Agreement is hereby replaced with the Compliance Certificate
attached as Exhibit A hereto.
17. The Compliance Certificate appearing as Exhibit D to the Loan
Agreement is hereby replaced with the Compliance Certificate
attached as Exhibit B hereto.
4. FEE. Borrower shall pay to Bank a modification fee equal to Eleven Thousand
Two Hundred Fifty Dollars ($11,250.00), which fee shall be due on the date
hereof and shall be deemed fully earned as of the date hereof.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.
7. NO DEFENSE OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker will be
released by virtue of this Loan Modification Agreement.
9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
-5-
<PAGE>
This Loan Modification Agreement is executed as a sealed instrument under
the laws of the Commonwealth of Massachusetts as of the date first written
above.
BORROWER: BANK:
MAKER COMMUNICATIONS, INC. SILICON VALLEY BANK, doing business as
S1LICON VALLEY EAST
By: /s/ WILLIAM N. GIUDICE By:______________________________________
Name: William N. Giudice Name:____________________________________
Title: President Title:___________________________________
/s/ MICHAEL RUBINO SILICON VALLEY BANK
Michael Rubino By:______________________________________
VP & CFO Name:____________________________________
Title:___________________________________
(signed in Santa Clara County, California)
TCP/
56120/148
-6-
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
Borrower: Maker Communications, Inc. Bank: Silicon Valley Bank
Commitment Amount: $2,500,000.00
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of __________ $_________
2. Additions (please explain on reverse) $_________
3. TOTAL ACCOUNTS RECEIVABLE $_________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days due $_________
5. Balance of 50% over 90 day accounts $_________
6. Concentration Limits $_________
7. Ineligible Foreign Accounts $_________
8. Governmental Accounts $_________
9. Contra Accounts $_________
10. Promotion or Demo Accounts $_________
11. Intercompany/Employee Accounts $_________
12. Other (please explain on reverse) $_________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_________
14. Eligible Accounts (#3 minus #13) $_________
15. LOAN VALUE OF ACCOUNTS (80.0% of #14) $_________
BALANCES
16. Maximum Loan Amount $_________
17. Total Funds Available (Lesser of #16 or #15) $_________
18. Present balance owing on Line of Credit $_________
19. Outstanding under Sublimits (Letters of Credit) $_________
20. RESERVE POSITION (#17 minus #18 and #19) $_________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
-------------------------------
COMMENTS: BANK USE ONLY
Received
By: ___________________________
Date: _________________________
Reviewed
_________________________________ By: ___________________________
Compliance Status: Yes / No
-------------------------------
By: _____________________________
Authorized Signer
-7-
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: MAKER COMMUNICATIONS, INC.
The undersigned authorized officer of MAKER COMMUNICATIONS, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending _________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any rime or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column.
Reporting Covenant Required Complies
------------------ -------- --------
Monthly financial statements and CC Monthly within 25 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
Monthly BBC & A/R Agings Monthly within 25 days
(when borrowing) Yes No
Financial Covenant Required Actual Complies
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Tangible Net Worth $7,000,000
thru 6/30/99; $______ Yes No
$4,500,000
thereafter
-------------------------------
BANK USE ONLY
Received
By: ___________________________
Date: _________________________
Reviewed
Comments Regarding Exceptions: By: ___________________________
Compliance Status: Yes / No
-------------------------------
Sincerely,
________________________ Date: __________
SIGNATURE
________________________
TITLE
-8-
<PAGE>
EQUIPMENT LINE PROMISSORY NOTE
$1,500,000.00 ____________, Massachusetts
May 12, 1998
FOR VALUE RECEIVED, the undersigned, MAKER COMMUNICATIONS, INC., a Delaware
corporation (the "Borrower"), promises to pay to the order of Silicon Valley
Bank, a California-chartered bank ("Bank") at such place as the holder hereof
may designate, in lawful money of the United States of America, the aggregate
unpaid principal amount of all advances ("Equipment Advances") made by Bank to
Borrower in accordance with the terms of the Loan and Security Agreement between
Borrower and Bank dated as of February 18, 1997, as amended by a Loan
Modification Agreement of even date herewith, as may be further amended from
time to time (as amended, the "Loan Agreement"), up to a maximum principal
amount of ONE MILLION FIVE HUNDRED THOUSAND AND NO/1OOTHS Dollars
($1,500,000.00), until paid in full. Borrower shall also pay interest on the
aggregate unpaid principal amount of such Equipment Advances at the rates and in
accordance with the terms of the Loan Agreement. The entire principal amount and
all accrued interest shall be due and payable on May 5, 2002.
Borrower irrevocably waives the right to direct the application of any and
all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Equipment Advance made by Bank under this Note and the amount of
each payment or prepayment of principal of each such Equipment Advance received
by Bank; it being understood, however, that failure to make any such endorsement
(or any error in notation) shall not affect the obligations of Borrower with
respect to Equipment Advances made hereunder, and payments of principal by
Borrower shall be credited to Borrower notwithstanding the failure to make a
notation (or any errors in notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of this
Note and to pay all reasonable attorneys' fees incurred in such collection,
whether or not there is a suit or action, or in any suit or action to collect
this Note or in any appeal thereof. Borrower waives presentment, demand,
protest, notice of protest, notice of dishonor, notice of nonpayment, and any
and all other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statutes of limitations. No delay by Bank in exercising any power or right
hereunder shall operate as a waiver of any power or right. Time is of the
essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern the
rights and obligations of Borrower with respect to all obligations hereunder.
<PAGE>
This Note shall be deemed to be made under, and shall be construed in
accordance with and governed by, the laws of the Commonwealth of Massachusetts,
excluding conflicts of laws principles.
Executed as an instrument under seal.
MAKER COMMUNICATIONS, INC.
By: /s/ WILLIAM N. GUIDICE
--------------------------
Name: William N. Guidice
------------------------
Title: President
-----------------------
ATTEST: /s/ [ILLEGIBLE]
/s/ [ILLEGIBLE]
Michael [ILLEGIBLE]
VP & CFO
<PAGE>
EQUIPMENT LINE PROMISSORY NOTE
$1,000,000.00 ____________, Massachusetts
February 3, 1999
FOR VALUE RECEIVED, the undersigned, MAKER COMMUNICATIONS, INC., a Delaware
corporation (the "Borrower"), promises to pay to the order of Silicon Valley
Bank, a California-chartered bank ("Bank") at such place as the holder hereof
may designate, in lawful money of the United States of America, the aggregate
unpaid principal amount of all advances ("Equipment Advances") made by Bank to
Borrower in accordance with the terms of the Loan and Security Agreement between
Borrower and Bank dated as of February 18, 1997, as amended by a Loan
Modification Agreement dated as of May 12, 1998, as amended by a Second Loan
Modification Agreement of even date herewith, as may be further amended from
time to time (as amended, the "Loan Agreement"), up to a maximum principal
amount of ONE MILLION AND NO/lOOTHS Dollars ($1,000,000.00), until paid in full.
Borrower shall also pay interest on the aggregate unpaid principal amount of
such Equipment Advances at the rates and in accordance with the terms of the
Loan Agreement. The entire principal amount and all accrued interest shall be
due and payable on February 3, 2003.
Borrower irrevocably waives the right to direct the application of any and
all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Equipment Advance made by Bank under this Note and the amount of
each payment or prepayment of principal of each such Equipment Advance received
by Bank; it being understood, however, that failure to make any such endorsement
(or any error in notation) shall not affect the obligations of Borrower with
respect to Equipment Advances made hereunder, and payments of principal by
Borrower shall be credited to Borrower notwithstanding the failure to make a
notation (or any errors in notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of this
Note and to pay all reasonable attorneys' fees incurred in such collection,
whether or not there is a suit or action, or in any suit or action to collect
this Note or in any appeal thereof. Borrower waives presentment, demand,
protest, notice of protest, notice of dishonor, notice of nonpayment, and any
and all other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statutes of limitations. No delay by Bank in exercising any power or right
hereunder shall operate as a waiver of any power or right. Time is of the
essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern the
rights and obligations of Borrower with respect to all obligations hereunder.
<PAGE>
This Note shall be deemed to be made under, and shall be construed in
accordance with and governed by, the laws of the Commonwealth of Massachusetts,
excluding conflicts of laws principles.
Executed as an instrument under seal.
MAKER COMMUNICATIONS, INC.
By: /s/ WILLIAM N. GUIDICE
--------------------------
Name: William N. Guidice
------------------------
Title: President
-----------------------
ATTEST: /s/ [ILLEGIBLE]
/s/ [ILLEGIBLE]
Michael [ILLEGIBLE]
VP & CFO
<PAGE>
AMENDED AND RESTATED REVOLVING PROMISSORY NOTE
$2,500,000.00 ____________, Massachusetts
February 3, 1999
FOR VALUE RECEIVED, the undersigned, MAKER COMMUNICATIONS, INC., a Delaware
corporation (the "Borrower") promises to pay to the order of Silicon Valley
Bank, a California-chartered bank ("Bank"), at such place as the holder hereof
may designate, in lawful money of the United States of America, the aggregate
unpaid principal amount of all advances ("Advances") made by Bank to Borrower in
accordance with the terms of the Loan and Security Agreement between Borrower
and Bank dated as of February 18, 1997, as amended by a Loan Modification
Agreement dated as of May 12, 1998, as amended by a Second Loan Modification
Agreement of even date herewith, as may be further amended from time to time (as
amended, the "Loan Agreement"), up to a maximum principal amount of TWO MILLION
FIVE HUNDRED THOUSAND AND NO/lOOTHS Dollars ($2,500,000.00), until paid in full.
Borrower shall also pay interest on the aggregate unpaid principal amount of
such Advances at the rates and in accordance with the terms of the Loan
Agreement. The entire principal amount and all accrued interest shall be due and
payable on February 3, 2000. This Amended and Restated Revolving Promissory Note
amends and restates a certain Revolving Promissory Note by the Borrower in favor
of the Bank dated February 18, 1997.
Borrower irrevocably waives the right to direct the application of any and
all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any error in
notation) shall not affect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of this
Note and to pay all reasonable attorneys' fees incurred in such collection,
whether or not there is a suit or action, or in any suit or action to collect
this Note or in any appeal thereof Borrower waives presentment, demand, protest,
notice of protest, notice of dishonor, notice of nonpayment, and any and all
other notices and demands in connection wit the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statutes of limitations. No delay by Bank in exercising any power or right
hereunder shall operate as a waiver of any power or right. Time is of the
essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern the
rights and obligations of Borrower with respect to all obligations hereunder.
<PAGE>
This Note shall be deemed to be made under, and shall be construed in
accordance with and governed by, the laws of the Commonwealth of Massachusetts,
excluding conflicts of laws principles.
Executed as an instrument under seal.
MAKER COMMUNICATIONS, INC.
By: /s/ WILLIAM N. GUIDICE
--------------------------
Name: William N. Guidice
------------------------
Title: President
-----------------------
ATTEST: /s/ [ILLEGIBLE]
/s/ [ILLEGIBLE]
Michael [ILLEGIBLE]
VP & CFO
MAKER COMMUNICATIONS, INC.
1999 STOCK INCENTIVE PLAN
1. Purpose of the Plan.
This stock plan (the "Plan") is intended to provide incentives: (a) to the
employees of Maker Communications, Inc. (the "Company") and any present or
future subsidiaries of the Company by providing them with opportunities to
purchase stock in the Company pursuant to options granted hereunder which
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); and (b) to officers,
employees, consultants and directors of the Company and any subsidiaries by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder which do not qualify as ISOs ("Non-Qualified Option"
or "Non-Qualified Options"). As used herein, the terms "parent" and "subsidiary"
mean "parent corporation" and "subsidiary corporation," respectively, as those
terms are defined in Section 424 of the Code and the Treasury Regulations
promulgated thereunder (the "Regulations").
2. Stock Subject to the Plan.
(a) The initial maximum number of shares of common stock, par value $.01
per share, of the Company ("Common Stock") available for stock options and stock
awards granted under the Plan through the end of the Company's fiscal year
ending December 31, 1999 shall be 2,600,000 shares of Common Stock. In addition,
effective January 1, 2000 and each January 1 thereafter during the term of this
Plan, the number of shares of Common Stock available for grants of stock options
and stock awards made after such January 1 under this Plan shall be increased
automatically by an amount equal to (i) 5% of the total issued and outstanding
shares of Common Stock (rounded to the nearest whole share and calculated on a
fully diluted basis, that is assuming the exercise of all outstanding options to
purchase Common Stock and warrants to purchase Common Stock) as of the close of
business on December 31 of the preceding year or (ii) a lesser amount as
determined by the Board of Directors. The Board of Directors shall initially
reserve for issuance under this Plan 2,600,000 shares of Common Stock. Effective
January 1, 2000 and effective on each succeeding January 1 thereafter during the
term of this Plan, the Board of Directors shall reserve for issuance under this
Plan such number of shares of Common Stock as is equal to the sum of (i) the
number of shares of Common Stock issuable upon the exercise of options then
outstanding under the Plan; and (ii) the number of shares of Common Stock
resulting from the calculation set forth in the second sentence of this
paragraph. The maximum number of shares of Common Stock available for grants
shall be subject to adjustment in accordance with Section 12 hereof. Shares
issued under the Plan may be authorized but unissued shares of Common Stock or
shares of Common Stock held in treasury.
(b) To the extent that any stock option shall lapse, terminate, expire or
otherwise be canceled without the issuance of shares of Common Stock, or any
stock award is settled in cash, the shares of Common Stock covered by such
option(s) or award shall again be available for the granting of stock options or
awards.
<PAGE>
(c) Common Stock issuable under the Plan may be subject to such
restrictions on transfer, repurchase rights or other restrictions as shall be
determined by the Committee (as defined in Section 3 below).
3. Stock Awards.
(a) The Committee may grant, subject to the limitation on the number of
shares of Common Stock available under Section 2 hereof, stock awards to
employees of and other key individuals engaged to provide services to the
Company 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
shall be subject to such terms and conditions as the Committee, in its sole
discretion, shall determine and establish. These may include, but are not
limited to, establishing a holding period during which stock issued pursuant to
an award may not be transferred, requiring forfeiture of the stock award because
of termination of employment or failure to achieve specific objectives such as
measures of individual, business unit or Company performance, including stock
price appreciation. In determining a person's eligibility to be granted an
award, as well as in determining the number of shares to be awarded to any
person, the Committee shall take into account the person's position and
responsibilities, the nature and value to the Company or its subsidiaries of
such person's service and accomplishments, such person's present and potential
contribution to the success of the Company or its subsidiaries, and such other
factors as the Committee may deem relevant.
(b) The Committee may provide that a stock award earn dividends or
dividend equivalents, which may be paid currently or may be deferred in payment,
including reinvestment in additional shares covered by the applicable stock
award, all on such terms and conditions as the Committee shall deem appropriate.
(c) The Committee shall require that for any stock award to be
effective, the recipient of the award shall execute an Award Agreement at such
time and in such form as the Committee shall determine. Any Award Agreement may
require that for any or some of the shares issued, the awardee must pay a
minimum consideration, whether in cash, property or services, as may be required
by applicable law or the Committee, as the Committee shall determine.
(d) A stock award may be granted singly or in combination or in tandem
with another stock award or stock option. A stock award may also be granted as
the payment form in settlement of a grant or right under any other Company
employee benefit or compensation plan, including the plan of an acquired entity.
(e) Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to receive stock awards pursuant to the Plan.
(f) No award granted to any person under the Plan shall be assignable or
transferable otherwise than by will or the laws of descent and distribution. Any
award granted under the Plan
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shall be null and void and without effect upon any attempted assignment or
transfer, except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition, attachment, trustee process or similar process, whether legal
or equitable, upon such award.
4. Administration of the Plan.
(a) At the discretion of the Company's Board of Directors, the Plan shall
be administered either (i) by the full Board of Directors of the Company or (ii)
by a committee (the "Committee") consisting of two or more members of the
Company's Board of Directors. In the event the full Board of Directors is the
administrator of the Plan, references herein to the Committee shall be deemed to
include the full Board of Directors. The Board of Directors may from time to
time appoint a member or members of the Committee in substitution for or in
addition to the member or members then in office and may fill vacancies on the
Committee however caused. The Committee shall choose one of its members as
Chairman and shall hold meetings at such times and places as it shall deem
advisable. A majority of the members of the Committee shall constitute a quorum
and any action may be taken by a majority of those present and voting at any
meeting.
(b) Any action may also be taken without the necessity of a meeting by a
written instrument signed by a majority of the Committee. The decision of the
Committee as to all questions of interpretation and application of the Plan
shall be final, binding and conclusive on all persons. The Committee shall have
the authority to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any option agreement granted hereunder in the manner and to the
extent it shall deem expedient to carry the Plan into effect and shall be the
sole and final judge of such expediency. No Committee member shall be liable for
any action or determination made in good faith.
(c) Subject to the terms of the Plan, the Committee shall have the
authority to (i) determine the employees of the Company and its subsidiaries
(from among the class of employees eligible under Section 5 to receive ISOs) to
whom ISOs may be granted, and to determine (from the class of individuals
eligible under Section 5 to receive Non-Qualified Options) to whom Non-Qualified
Options may be granted; (ii) determine the time or times at which options may be
granted; (iii) determine the option price of shares subject to each option which
price shall not be less than the minimum price specified in Section 7; (iv)
determine whether each option granted shall be an ISO or a Non-Qualified Option;
(v) determine (subject to Section 10) the time or times when each option shall
become exercisable and the duration of the exercise period; (vi) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to options and the nature of such restrictions; and (vii) determine the
size of any Options under the Plan, taking into account the position or office
of the optionee with the Company, the job performance of the optionee and such
other factors as the Committee may deem relevant in the good faith exercise of
its independent business judgment. Subject to the
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provisions of Section 3 the Committee shall also have the authority to grant
stock awards under this Plan.
5. Options.
Options designated as ISOs may be granted only to employees of the
Company or any subsidiary. Non-Qualified Options may be granted to any officer,
employee, consultant or director of the Company or of any of its subsidiaries.
"Subsidiary" or "subsidiaries" shall be as defined in Section 424 of the Code
and the Treasury Regulations promulgated thereunder (the "Regulations") and
shall include subsidiaries which became such after adoption of the Plan.
In determining the eligibility of an individual to be granted an option,
as well as in determining the number of shares to be optioned to any individual,
the Committee shall take into account the position and responsibilities of the
individual being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Committee may deem relevant.
No option designated as an ISO shall be granted to any employee of the
Company or any subsidiary if such employee owns, immediately prior to the grant
of an option, stock representing more than 10% of the combined voting power of
all classes of stock of the Company or a parent or a subsidiary, unless the
purchase price for the stock under such option shall be at least 110% of its
fair market value at the time such option is granted and the option, by its
terms, shall not be exercisable more than five years from the date it is
granted. In determining the stock ownership under this paragraph, the provisions
of Section 424(d) of the Code shall be controlling. In determining the fair
market value under this paragraph, the provisions of Section 7 hereof shall
apply.
The maximum number of shares of the Company's Common Stock with respect
to which an option or options may be granted to any employee in any calendar
year shall not exceed 500,000 shares, taking into account shares subject to
options granted and terminated, or repriced, during such calendar year.
6. Option Agreement.
Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Committee, provided that options designated as incentive stock options shall
meet all of the conditions for incentive stock options as defined in Section 422
of the Code. The date of grant of an option shall be as determined by the
Committee. More than one option may be granted to an individual.
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<PAGE>
7. Option Price.
The option price or prices of shares of the Company's Common Stock for
options designated as non-qualified stock options shall be determined by the
Committee, but in no event shall the option price of a non-qualified stock
option be less than the par value of such Common Stock at the time the option is
granted. The option price or prices of shares of the Company's Common Stock for
incentive stock options shall be no less than the fair market value of such
Common Stock at the time the option is granted as determined bym the Committee
in accordance with Section 422 of the Code and the Regulations promulgated
thereunder. If such shares are then listed on any national securities exchange,
the fair market value shall be the mean between the high and low sales prices,
if any, on the largest such exchange on the date of the grant of the option or,
if none, shall be determined by taking a weighted average of the means between
the highest and lowest sales prices on the nearest date before and the nearest
date after the date of grant in accordance with Treasury Regulations Section
25.2512-2. If the shares are not then listed on any such exchange, the fair
market value of such shares shall be the mean between the high and low sales
prices, if any, as reported in the National Association of Securities Dealers
Automated Quotation National Market ("NASDAQ/NM") for the date of the grant of
the option, or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales on the nearest date before and the
nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the shares are not then either listed on any such exchange
or quoted in NASDAQ/NM, the fair market value shall be the mean between the
average of the "Bid" and the average of the "Ask" prices, if any, as reported in
the National Daily Quotation Service for the date of the grant of the option,
or, if none, shall be determined by taking a weighted average of the means
between the highest and lowest sales prices on the nearest date before and the
nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the fair market value cannot be determined under the
preceding three sentences, it shall be determined in good faith by the
Committee.
8. Manner of Payment; Manner of Exercise.
(a) The option agreement may provide for the payment of the exercise
price by delivery of (i) cash or a check payable to the order of the Company in
an amount equal to the exercise price of such options, (ii) shares of Common
Stock of the Company owned by the optionee having a fair market value equal in
amount to the exercise price of the options being exercised, or (iii) any
combination of (i) and (ii), provided, however, that payment of the exercise
price by delivery of shares of Common Stock of the Company owned by such
optionee may be made only if such payment does not result in a charge to
earnings for financial accounting purposes as determined by the Committee. The
fair market value of any shares of the Company's Common Stock which may be
delivered upon exercise of an option shall be determined by the Committee in
accordance with Section 7 hereof. With the consent of the Committee, payment may
also be made by delivery of a properly executed exercise notice to the Company,
together with a copy of irrevocable instruments to a broker to deliver promptly
to the Company the
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<PAGE>
amount of sale or loan proceeds to pay the exercise price. To facilitate the
foregoing, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the option
at such time, during ordinary business hours, not earlier than ten business days
from the date of receipt of the notice by the Company, as shall be designated in
such notice, or at such time, place and manner as may be agreed upon by the
Company and the person or persons exercising the option.
9. Exercise of Options.
Each option granted under the Plan shall, subject to Section 10(b) and
Section 12 hereof, be exercisable at such time or times and during such period
as shall be set forth in the Agreement; provided, however, that no incentive
stock option granted under the Plan shall have a term in excess of ten (10)
years from the date of grant, and no non-qualified stock option granted under
the Plan shall have a term in excess of ten (10) years from the date of grant.
To the extent that an option to purchase shares is not exercised by
an optionee when it becomes initially exercisable, it shall not expire but shall
be carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be made for less than
two hundred fifty (250) full shares of Common Stock.
10. Term of Options; Exercisability.
(a) Term.
(1) Each incentive stock option shall expire not more than ten (10)
years from the date of the granting thereof, but shall be subject to
earlier termination as herein provided. Each non-qualified stock option
shall expire not more than ten (10) years from the date of the granting
thereof, but shall be subject to earlier termination as herein provided.
(2) Except as otherwise provided in this Section 10, an option
granted to any employee optionee who ceases to be an employee of the
Company or one of its subsidiaries shall terminate seven days after the
date such optionee ceases to be an employee of the Company or one of its
subsidiaries, or on the date on which the option expires by its terms,
whichever occurs first.
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<PAGE>
(3) If such termination of employment is because of dismissal for
cause or because the employee is in breach of any employment agreement,
such option will terminate immediately on the date the optionee ceases
to be an employee of the Company or one of its subsidiaries.
(4) If such termination of employment is because the optionee has
become permanently disabled (within the meaning of Section 22(e)(3) of
the Code), such option shall terminate on the last day of the twelfth
month from the date such optionee ceases to be an employee, or on the
date on which the option expires by its terms, whichever occurs first.
(5) In the event of the death of any optionee, any option granted to
such optionee shall terminate on the last day of the twelfth month from
the date of death, or on the date on which the option expires by its
terms, whichever occurs first.
(6) Notwithstanding subparagraphs (2), (3), (4) and (5) above, the
Committee shall have the authority to extend the expiration date of any
outstanding option in circumstances in which it deems such action to be
appropriate, provided that no such extension shall extend the term of an
option beyond the date on which the option would have expired if no
termination of the optionee's employment had occurred.
(b) Exercisability.
(1) An option granted to an employee optionee who ceases to be an
employee of the Company or one of its subsidiaries for any reason shall
be exercisable only to the extent that the right to purchase shares
under such option has accrued and is vested and is in effect on the date
such optionee ceases to be an employee of the Company or one of its
subsidiaries.
(2) In the event of the death of any optionee, the option granted to
such optionee may be exercised by the estate of such optionee, or by any
person or persons who acquired the right to exercise such option by
bequest or inheritance or by reason of the death of such optionee.
11. Transferability.
The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and distribution. ISOs shall be exercisable during the
lifetime of such optionee only by him/her. Any option granted under the Plan
shall be null and void and without effect upon the bankruptcy of the optionee to
whom the option is granted, or upon any attempted assignment or transfer, except
as herein provided, including without limitation any purported assignment,
whether
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voluntary or by operation of law, pledge, hypothecation or other disposition,
attachment, divorce, trustee process or similar process, whether legal or
equitable, upon such option.
12. Recapitalizations, Reorganizations and the Like.
(a) In the event that the outstanding shares of the Common Stock of the
Company are changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which options and stock awards may be granted under the Plan and as to which
outstanding options or awards or portions thereof then unexercised shall be
exercisable, to the end that the proportionate interest of the optionee or award
recipient shall be maintained as before the occurrence of such event; such
adjustment in outstanding options shall be made without change in the total
price applicable to the unexercised portion of such options and with a
corresponding adjustment in the option price per share.
(b) In addition, unless otherwise determined by the Committee in its
sole discretion, in the case of any (i) sale or conveyance to another entity of
all or substantially all of the property and assets of the Company or (ii)
Change in Control (as hereinafter defined) of the Company, the purchaser(s) of
the Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the shareholders of
the Company as a result of such sale, conveyance or Change in Control, or the
Committee may cancel all outstanding options in exchange for consideration in
cash or in kind, which consideration in both cases shall be equal in value to
the value of those shares of stock or other securities the optionee would have
received had the option been exercised (to the extent then exercisable) and no
disposition of the shares acquired upon such exercise been made prior to such
sale, conveyance or Change in Control, less the option price therefor. Upon
receipt of such consideration by the optionee, his or her option shall
immediately terminate and be of no further force and effect. The value of the
stock or other securities the optionee would have received if the option had
been exercised shall be determined in good faith by the Committee of the
Company, and in the case of shares of the Common Stock of the Company, in
accordance with the provisions of Section 7 hereof. The Committee shall also
have the power and right to accelerate the exercisability of any options,
notwithstanding any limitations in this Plan or in the Agreement upon such a
sale, conveyance or Change in Control, and in any event the exercisability of
options due to vest during the following twelve (12) month period shall
automatically be accelerated. Upon such acceleration, any options or portion
thereof originally designated as incentive stock options that no longer qualify
as incentive stock options under Section 422 of the Code as a result of such
acceleration shall be redesignated as non-qualified stock options. To the extent
permitted by law, upon such a sale, conveyance or a Change of Control the
Committee may, in its sole discretion, amend any Award Agreement issued under
the Plan in such manner as it deems appropriate, including without limitation,
by amendments that advance the dates upon which any or all
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<PAGE>
outstanding awards shall become free of restrictions or shall become issued or
payable, or that advance the dates upon which any or all outstanding awards
shall terminate.
A "Change in Control" shall be deemed to have occurred if any person, or
any two or more persons acting as a group, and all affiliates of such person or
persons, who prior to such time owned less than fifty percent (50%) of the then
outstanding Common Stock of the Company, shall acquire such additional shares of
the Company's Common Stock in one or more transactions, or series of
transactions, such that following such transaction or transactions, such person
or group and affiliates beneficially own fifty percent (50%) or more of the
Company's Common Stock outstanding.
(c) Upon dissolution or liquidation of the Company, all options granted
under this Plan shall terminate, but each optionee (if at such time in the
employ of or otherwise associated with the Company or any of its subsidiaries)
shall have the right, immediately prior to such dissolution or liquidation, to
exercise his or her option to the extent then exercisable. The Committee shall
have the right to accelerate the vesting of any award or take such other action
with respect thereto as the Committee shall in its sole discretion determine in
the event of any contemplated dissolution or liquidation of the Company.
(d) No fraction of a share shall be purchasable or deliverable upon the
exercise of any option or stock award, but in the event any adjustment hereunder
of the number of shares covered by the option or award shall cause such number
to include a fraction of a share, such fraction shall be adjusted to the nearest
smaller whole number of shares.
13. No Special Employment Rights.
Nothing contained in the Plan or in any option granted under the Plan shall
confer upon any option holder any right with respect to the continuation of his
employment by the Company (or any subsidiary) or interfere in any way with the
right of the Company (or any subsidiary), subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the option holder from the rate
in existence at the time of the grant of an option. Whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment shall be determined by the Committee at the time.
14. Withholding.
The Company's obligation to deliver shares upon settlement of an award
or upon the exercise of any option granted under the Plan, or to make any cash
payment in connection with an award, and any payments or transfers under Section
12 hereof, shall be subject to the option or award holder's satisfaction of all
applicable Federal, state and local governmental tax withholding requirements.
Whenever cash is to be paid pursuant to an award under the Plan, the Company
shall be entitled to deduct therefrom an amount sufficient in its opinion to
satisfy all
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<PAGE>
federal, state and local tax withholding requirements related to such payment.
Whenever shares of Common Stock are to be delivered pursuant to an award or the
exercise of an option under the Plan, the Company shall be entitled to require
as a condition of delivery that the option or award holder remit to the Company
an amount sufficient in the opinion of the Company to satisfy all federal, state
and local governmental tax withholding requirements related thereto. With the
approval of the Committee, which it shall have sole discretion to grant, and on
such terms and conditions as the Committee may impose, the option or award
holder may satisfy the foregoing condition by electing to have the Company
withhold from delivery shares having a value equal to the amount of tax to be
withheld. The Committee shall also have the right to require that shares be
withheld from delivery to satisfy such condition.
15. Restrictions on Issue of Shares.
(a) Notwithstanding the provisions of Section 8, the Company may delay
the issuance of shares covered by the exercise of an option and the delivery of
a certificate for such shares until one of the following conditions shall be
satisfied:
(i) The shares with respect to which such option has been
exercised are at the time of the issue of such shares effectively registered or
qualified under applicable Federal and state securities acts now in force or as
hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such shares are
exempt from registration and qualification under applicable Federal and state
securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be effective, and
the Company shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that the Company shall be under no
obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any option may be
exercised, except as otherwise agreed to by the Company in writing.
16. Purchase for Investment; Rights of Holder on Subsequent
Registration.
Unless the shares to be issued upon exercise of an option granted under
the Plan have been effectively registered under the Securities Act of 1933, as
now in force or hereafter amended, the Company shall be under no obligation to
issue any shares covered by any option unless the person who exercises such
option, in whole or in part, shall give a written representation and undertaking
to the Company which is satisfactory in form and scope to counsel for the
Company and upon which, in the opinion of such counsel, the Company may
reasonably rely, that he or she is acquiring the shares issued pursuant to such
exercise of the option for his or her own account as an investment and not with
a view to, or for sale in
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connection with, the distribution of any such shares, and that he or she will
make no transfer of the same except in compliance with any rules and regulations
in force at the time of such transfer under the Securities Act of 1933, or any
other applicable law, and that if shares are issued without such registration, a
legend to this effect may be endorsed upon the securities so issued. In the
event that the Company shall, nevertheless, deem it necessary or desirable to
register under the Securities Act of 1933 or other applicable statutes any
shares with respect to which an option shall have been exercised, or to qualify
any such shares for exemption from the Securities Act of 1933 or other
applicable statutes, then the Company may take such action and may require from
each optionee such information in writing for use in any registration statement,
supplementary registration statement, prospectus, preliminary prospectus or
offering circular as is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors and
controlling persons from such holder against all losses, claims, damages and
liabilities arising from such use of the information so furnished and caused by
any untrue statement of any material fact therein or caused by the omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made.
17. Loans.
The Company may not make loans to optionees to permit them to exercise
options.
18. Modification of Outstanding Options.
The Committee may authorize the amendment of any outstanding option with
the consent of the optionee when and subject to such conditions as are deemed to
be in the best interests of the Company and in accordance with the purposes of
this Plan.
19. Approval of Shareholders.
The Plan shall be subject to approval by the vote of shareholders
holding at least a majority of the voting stock of the Company voting in person
or by proxy at a duly held shareholders' meeting, or by written consent of
shareholders holding at least a majority of the voting stock of the Company,
within twelve (12) months after the adoption of the Plan by the Board of
Directors and shall take effect as of the date of adoption by the Board of
Directors upon such approval. The Committee may grant options under the Plan
prior to such approval, but any such option shall become effective as of the
date of grant only upon such approval and, accordingly, no such option may be
exercisable prior to such approval.
20. Termination and Amendment.
Unless sooner terminated as herein provided, the Plan shall terminate
ten (10) years from the date upon which the Plan was duly adopted by the Board
of Directors of the Company. The Board of Directors may at any time terminate
the Plan or make such modification or amendment
-11-
<PAGE>
thereof as it deems advisable; provided, however, that except as provided in
this Section 20, the Board of Directors may not, without the approval of the
shareholders of the Company obtained in the manner stated in Section 19,
increase the maximum number of shares for which options may be granted or change
the designation of the class of persons eligible to receive options under the
Plan. The Committee may terminate, amend or modify any outstanding option
without the consent of the option holder, provided, however, that, except as
provided in Section 12, without the consent of the optionee, the Committee shall
not change the number of shares subject to an option, nor the exercise price
thereof, nor extend the term of such option, or make any other change in the
Plan which requires stockholder approval under applicable law or regulations.
21. Reservation of Stock.
The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
22. Notices.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
Approved by the Directors: _______________
Approved by the Stockholders: ___________
-12-
MAKER COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Maker Communications, Inc., a Delaware
corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean the sum of the types and amounts of
compensation determined from time to time by the Board or the committee referred
to in Section 14 hereof in its sole discretion to be eligible to be taken into
account under the Plan, provided that no such determination shall include or
exclude any type or amount of compensation contrary to the requirements of
Section 423 of the Code.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering Period.
<PAGE>
(i) "Exercise Date" shall mean the last day of each Offering Period.
(j) "Fair Market Value" shall mean, as of any date, the value of Common
Stock determined as follows:
(1) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the Board.
(k) "Offering Period" shall mean a period of approximately three (3)
months during which an option granted pursuant to the Plan may be exercised, as
determined in accordance with Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(n) "Reserves" shall mean the number of shares of Common Stock covered
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock exchanges and
the Nasdaq System are open for trading.
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<PAGE>
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 404(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive Offering
Periods with a new Offering Period commencing on the first Trading Day of each
of the three month periods beginning February 7, May 1, August 1 and November 1
of each year or on such other date as the Board shall determine, and continuing
thereafter until terminated in accordance with Section 20 hereof. The first
Offering Period under the Plan shall commence on such date as is determined by
the Board and end on the last Trading Day on or before the end of the calender
quarter which includes such effective date. The Board shall have the power to
change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without stockholder approval if such
change is announced at least five (5) days prior to the scheduled beginning of
the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
prescribed for such purpose by the Company and filing it with the Company's
payroll office at least seven (7) days prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding 10% of the Participant's
Compensation.
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<PAGE>
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may decrease the rate of his or her payroll
deductions during the Offering Period by completing or filing with the Company a
new subscription agreement authorizing a change in payroll deduction rate. The
Board may, in its discretion, limit the number of participation rate changes
during any Offering Period. The change in rate shall be effective with the first
full payroll period following ten (10) business days after the Company's receipt
of the new subscription agreement unless the Company elects to process a given
change in participation more quickly. A participant's subscription agreement
shall remain in effect for successive Offering Periods unless terminated as
provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is disposed
of, the participant must make adequate provision for the Company's federal,
state or other tax withholding obligations, if any, which arise upon the
exercise of the option or the disposition of the Common Stock. At any time, the
Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase more than 3,000 shares each year or during
each Offering Period more than 750 shares (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The Option shall expire on the last day
of the Offering Period.
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<PAGE>
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which a
purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, the shares purchased upon exercise of his or her
option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company at
least seven days before the relevant Exercise Date. All of the participant's
payroll deductions credited to his or her account shall be paid to such
participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period shall be automatically terminated,
and no further payroll deductions for the purchase of shares shall be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions shall not resume at the beginning of the succeeding Offering
Period unless the participant delivers to the Company a new subscription
agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period, but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
5
<PAGE>
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the Company
as provided in Section 19 hereof, the maximum number of shares of the Company's
Common Stock which shall be made available for sale under the Plan shall be four
hundred thousand (400,000) shares If, on a given Exercise Date, the number of
shares with respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participants, or if no spouse,
6
<PAGE>
dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. Transferability. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 15 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds from
an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a New Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the
7
<PAGE>
Board. The New Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Board shall notify each participant in writing,
at least ten (10) business days prior to the New Exercise Date, that the
Exercise Date for the participant's option has been changed to the New Exercise
Date and that the participant's option shall be exercised automatically on the
New Exercise Date, unless prior to such date the participant has withdrawn from
the Offering Period as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors or any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as provided
in Section 19 and Section 20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
8
<PAGE>
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determinate that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(1) altering the Purchase Price for any Offering Period including
an Offering Period underway at the time of the change in Purchase Price;
(2) shortening any Offering Period so that Offering Period ends on
a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participant.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the stockholders of
the Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 20 hereof.
9
MAKER COMMUNICATIONS, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of this 1999 Non-Employee Director Stock Option Plan (the
"Plan") is to promote the interests of Maker Communications, Inc. (the
"Company") by providing an inducement to attract and retain the services of
qualified persons who are not employees or officers of the Company to serve as
members of its Board of Directors.
2. Shares Subject to the Plan.
The initial maximum number of shares of common stock, par value $.01 per
share, of the Company ("Common Stock") available for stock options granted under
the Plan through the end of the Company's fiscal year ending December 31, 1999
shall be 125,000 shares of Common Stock. In addition, effective January 1, 2000
and each January 1 thereafter during the term of this Plan, the number of shares
of Common Stock available for grants of stock options and stock awards made
after such January 1 under this Plan shall be increased automatically to an
amount equal to (i) 125,000 shares or (ii) a lesser amount determined by the
Board of Directors. The Board of Directors shall initially reserve for issuance
under this Plan 125,000 shares of Common Stock. Effective January 1, 2000 and
effective on each succeeding January 1 thereafter during the term of this Plan,
the Board of Directors shall reserve for issuance under this Plan such number of
shares of Common Stock as is equal to the sum of (i) the number of shares of
Common Stock issuable upon the exercise of options then outstanding under the
Plan; and (ii) the number of shares of Common Stock resulting from the
calculation set forth in the second sentence of this paragraph. The number of
shares set forth herein shall be subject to adjustment in accordance with
Section 9 hereof.
3. Administration.
This Plan shall be administered by the Board of Directors (the "Board").
The Board shall, subject to the provisions of this Plan, have the power to
construe this Plan, to determine all questions hereunder, and to adopt and amend
such rules and regulations for the administration of this Plan as it may deem
desirable. No member of the Board shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.
4. Eligibility; Grant of Option.
Existing Director Options. Each of Roger Evans, Robi Soni and Louis
Tomasetta, who are the current non-employee directors of the Company who are not
otherwise employees of the Company, shall be granted initially an option to
acquire 20,000 Shares under this Plan (the "Existing Director Options"). The
date of grant for such options granted to the current
<PAGE>
non-employee directors named above shall be January 21, 1999, the date of
adoption of this Plan by the Board.
New Director Options. Subject to the availability of shares of Common Stock
under this Plan, each person who is first elected as a member of the Board after
the adoption of this Plan and during the term of this Plan and who is not an
employee or officer of the Company on the date of such election shall be granted
on such date an option to purchase 20,000 shares of Common Stock (the "New
Director Options").
Subsequent Options. In addition to the New Director Options and the
Existing Director Options, each non-employee director of the Company granted
either New Director Options or Existing Director Options pursuant to this Plan
will automatically be granted an option to purchase 15,000 shares (a "Subsequent
Option") on the date two days after the announcement of the Company's fiscal
year-end earnings of each year, if on such date he or she will have served on
the Board of Directors for at least the preceding six months.
The Existing Director Options, the New Director Options and the Subsequent
Director Options (collectively, the "Options") shall be non-qualified options
not intended to meet the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
5. Option Agreement.
Each Option granted under this Plan shall be evidenced by an option
agreement (the "Agreement") duly executed on behalf of the Company and by the
director to whom such Option is granted, which Agreement shall (i) comply with
and be subject to the terms and conditions of this Plan and (ii) provide that
the optionee agrees to continue to serve as a director of the Company during the
term for which he was elected.
6. Option Exercise Price.
Existing Director Options. The option exercise price for the Existing
Director Options granted this date shall be $4.40.
New Director Options and Subsequent Options. Subject to the provisions of
Section 9 hereof, the option exercise price for New Director Options and
Subsequent Options granted under this Plan shall be the fair market value of the
shares of Common Stock covered by the option on the date of grant of the option.
If such shares are then listed on any national securities exchange, the fair
market value shall be the mean between the high and low sales prices, if any, on
such exchange on the date of the grant of the option or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales
2
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prices on the nearest date before and the nearest date after the date of grant.
If the shares are not then listed on any such exchange, the fair market value of
such shares shall be the mean between the high and low sales prices, if any, as
reported in the National Association of Securities Dealers Automated Quotation
System National Market System ("NASDAQ/NMS") for the date of the grant of the
option, or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales on the nearest date before and the
nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the shares are not then either listed on any such exchange
or quoted in NASDAQ/NMS, the fair market value shall be the mean between the
average of the "Bid" and the average of the "Ask" prices, if any, as reported in
the National Daily Quotation Service for the date of the grant of the option,
or, if none, shall be determined by taking a weighted average of the means
between the highest and lowest sales prices on the nearest date before and the
nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the fair market value cannot be determined under the
preceding three sentences, it shall be determined in good faith by the Board.
7. Vesting of Shares and Transferability of Options.
(a) Vesting. Options granted under the Plan shall not be exercisable
until they become vested. Options granted under the Plan shall be vested by the
optionee and thus become exercisable, in accordance with the following schedules
provided that the optionee has continuously served as a member of the Board
through such vesting date:
Existing Director Options: Existing Director Options granted under the Plan
shall be exercisable in full immediately upon grant.
New Director Options and Subsequent Options: Will vest as determined by the
Board.
Change of Control: In the event the Company undergoes a change of control
all of the Options granted pursuant to this Plan shall immediately vest and
become fully exercisable upon the change of control. For purposes of the Plan, a
"Change of Control" shall be deemed to have occurred if any of the following
conditions have occurred: (1) the merger or consolidation of the Company with
another entity where the Company is not the surviving entity and where after the
merger or consolidation (i) its stockholders prior to the merger or
consolidation hold less than 50% of the voting stock of the surviving entity and
(ii) its Directors prior to the merger or consolidation are less than a majority
of the Board of the surviving entity; (2) the sale of all or substantially all
of the Company's assets to a third party and subsequent to the transaction (i)
its stockholders hold less than 50% of the stock of said third party and (ii)
its Directors are less than a majority of the Board of said third party; (3) a
transaction or series of related transactions,
3
<PAGE>
including a merger of the Company with another entity where the Company is the
surviving entity, whereby (i) 50% or more of the voting stock of the Company
after the transaction(s) is owned actually or beneficially by parties who held
less than thirty percent (30%) of the voting stock, actually or beneficially,
prior to the transaction(s) and (ii) its Board of Directors after the
transaction(s) or within 60 days thereof, is comprised of less than a majority
of the Directors serving prior to the transaction(s); or (4) the Continuing
Directors shall not constitute a majority of the Board of Directors of the
Company. The term "Continuing Directors" shall mean a member of the Board of
Directors of the Company who either was a member of the Board of Directors of
the Company on the date this Plan was adopted by the Board of Directors or who
subsequently became a director of the Company and whose initial appointment,
initial election or initial nomination for election by the Company's
shareholders subsequent to such date was approved by a vote of a majority of the
Continuing Directors then on the Board of Directors of the Company.
(b) Exercise. To the extent that the right to exercise an Option has
accrued and is in effect, the Option may be exercised in full at one time or in
part from time to time by giving written notice, signed by the person or persons
exercising the Option, to the Company, stating the number of shares of Common
Stock with respect to which the Option is being exercised, accompanied by
payment in full for such shares, which payment may be in cash or in whole or in
part in shares of Common Stock already owned for a period of at least six (6)
months by the person or persons exercising the Option, valued at fair market
value, as determined under Section 6 hereof, on the date of exercise; provided,
however, that there shall be no such exercise at any one time as to fewer than
two hundred fifty (250) shares or all of the remaining shares then purchasable
by the person or persons exercising the Option, if fewer than two hundred fifty
(250) shares. Upon such exercise, delivery of a certificate for paid-up
non-assessable shares shall be made at the principal office of the Company to
the person or persons exercising the Option at such time, during ordinary
business hours, not more than thirty (30) days from the date of receipt of the
notice by the Company, as shall be designated in such notice, or at such time,
place and manner as may be agreed upon by the Company and the person or persons
exercising the Option.
(d) Legend on Certificates. The certificates representing such shares
shall carry such appropriate legend, and such written instructions shall be
given to the Company's transfer agent, as may be deemed necessary or advisable
by counsel to the Company in order to comply with the requirements of the
Securities Act of 1933, as amended, or any state securities laws.
(e) Transferability. Any Option granted pursuant to this Plan shall not
be assignable or transferable other than by will or the laws of descent and
distribution, except that an optionee may transfer Options granted under this
Plan to the optionee's spouse or children or to a trust for the benefit of the
optionee or the optionee's spouse or children.
4
<PAGE>
8. Term of Options.
(a) Each Option shall expire no more than ten (10) years from the date
of the granting thereof, but shall be subject to earlier termination as herein
provided.
(b) Except as otherwise provided in this Section 8, in the event that
an optionee ceases to be a director of the Company, the Option granted to such
optionee may be exercised by him, but only to the extent that under Section 6
hereof the right to exercise the Option has accrued and is in effect. Such
Option may be exercised at any time prior to the last day of the first month
after the date such optionee ceases to be a director of the Company, at which
time the Option shall terminate, or prior to the date on which the Option
expires by its terms, whichever is earlier.
(c) If the optionee ceases to be a director of the Company because the
optionee has become permanently disabled (within the meaning of Section 22(e)(3)
of the Code), the Option granted to such optionee may be exercised by the
optionee, to the extent the optionee was entitled to do so on the date such
optionee ceases to be a director. Such Option may be exercised at any time
within six months after the date the optionee ceases to be a director, at which
time the Option shall terminate, or prior to the date on which the Option
otherwise expires by its terms, whichever is earlier.
(d) In the event of the death of an optionee, the Option granted to
such optionee may be exercised, to the extent the optionee was entitled to do so
on the date of such optionee's death, by the estate of such optionee or by any
person or persons who acquired the right to exercise such Option by bequest or
inheritance or otherwise by reason of the death of such optionee. Such Option
may be exercised at any time within one (1) year after the date of death of such
optionee, at which time the Option shall terminate, or prior to the date on
which the Option otherwise expires by its terms, whichever is earlier.
9. Adjustments.
Subject to the right to acceleration upon a change of control, as set forth
in Section 7(a) hereof, upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him or her hereunder shall
be adjusted as hereinafter provided, unless otherwise specifically provided in
the written agreement between the optionee and the Company relating to such
Option:
(a) Stock Dividends and Stock Splits. If, the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number
5
<PAGE>
of shares of Common Stock deliverable upon the exercise of Options shall be
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
(b) Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company pursuant to which securities
of the Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, an optionee upon exercising an Option shall
be entitled to receive for the purchase price paid upon such exercise the
securities he would have received if he had exercised his Option prior to such
recapitalization or reorganization.
(c) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
(d) Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(e) Fractional Shares. No fractional shares shall be issued under this
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
(f) Adjustments. Upon the happening of any of the events described in
subparagraphs (a) or (b) above, the class and aggregate number of shares set
forth in Section 2 hereof that are subject to Options which previously have been
or subsequently may be granted under this Plan shall also be appropriately
adjusted to reflect the events described in such subparagraphs. The Board shall
determine the specific adjustments to be made under this paragraph 9 and,
subject to Section 3, its determination shall be conclusive.
10. Restrictions on Issue of Shares.
Notwithstanding the provisions of Section 7 hereof, the Company may delay
the issuance of shares of Common Stock covered by the exercise of any Option and
the delivery of a certificate for such shares until one of the following
conditions shall be satisfied:
6
<PAGE>
(i) the shares with respect to which an Option has been exercised are
at the time of the issue of such shares effectively registered under applicable
Federal and state securities acts now in force or hereafter amended; or
(ii) counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that such shares are exempt
from registration under applicable Federal and state securities acts now in
force or hereafter amended.
It is intended that all exercises of Options shall be effective.
Accordingly, the Company shall use its best efforts to bring about compliance
with the above conditions within a reasonable time, except that the Company
shall be under no obligation to cause a registration statement or a
post-effective amendment to any registration statement to be prepared at its
expense solely for the purpose of covering the issue of shares in respect of
which any Option may be exercised, except as otherwise agreed to by the Company
in writing.
11. Rights of Holder on Purchase for Investment; Subsequent
Registration.
Unless the shares of Common Stock to be issued upon exercise of an Option
granted under this Plan have been effectively registered under the Securities
Act of 1933 as now in force or hereafter amended, the Company shall be under no
obligation to issue any shares covered by any Option unless the person who
exercises such Option, in whole or in part, shall give a written representation
and undertaking to the Company which is satisfactory in form and scope to
counsel to the Company and upon which, in the opinion of such counsel, the
Company may reasonably rely, that he is acquiring the shares issued to him
pursuant to such exercise of the Option for his own account as an investment and
not with a view to, or for sale in connection with, the distribution of any such
shares, and that he will make no transfer of the same except in compliance with
any rules and regulations in force at the time of such transfer under the
Securities Act of 1933, as amended, or any other applicable law, and that if
shares are issued without such registration a legend to this effect may be
endorsed upon the securities so issued. In the event that the Company shall,
nevertheless, deem it necessary or desirable to register under the Securities
Act of 1933, as amended, or other applicable statutes any shares with respect to
which an Option shall have been exercised, or to qualify any such shares for
exemption from the Securities Act of 1933, as amended, or other applicable
statutes, then the Company shall take such action at its own expense and may
require from each optionee such information in writing for use in any
registration statement, prospectus, preliminary prospectus or offering circular
as is reasonably necessary for such purpose and may require reasonable indemnity
to the Company and its officers and directors from such holder against all
losses, claims, damages and liabilities arising from such use of the information
so furnished and caused by any untrue statement of any material fact therein or
caused by the omission to state a material fact required to be stated
7
<PAGE>
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made.
12. Loans Prohibited.
The Company shall not, directly or indirectly, lend money to an optionee or
to any person or persons entitled to exercise an Option by reason of the death
of an optionee for the purpose of assisting him or them in the acquisition of
shares covered by an Option granted under this Plan.
13. Termination and Amendment of Plan.
Unless sooner terminated as herein provided, this Plan shall terminate ten
(10) years from the date upon which this Plan was duly approved by the
shareholders. The Board may at any time terminate this Plan or make such
modification or amendment thereof as it deems advisable.
14. Limitation of Rights in the Option Shares.
An optionee shall not be deemed for any purpose to be a shareholder of the
Company with respect to any of the Options except to the extent that the Option
shall have been exercised with respect thereto and, in addition, a certificate
shall have been issued theretofore and delivered to the optionee.
15. Notices.
Any communication or notice required or permitted to be given under this
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
Adopted by the Board of Directors:____________________
Approved by the Shareholders:_______________________
8
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this
"Agreement") is entered into as of this ___ day of _________, 199__, by and
among Maker Communications, Inc., a Delaware corporation (the "Company"), and
the indemnitee listed on the signature page hereto (the "Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees,
shareholders, controlling persons, agents and fiduciaries, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, controlling persons, shareholders, agents and fiduciaries to
expensive litigation risks at the same time as the availability and coverage of
liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, shareholders, controlling persons, agents and fiduciaries
of the Company may not be willing to serve in such capacities without additional
protection.
D. The Company (i) desires to attract and retain the involvement of
highly qualified individual and entities, such as Indemnitee, to serve the
Company and, in part, in order to induce the Indemnitee to be involved with the
Company and (ii) wishes to provide for the indemnification and advancing of
expenses to the Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that the Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and the Indemnitee hereby
agrees as follows:
1. Indemnification.
a. Indemnification of Expenses. The Company
shall indemnify and hold harmless Indemnitee (including his partners,
affiliates, employees, agents and spouse) and each person who controls any of
them or who may be liable within the meaning of Section 15 of the Securities Act
of 1933, as amended (the "Securities Act"), or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to the fullest extent
permitted by law if Indemnitee
<PAGE>
was or is or becomes a party to or witness or other participant in, or is
threatened to be made a party to or witness or other participant in, any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
believes might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part or in whole out of) any event or occurrence related to the fact
that Indemnitee is or was or may be deemed a director, officer, employee,
controlling person, agent or fiduciary of the Company, or any subsidiary of the
Company, or is or was serving at the request of the Company as a director,
officer, employee, controlling person, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of such Indemnitee while serving in such
capacity including, without limitation, any and all losses, claims, damages,
expenses and liabilities, joint or several (including any investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit, proceeding or any claim asserted) under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise or which relate directly or indirectly to
the registration, purchase, sale or ownership of any securities of the Company
or to any fiduciary obligation owed with respect thereto (hereinafter an
"Indemnification Event") against any and all expenses (including attorneys' fees
and all other costs, expenses and obligations incurred in connection with
investigating, defending a witness in or participating in (including on appeal),
or preparing to defend, be a witness in or participate in, any such action,
suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or
investigation), judgments, fines, penalties and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) of such Claim and any federal, state, local or foreign
taxes imposed on Indemnitee as a result of the actual or deemed receipt of any
payments under this Agreement (collectively, hereinafter "Expenses"), including
all interest, assessments and other charges paid or payable in connection with
or in respect of such Expenses. Such payment of Expenses shall be made by the
Company as soon as practicable but in any event no later than ten (10) days
after written demand by the Indemnitee therefor is presented to the Company.
b. Reviewing Party. Notwithstanding the
foregoing, (i) the obligations of the Company under Section 1(a) shall be
subject to the condition that the Reviewing Party (as described in Section 10(e)
hereof) shall not have determined (in a written opinion, in any case in which
the Independent Legal Counsel referred to in Section 1(e) hereof is involved)
that Indemnitee would not be permitted to be indemnified under applicable law,
and (ii) and Indemnitee acknowledges and agrees that the obligation of the
Company to make an advance payment of Expenses to Indemnitee pursuant to Section
2(a) (an "Expense Advance") shall be subject to the condition that, if, when and
to the extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final
<PAGE>
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for any Expense Advance shall be unsecured and no interest
shall be charged thereon. If there has not been a Change in Control (as defined
in Section 10(c) hereof), the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel referred to in Section
1(e) hereof. If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation seeking an initial determination by the
court or challenging any such determination by the Reviewing Party or any aspect
thereof, including the legal or factual bases therefor, and the Company hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.
c. Contribution. If the indemnification provided
for in Section 1(a) above for any reason is held by a court of competent
jurisdiction to be unavailable to an Indemnitee in respect of any losses,
claims, damages, expenses or liabilities referred to therein, then the Company,
in lieu of indemnifying such Indemnitee thereunder, shall contribute to the
amount paid or payable by Indemnitee as a result of such losses, claims,
damages, expenses or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Indemnitee, 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 and the Indemnitee in connection with the action or inaction which
resulted in such losses, claims, damages, expenses or liabilities, as well as
any other relevant equitable considerations. In connection with the registration
of the Company's securities, the relative benefits received by the Company and
the Indemnitee shall be deemed to be in the same respective proportions that the
net proceeds from the offering (before deducting expenses) received by the
Company and the Indemnitee, in each case as set forth in the table on the cover
page of the applicable prospectus, bear to the aggregate public offering price
of the securities so offered. The relative fault of the Company and the
Indemnitee shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Indemnitee and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Indemnitee agree that it
would not be just and equitable if contribution pursuant to this Section 1(c)
were determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. In connection with the registration
of the Company's securities, in no event shall Indemnitee be required to
contribute any amount under this Section 1(c) in excess of the lesser of (i)
that proportion of the total of such losses, claims, damages or liabilities
indemnified against equal to the proportion of the total securities sold under
such registration statement which is being sold by Indemnitee or (ii) the
proceeds received by Indemnitee from its sale
<PAGE>
of securities under such registration statement. No person found 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
found guilty of such fraudulent misrepresentation.
d. Survival Regardless of Investigation. The
indemnification and contribution provided for in this Section 1 will remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnitee or any officer, director, employee, agent or controlling person
of the Indemnitee.
e. Change in Control. After the date hereof, the
Company agrees that if there is a Change in Control of the Company (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control)
then, with respect to all matters thereafter arising concerning the rights of
Indemnitee to payments of Expenses under this Agreement or any other agreement
or under the Company's Certificate of Incorporations or Bylaws as now or
hereafter in effect, Independent Legal Counsel (as defined in Section 10(d)
hereof) shall be selected by the Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether and
to what extent Indemnitee would be permitted to be indemnified under applicable
law. The Company agrees to abide by such opinion and to pay the reasonable fees
of the Independent Legal Counsel referred to above and to fully indemnify such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
f. Mandatory Payment of Expenses.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in the defense of any
action, suit, proceeding, inquiry or investigation referred to in Section 1(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
herewith.
2. Expenses; Indemnification Procedure.
a. Advancement of Expenses. The Company shall
advance all Expenses incurred by Indemnitee. The advances to be made hereunder
shall be paid by the Company to Indemnitee as soon as practicable but in any
event no later than five days after written demand by such Indemnitee therefor
to the Company.
b. Notice/Cooperation by Indemnitee. Indemnitee
shall give the Company notice as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
agreement (or such other address as the Company shall designate in writing to
Indemnitee).
<PAGE>
c. No Presumptions; Burden of Proof. For
purposes of this Agreement, the termination of any Claim by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law. In addition, neither the failure of the Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law, shall be a defense to Indemnitee's
claim or create a presumption that Indemnitee has not met any particular
standard of conduct or did not have any particular belief. In connection with
any determination by the Reviewing Party or otherwise as to whether Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
d. Notice to Insurers. If, at the time of the
receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof,
the Company has liability insurance in effect which may cover such Claim, the
Company shall give prompt written notice of the commencement of such Claim to
the insurers in accordance with the procedures set forth in each of the
policies. The Company shall thereafter take all necessary or desirable action to
cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a
result of such action, suit, proceeding, inquiry or investigation in accordance
with the terms of such policies.
e. Selection of Counsel. In the event the
Company shall be obligated hereunder to pay the Expenses of any Claim, the
Company shall be entitled to assume the defense of such Claim, with counsel
reasonably approved by the applicable Indemnitee, upon the delivery to
Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by the Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) the Indemnitee shall have the
right to employ Indemnitee's counsel in any such Claim at the Indemnitee's
expense; (ii) the Indemnitee shall have the right to employ his own counsel in
connection with any such proceeding, at the expense of the Company, if such
counsel serves in a review, observer, advice and counseling capacity and does
not otherwise materially control or participate in the defense of such
proceeding; and (iii) if (A) the employment of counsel by the Indemnitee has
been previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there is a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of the Indemnitee's counsel shall be at the expense of the Company. The Company
shall have the right to conduct such defense as it sees fit in its sole
discretion, including the right to settle any claim against any Indemnitee
without the consent of Indemnitee.
<PAGE>
3. Additional Indemnification Rights;
Nonexclusivity.
a. Scope. The Company hereby agrees to indemnify
Indemnitee to the fullest extent permitted by law, even if such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, controlling person,
agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall
enjoy by this Agreement the greater benefits afforded by such change. In the
event of any change in any applicable law, statute or rule which narrows the
right of a Delaware corporation to indemnify a member of its Board of Directors
or an officer, employee, agent or fiduciary, such change, to the extent not
otherwise required by such law, statute or rule to be applied to this Agreement,
shall have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
b. Nonexclusivity. The indemnification provided
by this Agreement shall be in addition to any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
Indemnitee took or did not take while serving in an indemnified capacity even
though the Indemnitee may have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall
not be liable under this Agreement to make any payment in connection with any
Claim made against any Indemnitee to the extent Indemnitee has otherwise
actually received payment (under any insurance policy, Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise indemnifiable
hereunder.
5. Partial Indemnification. If any Indemnitee is
entitled under any provision of this Agreement to indemnification by the Company
for any portion of Expenses incurred in connection with any Claim, but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such Expenses to which Indemnitee is
entitled.
6. Mutual Acknowledgment. The Company and
Indemnitee acknowledge that in certain instances, Federal law or applicable
public policy may prohibit the Company from indemnifying its directors,
officers, employees, controlling persons, agents or fiduciaries under this
Agreement or otherwise. Each Indemnitee understands and acknowledges that the
Company has undertaken or may be required to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's rights under public
policy to indemnify Indemnitee.
7. Liability Insurance. To the extent the
Company maintains liability insurance applicable to directors, officers,
employees, control persons, agents or fiduciaries, each Indemnitee shall be
covered by such policies in such a manner as to provide Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors, if Indemnitee is
<PAGE>
a director, or of the Company's officers, if Indemnitee is not a director of the
Company but is an officer; or of the Company's key employees, controlling
persons, agents or fiduciaries, if Indemnitee is not an officer or director but
is a key employee, agent, control person, or fiduciary.
8. Exceptions. Any other provision herein to the
contrary notwithstanding, the Company shall not be obligated pursuant to the
terms of this Agreement:
a. Claims Initiated by Indemnitee. To indemnify
or advance expenses to any Indemnitee with respect to Claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except (i) with
respect to actions or proceedings to establish or enforce a right to indemnify
under this Agreement or any other agreement or insurance policy or under the
Company's Certificate of Incorporation or Bylaws now or hereafter in effect
relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board
of Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under section 145 of Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be; or
b. Claims Under Section 16(b). To indemnify any
Indemnitee for expenses and the payment of profits arising from the purchase and
sale by Indemnitee of securities in violation of Section 16(b) of the Exchange
Act or any similar successor statute; or
c. Claims Excluded Under Section 145 of the
Delaware General Corporation Law. To indemnify an Indemnitee if (i) he did not
act in good faith and in a manner reasonably believed to be in or not opposed to
the best interests of the Company, or (ii) with respect to any criminal action
or proceeding, Indemnitee had reasonable cause to believe his conduct was
unlawful, or (iii) Indemnitee shall have been adjudged to be liable to the
Company unless and only to the extent the court in which such action was brought
shall permit indemnification as provided in Section 145(b) of the Delaware
General Corporation Law.
9. Period of Limitations. No legal action shall
be brought and no cause of action shall be asserted by or in the right of the
Company against any Indemnitee, any Indemnitee's estate, spouse, heirs,
executors or personal or legal representatives after the expiration of five (5)
years from the date of accrual of such cause of action, and any claim or cause
of action of the Company shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such five (5) year
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action, such shorter period shall
govern.
10. Construction of Certain Phrases.
a. For purposes of this Agreement, references to
the "Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was or may be deemed a
director, officer, employee, agent, control person, or fiduciary of such
constituent corporation, or is or was serving at the request
<PAGE>
of such constituent corporation as a director, officer, employee, control
person, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as each Indemnitee would have with respect to
such constituent corporation if its separate existence had continued.
b. For purposes of this Agreement, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on any Indemnitee with respect to an
employee benefit plan; and references to "serving at the request of the Company"
shall include any service as a director, officer, employee, agent or fiduciary
of the Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if any Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
c. For purposes of this Agreement a "Change in
Control" shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the shareholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, (A) who is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing 10% or more of the combined voting
power of the Company's then outstanding Voting Securities, increases his
beneficial ownership of such securities by 5% or more over the percentage so
owned by such person, or (B) becomes the "beneficial owner" (as defined in Rule
13d-3 under said Exchange Act), directly or indirectly, of securities of the
Company representing more than 20% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the shareholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the
Company's assets.
d. For purposes of this Agreement, "Independent
Legal Counsel" shall mean an attorney or firm of attorneys, selected in
accordance with the provisions of Section 1(e)
<PAGE>
hereof, who shall not have otherwise performed services for the Company or any
Indemnitee within the last three (3) years (other than with respect to matters
concerning the right of any Indemnitee under this Agreement, or of other
indemnitees under similar indemnity agreements).
e. For purposes of this Agreement, a "Reviewing
Party" shall mean any appropriate person or body consisting of a member or
members of the Company's Board of Directors or any other person or body
appointed by the Board of Directors who is not a party to the particular Claim
for which Indemnitee is seeking indemnification, or Independent Legal Counsel.
f. For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company that vote generally in the
election of directors.
11. Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective successors, assigns, including any
direct or indirect successor by purchase, merger, consolidation or otherwise to
all or substantially all of the business and/or assets of the Company, spouses,
heirs, and personal and legal representatives. The Company shall require and
cause any successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business and/or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether any Indemnitee continues to serve as a director, officer,
employee, agent, controlling person, or fiduciary of the Company or of any other
enterprise, including subsidiaries of the Company, at the Company's request.
13. Attorneys' Fees. In the event that any
action is instituted by an Indemnitee under this Agreement or under any
liability insurance policies maintained by the Company to enforce or interpret
any of the terms hereof or thereof, any Indemnitee shall be entitled to be paid
all Expenses incurred by Indemnitee with respect to such action, regardless of
whether Indemnitee is ultimately successful in such action, and shall be
entitled to the advancement of Expenses with respect to such action, unless, as
a part of such action, a court of competent jurisdiction over such action
determines that each of the material assertions made by Indemnitee as a basis
for such action was not made in good faith or was frivolous. In the event of an
action instituted by or in the name of the Company under this Agreement to
enforce or interpret any of the terms of this Agreement, the Indemnitee shall be
entitled to be paid all Expenses incurred by Indemnitee in defense of such
action (including costs and expenses incurred with respect to Indemnitee
counterclaims and cross-claims made in such action), and shall be entitled to
the advancement of Expenses with respect to such action, unless, as a part of
such action, a court having jurisdiction over such action determines that each
of Indemnitee's material defenses to such action was made in bad faith or was
frivolous.
<PAGE>
14. Notice. All notices and other communications
required or permitted hereunder shall be in writing, shall be effective when
given, and shall in any event be deemed to be given (a) five (5) days after
deposit with the U.S. Postal Service or other applicable postal service, if
delivered by first class mail, postage prepaid, (b) upon delivery, if delivered
by hand, (c) one business day after the business day of deposit with Federal
Express or similar overnight courier, freight prepaid, or (d) one day after the
business day of delivery by facsimile transmission, if deliverable by facsimile
transmission, with copy by first class mail, postage prepaid, and shall be
addressed if to Indemnitee, at each Indemnitee's business address and if to the
Company, at the address of its principal corporate offices (attention:
Secretary) or at such other address as such party may designate by ten (10)
days' advance written notice to the other party hereto.
15. Consent to Jurisdiction. The Company and
Indemnitee each hereby irrevocably consent to the jurisdiction and venue of the
courts of the State of Delaware for all purposes in connection with any action
or proceeding which arises out of or relates to this Agreement and agree that
any action instituted under this Agreement shall be commenced, prosecuted and
continued only in the Court of Chancery of the State of Delaware in and for New
Castle County, which shall be the exclusive and only proper forum for
adjudicating such a claim.
16. Severability. The provisions of this
Agreement shall be severable in the event that any of the provisions hereof
(including any provision within a single section, paragraph or sentence) are
held by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, and the remaining provisions shall remain enforceable to the
fullest extent permitted by law. Furthermore, to the fullest extent possible,
the provisions of this Agreement (including, without limitations, each portion
of this Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
17. Choice of Law. This Agreement shall be
governed by and its provisions construed and enforced in accordance with the
laws of the State of Delaware, as applied to contracts between Delaware
residents, entered into and to be performed entirely within the State of
Delaware, without regard to the conflict of laws principles thereof.
18. Subrogation. In the event of payment under
this Agreement, the Company shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee who shall execute all documents
required and shall do all acts that may be necessary to secure such rights and
to enable the Company effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment,
modification, termination or cancellation of this Agreement shall be effective
unless it is in writing signed by all parties hereto. Notice of same shall be
provided to all parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. This
Agreement sets forth the entire understanding between the parties hereto and
supersedes and merges all previous written and oral
<PAGE>
negotiations, commitments, understandings and agreements relating to the subject
matter hereof between the parties hereto.
21. No Construction as Employment Agreement.
Nothing contained in this Agreement shall be construed as giving the Indemnitee
any right to be retained in the employ of the Company or any of its
subsidiaries.
22. Corporate Authority. The Board of Directors
of the Company and its shareholders have approved the terms of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
executed this Indemnification Agreement on and as of the day and year first
above written.
MAKER COMMUNICATIONS, INC.,
a Delaware corporation
By: ___________________________________
Title: ____________________________________
INDEMNITEE:
---------------------------------------
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
April 14, 1999
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William Guidice and
Michael Rubino and each of them singly, his true and lawful attorney-in-fact and
agent of the undersigned, to sign for the undersigned and in his name as a
Director of Maker Communications, Inc., the Maker Communications, Inc.
Registration Statement on Form S-1 and any and all pre-effective and
post-effective amendments to said Registration Statement, and in connection with
any registration of additional securities pursuant to Rule 462(b) under the
Securities Act of 1933, to sign any abbreviated registration statement and any
and all amendments thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, in each case with the Securities and
Exchange Commission, and generally to do all such things in his name and on his
behalf in his capacities with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission.
The power of attorney granted herein shall be deemed to be coupled with an
interest and may be exercised by such attorney-in-fact to execute on behalf of
the undersigned the applications, instruments, documents and certificates
referred to above, which applications, instruments, documents and certificates
shall be deemed to be authorized, valid and binding, and enforceable without
further inquiry.
Dated: April 14, 1999
/s/ Paul Low
-------------------------------
Paul Low
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<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001050132
<NAME> MAKER COMMUNICATIONS, INC.
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<CASH> 13615
<SECURITIES> 0
<RECEIVABLES> 1022
<ALLOWANCES> 90
<INVENTORY> 296
<CURRENT-ASSETS> 14949
<PP&E> 1759
<DEPRECIATION> 807
<TOTAL-ASSETS> 15957
<CURRENT-LIABILITIES> 2721
<BONDS> 0
23440
32
<COMMON> 59
<OTHER-SE> (11437)
<TOTAL-LIABILITY-AND-EQUITY> 15957
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<INCOME-PRETAX> (3754)
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<NET-INCOME> (3754)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001050132
<NAME> MAKER COMMUNICATIONS, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
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<PERIOD-END> MAR-31-1999
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<BONDS> 0
23890
32
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<CGS> 1043
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