<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
MIPS TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3674 77-0322161
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) Number)
</TABLE>
1225 CHARLESTON ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 567-5000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
Of Registrant's Principal Executive Offices)
JOHN E. BOURGOIN
MIPS TECHNOLOGIES, INC.
1225 CHARLESTON ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 567-5000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------
COPIES TO:
WILLIAM H. HINMAN, JR. DONALD M. KELLER, JR.
Shearman & Sterling Venture Law Group,
1550 El Camino Real A Professional Corporation
Menlo Park, California 94025 2800 Sand Hill Road
(650) 330-2200 Menlo Park, California 94025
(650) 854-4488
------------------
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, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(1)(3) REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A Common Stock, par value $0.001 per
share 6,900,000 shares $42.375 $292,387,500 $81,283.73
</TABLE>
(1) Includes an aggregate of 900,000 shares of Class A Common Stock that the
Underwriters have the option to purchase from the Selling Stockholder to
cover over-allotments, if any.
(2) Based on the high and low prices reported on the Nasdaq National Market
system on February 25, 1999.
(3) Estimated solely for the purpose of calculating the registration fee and
based on the high and low prices.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
On January 29, 1999, MIPS Technologies, Inc. filed a preliminary proxy
statement (the "Proxy Statement") with the U.S. Securities and Exchange
Commission relating to a special meeting of its stockholders called for the
purpose of approving a proposal to recapitalize the authorized capital stock of
MIPS Technologies, including (1) the approval and adoption of an amended and
restated certificate of incorporation and by-laws of MIPS Technologies pursuant
to which each issued and outstanding share of MIPS Technologies' common stock,
par value $0.001 per share, will be redesignated as one share of newly created
and issued Class A common stock, par value $0.001 per share (the "Class A Common
Stock"), of MIPS Technologies and (2) the exchange by Silicon Graphics, Inc. of
each share of Class A Common Stock it will own for one share of newly created
and issued Class B common stock, par value $0.001 per share, of MIPS
Technologies (the "Recapitalization"). The offering of shares of Class A Common
Stock described in the prospectus contained herein will only be consummated if
the Recapitalization is approved by MIPS Technologies' stockholders and effected
by MIPS Technologies, as described in the Proxy Statement. All information in
this Registration Statement and the prospectus contained herein assumes that the
Recapitalization is approved by the stockholders of MIPS Technologies and
becomes effective.
<PAGE>
SUBJECT TO COMPLETION. DATED FEBRUARY 26, 1999.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
6,000,000 Shares
[LOGO]
Class A Common Stock
-------------
This is an offering of shares of Class A Common Stock of MIPS Technologies,
Inc. Silicon Graphics, Inc., a Delaware corporation, is offering all of the
shares. MIPS Technologies will not receive any of the proceeds from the sale of
the shares. The holders of MIPS Technologies' Class A Common Stock have the
right, voting as a class, to elect 20% (but in no event less than one) of the
members of MIPS Technologies' board of directors, while the holders of MIPS
Technologies' Class B Common Stock have the right to elect the remaining
directors. The Class A Common Stock and Class B Common Stock are substantially
identical in all other respects. Silicon Graphics owns all of the outstanding
shares of Class B Common Stock. Upon completion of this offering, Silicon
Graphics will own 69% of the total outstanding Class A Common Stock and Class B
Common Stock (or 67% if the Underwriters' overallotment option is exercised in
full), consisting solely of shares of Class B Common Stock.
MIPS Technologies' common stock is traded on The Nasdaq National Market
under the symbol "MIPS". MIPS Technologies will apply to redesignate MIPS
Technologies' existing common stock as Class A Common Stock under the symbol
"MIPS". On February 25, 1999, the last reported sale price of MIPS Technologies'
common stock on The Nasdaq National Market was $40.375 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF THE CLASS A COMMON STOCK.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
Per Share Total
---------- ----------
<S> <C> <C>
Initial public offering price...................................... $ $
Underwriting discount.............................................. $ $
Proceeds, before expenses, to Silicon Graphics..................... $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional 900,000 shares from Silicon Graphics at the initial public offering
price less the underwriting discount.
------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
BANCBOSTON ROBERTSON STEPHENS
------------
Prospectus dated , 1999.
<PAGE>
[ARTWORK TO COME]
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION ABOUT OUR COMPANY AND OUR FINANCIAL STATEMENTS AND THE NOTES TO
THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS.
MIPS TECHNOLOGIES, INC.
MIPS Technologies is a leading designer of high-performance embedded 32- and
64-bit RISC processors and related intellectual property. Our 32- and 64-bit
architectures enable a wide variety of increasingly sophisticated consumer
devices and business equipment. We are the only company that currently offers
embedded 64-bit processor designs for high-volume digital consumer product
applications.
We license our core processor designs and related intellectual property to
semiconductor manufacturing companies, fabless semiconductor companies and
system original equipment manufacturers. Together with our licensees, we offer a
variety of high-performance, scalable processors in standard, custom,
semi-custom and application-specific products. Our licensees include, among
others, Broadcom Corporation, Integrated Device Technology, Inc., LSI Logic
Corporation, NEC Corporation, NKK Corporation, Philips Semiconductors, Quantum
Effect Design, Inc., Texas Instruments, Inc. and Toshiba Corporation.
Our licensees currently offer over 60 standard processors based on our RISC
architecture which have a cumulative installed base of over 120 million units.
According to INSIDE THE NEW COMPUTER INDUSTRY, an industry trade publication,
the market for RISC-based processors totaled approximately 133 million units in
calendar year 1998, a 36% increase over 1997. Based on industry sources, we
believe that more than one third of these units were based on the MIPS RISC
architecture.
Our primary target market is the emerging market for digital consumer
products. We believe that our 32- and 64-bit processor designs are well suited
for this market due to the scalability and performance of our RISC architecture
and the cost and time-to-market advantages provided by our intellectual
property. We have achieved several significant design wins in this market,
including video games such as the Nintendo 64 and Sony PlayStation, handheld
personal computers such as the NEC MobilePro, the Philips Nino, the Sharp
Mobilon TriPad and the Vadem Clio, digital set-top boxes such as EchoStar's Dish
Network and General Instrument's DVi-5000+ and Internet appliances from WebTV.
THE OFFERING
The following information assumes that the underwriters do not exercise the
option granted by Silicon Graphics to purchase additional shares in the
offering. See "Underwriting". The outstanding share information excludes
7,817,714 shares of Class A Common Stock reserved for issuance under our stock
option and stock purchase plans.
<TABLE>
<S> <C>
Class A Common Stock
offered by Silicon
Graphics(1)............ 6,000,000 shares
Class A Common Stock to
be outstanding after
this offering.......... 11,542,286 shares
Class A and Class B
Common Stock to be
outstanding after this
offering............... 37,292,286 shares
Nasdaq National Market
symbol................. "MIPS"
</TABLE>
- --------------
(1) Silicon Graphics currently owns 31,750,000 shares of Class B Common Stock
and no shares of Class A Common Stock. Under the terms of our certificate of
incorporation, as amended as a result of the recapitalization, upon the
transfer by Silicon Graphics of 6,000,000 shares of Class B Common Stock to
the Underwriters in connection with this offering, such shares of Class B
Common Stock will be automatically converted into shares of Class A Common
Stock on a one-for-one basis.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The historical financial information presented below, particularly for periods
prior to the third quarter of fiscal 1998, may not be indicative of our future
performance and does not necessarily reflect what our financial position and
results of operations would have been had we operated as a separate, stand-alone
entity during the periods covered. The historical financial information for such
periods does not reflect many significant changes that have occurred in our
funding and operations and the sources and costs of our revenue as a result of
both the separation of our business from that of Silicon Graphics and our shift
in strategic direction. The per share data excludes 7,817,714 shares of Class A
Common Stock reserved for issuance under our stock option and stock purchase
plans, of which 4,117,000 shares were subject to outstanding options as of
December 31, 1998. See "Management--1998 Long-Term Incentive Plan" and
"Management--Employee Stock Purchase Plan".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Royalties............................ $ 8,402 $ 13,576 $ 19,716 $ 37,192 $ 55,980 $ 26,759 $ 24,854
Contract revenue..................... 8,962 13,903 17,327 3,115 830 827 2,400
--------- --------- --------- --------- --------- --------- ---------
Total revenue........................ 17,364 27,479 37,043 40,307 56,810 27,586 27,254
Total costs and expenses............. 36,524 57,430 64,609 81,092 56,427 43,321 15,323
Net income (loss).................... (19,230) (30,020) (27,665) (40,835) 376 (15,746) 7,421
Net income (loss) per basic share.... $ (0.53) $ (0.83) $ (0.77) $ (1.13) $ 0.01 $ (0.44) $ 0.20
Net income (loss) per diluted
share.............................. (0.53) (0.83) (0.77) (1.13) 0.01 (0.44) 0.19
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 26,052
Working capital...................................................................... 19,065
Total assets......................................................................... 33,289
Total stockholders' equity........................................................... 22,872
</TABLE>
-----------------
THE RECAPITALIZATION AND OUR RELATIONSHIP WITH SILICON GRAPHICS
On January 14, 1999, Silicon Graphics announced its intention to dispose of
its interest in MIPS Technologies by September 30, 2000. Silicon Graphics has
advised us that this divestiture could be effected in one or more transactions
and is expected to include a distribution of a significant portion of its
interest in MIPS Technologies to Silicon Graphics stockholders in a transaction
intended to generally qualify as a tax-free distribution under the Internal
Revenue Code of 1986, as amended. The actual timing and form of any disposition
will be subject to market and other conditions. Silicon Graphics could dispose
of the shares of our common stock that it owns in one or more public or private
offerings, in a dividend or other distribution to its stockholders, in an
exchange offer for outstanding shares of its common stock, or otherwise.
However, other than this offering, Silicon Graphics has not formulated any
definitive plans regarding the divestiture of its interest in us. Accordingly,
there can be no assurance as to the period of time that Silicon Graphics will
continue to retain shares of our common stock, except that, in connection with
this offering and our initial public offering, subject to certain exceptions, it
has agreed not to dispose of any shares of our common stock prior to 180 days
after the completion of this offering without the consent of our underwriters.
This agreement
4
<PAGE>
does not apply to a distribution by Silicon Graphics of all of the shares of
Class B Common Stock that it owns if, in order to avoid the application of
certain recently proposed tax legislation, such distribution must be completed
prior to the date which is 180 days after completion of this offering in order
for it to be tax-free to Silicon Graphics and its stockholders. See "The
Recapitalization -- Proposed Tax Legislation".
In light of Silicon Graphics' intention to dispose of its interest in MIPS
Technologies, on , 1999, we effected a recapitalization of our
capital stock. The recapitalization was designed to permit an orderly,
multi-step increase in the number of shares of our common stock that are
publicly traded while preserving Silicon Graphics' ability to dispose of its
remaining interest in MIPS Technologies in a transaction that is tax-free to
Silicon Graphics and its stockholders. Under the recapitalization, each share of
our common stock outstanding immediately prior to the recapitalization
(including shares owned by Silicon Graphics) was redesignated as one share of
Class A Common Stock. Immediately following the recapitalization, Silicon
Graphics exchanged each share of Class A Common Stock it owned for one share of
Class B Common Stock. Silicon Graphics presently owns all of the outstanding
shares of Class B Common Stock and no shares of Class A Common Stock. The
recapitalization was approved by Silicon Graphics and by the holders of a
majority of the shares of our common stock held by persons other than Silicon
Graphics and its affiliates.
Other than in the election of directors, the Class A Common Stock and the
Class B Common Stock have substantially identical rights and preferences,
including with respect to all other matters submitted to the vote of
stockholders (except as otherwise required by law) and with respect to dividend
rights and rights upon liquidation.
The holders of the Class A Common Stock, voting separately as a class, are
entitled to elect 20% of the members of our board of directors (rounded down to
the nearest whole director), and in no event less than one director. The holders
of the Class A Common Stock will elect one director to our board of directors at
our 1999 annual meeting of stockholders. Silicon Graphics, as the holder of all
of the outstanding shares of Class B Common Stock, will be entitled to elect our
remaining directors.
In connection with the recapitalization, we entered into an exchange
agreement with Silicon Graphics which obligates the parties to enter into a
distribution tax indemnification agreement prior to a distribution by Silicon
Graphics of all of its interest in MIPS Technologies in a transaction intended
to qualify generally as a tax-free distribution under the Internal Revenue Code
of 1986, as amended. The distribution tax indemnification agreement will contain
provisions limiting our ability to issue our capital stock following a tax-free
distribution and prohibiting certain other actions, and will impose certain
indemnification obligations on us with respect to such a tax-free distribution.
Additional information regarding the exchange agreement can be found on page .
Upon completion of this offering, Silicon Graphics will be entitled to elect
six of the seven members of our board of directors and will own approximately
69% of the total outstanding shares of Class A and Class B Common Stock (67% if
the underwriters' overallotment option is exercised in full). Accordingly,
Silicon Graphics will have the ability to exercise a controlling influence over
our business and affairs. In addition, our certificate of incorporation includes
certain provisions regarding the allocation of business opportunities that may
be suitable for both us and Silicon Graphics.
In connection with our initial public offering and the separation of our
business from that of Silicon Graphics in the fourth quarter of fiscal 1998, we
entered into certain agreements with Silicon Graphics governing various interim
and ongoing relationships between the two companies. Information regarding these
agreements can be found on pages through .
Our headquarters are located at 1225 Charleston Road, Mountain View,
California 94043, and our telephone number is (650) 567-5000.
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING ANY
INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES ALSO MAY IMPAIR
OUR BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN
SUCH CASE, THE TRADING PRICE OF OUR CLASS A COMMON STOCK COULD DECLINE, AND YOU
MAY LOSE ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT OUR COMPANY AND OUR
INDUSTRY. THESE FORWARD LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
IN SUCH STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY DESCRIBED IN
THIS SECTION AND ELSEWHERE IN THIS PROSPECTUS.
REVENUE CONCENTRATION
We have derived a significant portion of our total revenue from a limited
number of semiconductor companies, and we expect this to continue. For the
fiscal years ended June 30, 1996, 1997 and 1998 and for the first six months of
fiscal 1999, NEC accounted for approximately 31%, 23%, 13% and 16%,
respectively, of our revenue. We believe that NEC will continue to represent
more than 10% of our total revenue for at least the next several years, although
NEC is not obligated to continue using our technology in current or future
products. While we continue to broaden our base of licensees, it is likely that
our revenue will continue to be concentrated among a small number of
semiconductor companies. The identity of particular licensees that will account
for this revenue concentration will vary from period to period depending on the
addition or expiration of contracts, the nature and timing of payments due under
our contracts and the volumes and prices at which our licensees sell products
incorporating our technology.
Our revenue is also presently concentrated in a small number of products. To
date, we have derived a substantial portion of our total revenue from contract
revenue and royalties earned on sales of video game products. In particular,
revenue from Nintendo and NEC relating to Nintendo 64 video game players and
related cartridges accounted for 23%, 69%, 79% and 75% of our total revenue for
the fiscal years ended June 30, 1996, 1997 and 1998 and the first six months of
fiscal 1999, respectively.
We anticipate that royalties related to sales of Nintendo 64 video game
cartridges will continue to represent a substantial portion of our total revenue
for the next several years. Accordingly, factors negatively affecting sales of
Nintendo 64 video game cartridges could have a material adverse effect on our
results of operations and financial condition.
The market for home entertainment products is competitive and the
introduction of new products or technologies, as well as shifting consumer
preferences, could negatively impact the amount and timing of sales of Nintendo
64 video game players and related cartridges. In addition, the eventual
introduction of the next generation Nintendo video game system is likely to
result in declining sales of Nintendo 64 video game players and related
cartridges, although sales of video game cartridges, which account for a
significant portion of our royalties, will continue, albeit at a declining rate,
for a period of time after the introduction. We developed key elements of the
Nintendo 64 system in conjunction with Silicon Graphics. These elements included
certain software and graphics technologies which, as a result of our separation
from Silicon Graphics and our shift in strategic direction in early 1998, we no
longer offer. Accordingly, we will need to generate revenue growth from our
stated markets to offset the eventual decline of Nintendo 64 royalties. We
understand that the next generation Nintendo video game system
6
<PAGE>
will not incorporate any of our technology. We value our relationship with
Nintendo; however, there can be no assurance that this relationship will result
in any revenues for us other than those generated by the sale of Nintendo 64
video game players and related cartridges. In May 1998, we entered into a
memorandum of understanding with Silicon Graphics, Nintendo Co. Ltd. and ArtX,
Inc. resolving certain disputes among the parties. See "Business -- Litigation".
Although we expect that an increasingly significant portion of our future
revenue will be related to sales of digital consumer and business equipment
products, our technology may not be selected for design into any such products.
Accordingly, we may remain significantly dependent on revenue related to sales
of video game products, which may decline. Our ability to diversify our sources
of revenue is still uncertain and will depend on whether our processors and
related designs are accepted in a broader range of digital consumer products and
business equipment. Our experience in these markets is limited because, prior to
1998, we were focused primarily on the development of high performance
processors for Silicon Graphics' workstations and related designs. Our new focus
requires us to shift our research and development efforts and places an
increased importance on our sales and marketing efforts. As we shift our
direction, the identity of significant products may vary from period to period
depending on the addition of new contracts and the number of designs using our
technology.
UNPREDICTABLE AND FLUCTUATING OPERATING RESULTS
Our revenue and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control.
These factors include:
- - the demand for and average selling prices of semiconductor products that
incorporate our technology;
- - the financial terms of our contractual arrangements with our semiconductor
licensees, which may provide for significant up-front payments or payments
based on the achievement of certain milestones;
- - the relative mix of contract revenue and royalties;
- - competitive pressures resulting in lower contract revenue or royalty rates;
- - our ability to develop, introduce and market new processor intellectual
property;
- - the establishment or loss of licensing relationships with semiconductor
manufacturing companies, fabless semiconductor companies or system original
equipment manufacturers;
- - the timing of new products and product enhancements by us and our
competitors;
- - changes in development schedules, research and development expenditure levels
and product support by us and digital consumer product manufacturers;
- - seasonal fluctuations; and
- - general economic and market conditions.
Our revenue components are difficult to predict and may fluctuate
significantly from period to period. Because our expenses are largely
independent of our revenue in any particular period, it is difficult to
accurately forecast our operating results. Our operating expenses are based, in
part, on anticipated future revenue and a high percentage of our expenses are
fixed in the short term. As a result, if our revenue is below expectations in
any quarter, the adverse effect may be magnified by our inability to adjust
spending in a timely manner to compensate for the revenue shortfall.
We also expect to experience seasonal fluctuations in our revenue and
operating results because revenue related to sales of digital consumer products
is expected to constitute a substantial portion of our total revenue over the
next several years. We typically record royalty revenue from our licensees,
including Nintendo, in the quarter
7
<PAGE>
following the sale of the related digital consumer product. Because a
disproportionate amount of Nintendo 64 video game cartridges are typically sold
in our second fiscal quarter (which includes the holiday selling season), we
have realized a disproportionate amount of our revenue and operating income in
our third fiscal quarter. We expect that these seasonal fluctuations will
continue as we increase our focus on processors, cores and related designs for
high-volume digital consumer products.
In light of the foregoing and the other risks discussed in this section, we
believe that quarter-to-quarter comparisons of our revenue and operating results
may not be a good indication of our future performance. It is possible that in
some future periods our results of operations may be below the expectations of
public market analysts and investors. In this event, the price of our Class A
Common Stock may fall.
CONTROL BY AND RELATIONSHIP WITH SILICON GRAPHICS
Silicon Graphics presently owns all of our issued and outstanding Class B
Common Stock, representing approximately 85% of the total outstanding Class A
and Class B Common Stock. Upon completion of this offering, Silicon Graphics
will continue to own all of our outstanding Class B Common Stock, representing
approximately 69% of the total outstanding Class A and Class B Common Stock (67%
if the underwriters' over-allotment option is exercised in full). Accordingly,
Silicon Graphics will be able to direct the election of 80% of our directors
(rounded up to the nearest whole director) and to exercise a controlling
influence over our business and affairs, including:
- - any determinations with respect to mergers or other business combinations;
- - the acquisition or disposition of assets;
- - future issuances of debt and equity securities; and
- - the payment of dividends on our common stock.
Similarly, for so long as Silicon Graphics continues to beneficially own in
excess of 50% of the outstanding Class A and Class B Common Stock, it will have
the power to determine matters submitted to a vote of our stockholders without
the consent of other stockholders, will have the power to prevent or cause a
change in control of us and could take other actions that might be favorable to
Silicon Graphics.
In connection with the separation of our business from that of Silicon
Graphics and our initial public offering, we entered into several agreements
with Silicon Graphics intended to define the relationship between the two
companies following the initial public offering. See "Arrangements Between MIPS
Technologies and Silicon Graphics". Because we entered into these agreements at
a time when we were a wholly owned subsidiary of Silicon Graphics, they are not
the result of arm's-length negotiations between the parties. Among these
agreements is a Management Services Agreement, under which Silicon Graphics
agreed to provide certain services to us, including accounting, treasury, tax,
facilities and information services on an interim or transitional basis.
Presently, Silicon Graphics provides certain tax and facilities services to us
under this agreement. The Management Services Agreement has a three-year term
(which expires June 2001) but will automatically terminate when Silicon Graphics
ceases to own more than 50% of the outstanding Class A and Class B Common Stock.
In addition, either party may terminate one or more of the services provided
under the Management Services Agreement upon 30 days prior written notice. If
any or all services are not provided by Silicon Graphics, we are not certain
whether, or on what terms, we could obtain such services.
Because Silicon Graphics presently owns more than 80% of the voting power
and value of our common stock, we are a member of Silicon Graphics' consolidated
federal income tax group. When Silicon Graphics reduces its economic interest in
us as a result of this offering, we will not be a member of Silicon Graphics'
consolidated group for federal
8
<PAGE>
income tax purposes and we will file federal, state and local income tax returns
separately from Silicon Graphics. However, under federal income tax laws, each
member of a consolidated group remains jointly and severally liable for the
federal income tax liability of each other member of the group arising during
periods when it was a member of the group. Under the terms of our tax sharing
agreement with Silicon Graphics, Silicon Graphics has the sole authority to
respond to and conduct tax proceedings (including tax audits) relating to us for
such periods. So long as Silicon Graphics owns in excess of 80% of our
outstanding common stock, we will also be a member of Silicon Graphics'
controlled group for pension and benefit funding purposes. Each member of
Silicon Graphics' controlled group is jointly and severally liable for pension
and benefit funding and termination liabilities of other group members, as well
as certain benefit plan taxes. We will remain liable for obligations incurred
under these provisions prior to closing of this offering by all members of
Silicon Graphics' consolidated group for federal income tax purposes and its
controlled group for pension benefit and funding purposes.
POTENTIAL CONFLICTS OF INTEREST
Conflicts of interest may arise between us and Silicon Graphics in a number
of areas relating to our past and ongoing relationships, including:
- - potential competitive business activities;
- - indemnification arrangements, including with respect to the separation of our
business from that of Silicon Graphics and the recapitalization;
- - potential acquisitions or financing transactions;
- - sales or other dispositions by Silicon Graphics of shares of our common
stock, including through the exercise of its registration rights;
- - the exercise by Silicon Graphics of its ability to control our management and
affairs; and
- - tax and intellectual property matters.
Silicon Graphics does not currently engage in the design and development of
processor intellectual property for embedded systems applications, however, it
is not restricted from doing so. You should be aware that our certificate of
incorporation provides that Silicon Graphics has no duty to refrain from
engaging in the same or similar activities or lines of business as MIPS
Technologies. See "Description of Capital Stock -- Corporate Opportunities". We
cannot assure you that any conflicts that may arise between us and Silicon
Graphics will be resolved in a manner that does not have a material adverse
effect on us, even if such result is not intended by Silicon Graphics. In
addition, certain of the agreements that we entered into with Silicon Graphics
in connection with the separation of our business from that of Silicon Graphics
contain specific procedures for resolving disputes between the two companies
with respect to the subject matter of those agreements. We cannot assure you
that more favorable results to us would not be obtained under different
procedures.
Ownership interests of our directors or officers in the common stock of
Silicon Graphics or service as both a director of MIPS Technologies and an
officer or employee of Silicon Graphics could create or appear to create
potential conflicts of interest when directors and officers are faced with
decisions that could have different implications for MIPS Technologies and
Silicon Graphics. Four of the seven members of our board of directors are
officers or employees of Silicon Graphics. Our certificate of incorporation
includes provisions relating to the allocation of business opportunities that
may be suitable for both MIPS Technologies and Silicon Graphics based on the
relationship to the companies of the individual to whom the opportunity is
presented and the method by which it was presented. See "Description of Capital
Stock -- Corporate Opportunities".
9
<PAGE>
DEPENDENCE ON DIGITAL CONSUMER PRODUCTS INDUSTRY
The digital consumer products industry is presently the primary market for
our processor, core and related designs. As a result, our success will depend
largely on consumer acceptance of the products that incorporate our technology.
Our dependence on the digital consumer products industry involves several risks
and uncertainties, including:
- - changes in consumer requirements and preferences;
- - the introduction of products by our competitors embodying new technologies or
features;
- - the potentially limited opportunities for design wins with respect to certain
digital consumer products, such as video game products, due to a limited
number of product manufacturers and the length of product life cycles;
- - the difficulty in predicting the level of consumer interest in and acceptance
of many digital consumer product applications, such as handheld personal
computers and set-top boxes, which have only recently been introduced to the
market; and
- - the current lack of open industry standards for hardware and software in the
digital consumer products industry.
Factors negatively affecting the digital consumer products industry could
have a material adverse effect on our business, results of operations and
financial condition. Moreover, to the extent that the performance,
functionality, price and power characteristics of our processor designs do not
satisfy those that may be critical to specific digital consumer product
applications, the use of our processors, cores and related designs may be
further confined to a limited segment of that industry.
The timing and amount of royalties we receive depends on sales by digital
consumer product manufacturers of products incorporating our technology. The
process of persuading digital consumer product manufacturers to adopt our
technology can be lengthy. Even if our technology is adopted, we cannot be
certain that it will be used in a product that is ultimately brought to market,
achieves commercial acceptance or generates meaningful royalties for us. We are
subject to risks beyond our control that influence the success or failure of a
particular digital consumer product manufacturer, including:
- - the competition the manufacturer faces and the market acceptance of its
products;
- - the engineering, marketing and management capabilities of the manufacturer
and the technical challenges unrelated to our technology that it faces in
developing its products; and
- - the financial and other resources of the manufacturer.
If our technology is not adopted by digital consumer product manufacturers
and incorporated into the products they sell, our business could be materially
and adversely affected. Furthermore, because we do not control the business
practices of our licensees, we do not influence the degree to which our
licensees promote our technology or set the prices at which the products
incorporating our technology are sold to digital consumer product manufacturers.
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE
Our future success will depend on the extent to which our processor, core
and related designs are incorporated into the products of leading digital
consumer product and business equipment manufacturers ("design wins"). This
requires that we develop enhancements and new generations of our processors,
cores and other intellectual property that satisfy the requirements of specific
product applications and introduce these new technologies to the marketplace in
a timely manner. We cannot assure you that our development efforts will be
successful or that we will not encounter significant delays. If our development
efforts are not successful or are significantly delayed,
10
<PAGE>
or if the characteristics of our processors, cores and other intellectual
property are not compatible with the requirements of specific product
applications, our ability to achieve design wins may be limited. Our failure to
achieve a sufficient number of design wins could have a material adverse effect
on our business, results of operations and financial condition.
Technical innovations of the type critical to our success are inherently
complex and involve several risks, including:
- - our ability to anticipate and timely respond to changes in the requirements
of digital consumer product and business equipment manufacturers;
- - our ability to anticipate and timely respond to changes in semiconductor
manufacturing processes;
- - changing consumer preferences in the digital consumer products market;
- - the emergence of new standards in the semiconductor, digital consumer product
or business equipment industries;
- - the significant investment that is often required before commercial viability
is determined; and
- - the introduction by our competitors of products embodying new technologies or
features.
Any failure by us to adequately address these risks could render our
existing processor, core and related designs obsolete and could have a material
adverse effect on our business, results of operations and financial condition.
In addition, we cannot assure you that we will have the financial and other
resources necessary to develop processor, core and related designs in the
future, or that any enhancements or new generations of the technology that we
develop will generate revenue in excess of the costs of development.
INTELLECTUAL PROPERTY MATTERS
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks which we attempt to protect
through a combination of patent, trademark, copyright and trade secret laws. We
also use licensing agreements and employee and third-party nondisclosure and
assignment agreements to limit access to and distribution of our proprietary
information and to obtain ownership of technology prepared on a work-for-hire
basis.
Despite our efforts to protect our intellectual property rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
technologies, including in the marketing and sale of unauthorized MIPS-based
clones. We intend to vigorously protect our intellectual property rights through
litigation and other means. However, there can be no assurance that we will be
able to enforce our rights or prevent other parties from designing and marketing
unauthorized MIPS-based products.
Policing the unauthorized use of our intellectual property is difficult, and
we cannot be certain that the steps we have taken will prevent the
misappropriation of our technologies, particularly in foreign countries where
the laws may not protect our proprietary rights as fully as in the United
States. In addition, we cannot be certain that others will not independently
develop or otherwise acquire the same or substantially equivalent technologies
as ours or that the steps we have taken to obtain ownership of contributed
intellectual property and to prevent misappropriation of our intellectual
property will be sufficient.
We own 54 U.S. patents on various aspects of our technology, with expiration
dates ranging from 2006 to 2017, and have an additional 15 U.S. patent
applications pending. We also own or have filed corresponding patents and
applications in various foreign jurisdictions. We cannot assure you that any of
our patent applications will be approved or that any of the patents that we own
will not be challenged, invalidated or circumvented by others or be of
sufficient scope or strength to provide us with any meaningful protection or
commercial advantage. Moreover, significant
11
<PAGE>
litigation regarding intellectual property rights exists in our industry. We
cannot be certain that third parties will not make a claim of infringement
against us or against our semiconductor manufacturing licensees in connection
with their use of our technology. Any claims, even those without merit, could be
time consuming to defend, result in costly litigation and/or require us to enter
into royalty or licensing agreements. These royalty or licensing agreements, if
required, may not be available to us on acceptable terms or at all. A successful
claim of infringement against us or one of our semiconductor manufacturing
licensees in connection with its use of our technology could adversely affect
our business.
We have entered into, and in the future may enter into, cross licensing
arrangements with others, including Silicon Graphics. Under these arrangements,
we license certain of our patents in exchange for patent licenses from such
licensees but do not generally transfer know-how or other proprietary
information. Although these types of cross licensing arrangements are common in
the semiconductor and processor industries, these arrangements may facilitate
the ability of such licensees, either alone or in conjunction with others, to
develop competitive products and designs.
We have entered into licensing arrangements with Silicon Graphics with
respect to certain of its intellectual property that we use in our business. See
"Arrangements Between MIPS Technologies and Silicon Graphics -- Technology
Agreement". As a result of the separation, however, we no longer have full
access to Silicon Graphics' patents and other intellectual property. In the
past, the MIPS Group benefitted from its status as a division of Silicon
Graphics in its access to the intellectual property of third parties through
licensing arrangements or otherwise, and in the negotiation of the financial and
other terms of such arrangements. The separation of our business from that of
Silicon Graphics could adversely affect our ability to negotiate commercially
attractive intellectual property licensing arrangements with third parties in
the future, particularly if we are no longer a majority-owned subsidiary of
Silicon Graphics. Moreover, in connection with future intellectual property
infringement claims, we will not have the benefit of asserting counterclaims
based on Silicon Graphics' intellectual property portfolio, nor will we be able
to provide licenses to Silicon Graphics' intellectual property in order to
resolve such claims.
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The historical financial information included in this prospectus for periods
prior to the third quarter of fiscal 1998 does not reflect the many significant
changes in our cost structure that have occurred as a result of the separation
of our business from that of Silicon Graphics and our shift in strategic
direction. Such historical financial information also does not reflect changes
in our funding and operations that have resulted from our transition to a
separate, stand-alone entity.
For example, in anticipation of the more limited focus of our ongoing
research and development activities, we reduced our research and development
staff by 185 persons in the third quarter of fiscal 1998. This reduction
primarily reflects the transfer to Silicon Graphics of employees engaged in the
development of next generation processors for Silicon Graphics' systems.
However, the research and development activities of the employees transferred to
Silicon Graphics did not generate any material revenue for us in recent periods
and, therefore, the reduction in our research and development staff did not
have, and is not expected to have, a material effect on our revenue. In
particular, while the royalties we received from our licensees on their sales to
Silicon Graphics of products incorporating our technology represented
approximately 20% of our total revenue in fiscal 1996, such royalties
represented less than 5% of our total revenue in fiscal 1997 and fiscal 1998 and
less than 1% in the first six months of fiscal 1999.
12
<PAGE>
In addition, our sales and marketing activities have increased as a result
of our shift in focus from the design of processors addressing the needs of
Silicon Graphics to the development, marketing and licensing of processor and
related designs for a wide variety of applications in the digital consumer
products industry.
LACK OF INDEPENDENT OPERATING HISTORY
Prior to the separation of our business from that of Silicon Graphics in
June 1998, we operated as a division of Silicon Graphics and not as a separate
stand-alone company. Although we continue to be a majority owned subsidiary of
Silicon Graphics, Silicon Graphics has no obligation to assist us except as
described in "Arrangements Between MIPS Technologies and Silicon Graphics". If
we fail to implement the operational, administrative and other systems and
infrastructure necessary to support our business as a stand-alone company, our
business, results of operations and financial condition could be adversely
affected.
OUR MARKETS ARE HIGHLY COMPETITIVE
Competition in the market for embedded processors is intense. We believe
that the principal competitive factors in our industry are performance,
functionality, price, customizability and power consumption. Our processors and
cores compete with those of ARM Holdings plc, Hitachi Semiconductor (America)
Inc. and PowerPC (an alliance between Motorola, Inc. and IBM Corporation),
although we also compete with semiconductor manufacturers whose product lines
include processors for embedded and non-embedded applications, including Intel
Corporation, National Semiconductor Corporation, Advanced Micro Devices, Inc.
and Motorola, Inc. In addition, we may face competition from the producers of
unauthorized MIPS-based clones and non-RISC based technology designs.
To remain competitive, we must also differentiate our processors, cores and
related designs from those available or under development by the internal design
groups of semiconductor manufacturers, including some of our current and
prospective manufacturing licensees. Many of these internal design groups have
substantial programming and design resources and are part of larger
organizations with substantial financial and marketing resources. These internal
design groups may develop products that compete directly with ours or may
actively seek to license their own technology to third-party semiconductor
manufacturers.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater brand recognition, larger
customer bases as well as greater financial and marketing resources than we do.
This may allow them to respond more quickly than we can to new or emerging
technologies and changes in customer requirements. It may also allow them to
devote greater resources than we can to the development and promotion of their
technologies and products. In addition, we may face competition from non-RISC
based designs of technology. We cannot assure you that we will be able to
compete successfully or that competitive pressures will not materially and
adversely effect our business, results of operations and financial condition.
POSSIBLE FUTURE DISPOSITIONS OF COMMON STOCK BY SILICON GRAPHICS
Following this offering, Silicon Graphics will own approximately 25,750,000
shares of Class B Common Stock (or 24,850,000 if the underwriters' overallotment
option is exercised in full). Silicon Graphics is not obligated to retain these
shares, except that it has agreed not to sell or otherwise dispose of any shares
of Class A or Class B Common Stock for prior to 180 days after the completion of
this offering without the consent of our underwriters. This agreement does not
apply to a distribution by Silicon Graphics of all of the shares of Class B
Common Stock that it owns if, in order to avoid the application of certain
recently proposed tax legislation, such distribution must be completed prior to
the date which is 180 days after completion of this offering in order
13
<PAGE>
for it to be tax-free to Silicon Graphics and its stockholders.
Silicon Graphics recently announced its intention to dispose of its entire
interest in us by September 30, 2000. Subject to the above restriction and
applicable federal securities laws, Silicon Graphics may dispose of all or a
portion of the shares of Class B Common Stock that it owns in one or more
transactions, including a public or private offering, a distribution of the
shares to its stockholders, an offer to exchange the shares for outstanding
shares of its common stock, or otherwise. Although it has not formulated
definitive plans to do so, Silicon Graphics expects that its divestiture will
likely include a distribution of a significant number of shares of Class B
Common Stock to its stockholders in a transaction intended to generally qualify
as a tax-free distribution under the Internal Revenue Code, and any such
distribution may be preceded by additional public offerings of Class A Common
Stock. Silicon Graphics has registration rights with respect to its shares of
Class B Common Stock which would facilitate any future disposition. The actual
timing and form of any disposition will be subject to market and other
conditions.
We cannot assure you as to the period of time that Silicon Graphics will
retain its shares of Class B Common Stock following this offering. Moreover, the
United States Treasury Department has recently proposed legislation which, if
enacted without modification, could result in the distribution by Silicon
Graphics of all of the Class B Common Stock it owns shortly after this offering.
See "The Recapitalization -- Proposed Tax Legislation". Any sale or distribution
by Silicon Graphics of a substantial amount of Class A or Class B Common Stock
in the public market or to its stockholders, or the perception that such a sale
or distribution could occur, could have an adverse effect on the market price of
the Class A Common Stock.
There can be no assurance that, in any transfer by Silicon Graphics of a
controlling interest in us, any of our public stockholders will be able to
participate in such a transaction or will realize any premium with respect to
their shares of Class A Common Stock.
DEPENDENCE ON KEY PERSONNEL
Our future success depends to a significant extent on the continued
contributions of our key management, technical, sales and marketing personnel,
many of whom are highly skilled and difficult to replace. We do not have
employment agreements with any of our officers or key employees. We intend to
hire additional highly skilled personnel, particularly technical personnel, for
our anticipated research and development activities. Competition for qualified
personnel, particularly those with significant experience in the semiconductor
and processor design industries, is intense. The loss of the services of any of
our key personnel or our inability to attract and retain qualified personnel in
the future could have a material adverse effect on our business, results of
operations and financial condition. In particular, our ability to hire and
retain qualified engineering personnel is essential to meet our business goals.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A substantial portion of our revenue has been, and is expected to continue
to be, derived from customers outside the United States, primarily in Japan. For
the fiscal years ended June 30, 1996, 1997 and 1998 and for the first six months
of fiscal 1999, revenue from customers outside the United States represented
approximately 83%, 87%, 90% and 90%, respectively, of our total revenue.
To date, substantially all of our revenue from international customers has
been denominated in U.S. dollars. However, to the extent that the sales by our
manufacturing licensees to their customers are denominated in foreign
currencies, the royalties we receive on such sales could be subject to
fluctuations in currency exchange rates. If the effective price of the
technology we sell to our licensees were to increase due to fluctuations in
foreign currency exchange rates, demand for our
14
<PAGE>
technology could fall which would, in turn, reduce our royalties. Because we
cannot predict the amount of non-U.S. dollar denominated revenue earned by our
licensees, we have not historically attempted to mitigate the effect that
currency fluctuations may have on our revenue, and we do not presently intend to
do so in the future.
The relative significance of our international operations exposes us to a
number of additional risks, including:
- - political and economic instability;
- - reduced or limited protection for intellectual property;
- - export license requirements, tariffs and other trade barriers;
- - potentially adverse tax consequences; and
- - longer accounts receivable collection periods and greater difficulty in
collection of accounts receivable.
NEED TO MANAGE GROWTH
Our ability to continue to grow successfully requires an effective planning
and management process. Although we have developed much of the financial,
operational and administrative capabilities previously provided to us by Silicon
Graphics, we will need to continue to improve these capabilities. Since June 30,
1998, we have increased our headcount substantially, from 63 employees at that
date to 110 employees at December 31, 1998. This increase includes the addition
of 24 employees in December 1998 to staff research and development activities at
our new development center in Denmark, as well as additional employees in our
sales and marketing staff.
Our growth has placed, and the recruitment and integration of additional
employees will continue to place, a strain on our resources. Digital consumer
product manufacturers and our semiconductor manufacturing licensees typically
require significant engineering support in the design, testing and manufacture
of products incorporating our technology. Accordingly, increases in the adoption
of our technology can be expected to increase the strain on our personnel,
particularly our engineers.
FUTURE CAPITAL REQUIREMENTS; ABSENCE OF SILICON GRAPHICS FUNDING
Our future liquidity and capital requirements are expected to vary from
quarter to quarter, depending on various factors, including:
- - the cost, timing and success of our product development efforts;
- - the cost and timing of our sales and marketing activities;
- - the extent to which our existing and new technologies gain market acceptance;
- - the level and timing of royalty revenue;
- - competing technological and market developments; and
- - the costs of maintaining and enforcing patent claims and other intellectual
property rights.
Prior to our initial public offering in June 1998, our working capital needs
were satisfied by Silicon Graphics. Presently, Silicon Graphics has no
obligation to assist us, financially or otherwise, except as described in
"Arrangements Between MIPS Technologies and Silicon Graphics".
We believe that cash generated by our operations, together with our current
cash balance, will be sufficient to meet our operating and capital requirements
for the foreseeable future. However, we may in the future be required to raise
additional funds through public or private financing, strategic relationships or
other arrangements. We cannot be certain that any such financing will be
available on acceptable terms, or at all, and our failure to raise capital when
needed could have a material adverse effect on our business, operating results
and financial condition. Additional equity financing may be dilutive to the
holders of our common stock, and debt financing, if available, may involve
restrictive covenants. Moreover, strategic relationships, if necessary to raise
15
<PAGE>
additional funds, may require that we relinquish our rights to certain
technology.
Our ability to issue shares of our common stock in connection with an
acquisition or in a public or private offering during the 30 months following a
tax-free distribution by Silicon Graphics of its interest in us will be limited
under the terms of a distribution tax indemnification agreement which we have
agreed to enter into with Silicon Graphics prior to a tax-free distribution. See
"Arrangements Between MIPS Technologies and Silicon Graphics -- Corporate
Agreement" and "-- Exchange Agreement".
RELIANCE ON SEMICONDUCTOR COMPANY LICENSEES
We do not manufacture or sell processors containing our technology. Rather,
we license our technology to semiconductor companies and digital consumer
product manufacturers who then incorporate our technology into the products they
sell. In some cases, our licensees also add custom integration services and
derivative design technologies to enhance our processor designs. Accordingly,
the adoption and continued use of our technology by semiconductor companies is
important to our continued success. None of our current semiconductor company
licensees is obligated to license new or future generations of our processor
designs. We cannot assure you that we will be able to maintain our current
relationships or establish new relationships with additional licensees, and any
failure by us to do so could have a material adverse effect on our business. We
face numerous risks in obtaining agreements with semiconductor companies on
terms consistent with our business model, including:
- - the lengthy and expensive process of building a relationship with a potential
licensee before there is any assurance of an agreement;
- - the fact that we may compete with the internal design teams of semiconductor
companies in the development of products using technologies that are similar
to or an alternative to ours;
- - the potential difficulties in persuading large semiconductor companies to
work with us, to rely on us for critical technology, and to disclose to us
proprietary manufacturing technology; and
- - the potential difficulties in persuading potential licensees to bear certain
development costs associated with our technology and to make other necessary
investments to produce embedded processors using our technology.
We are also subject to many risks beyond our control that influence the
success of our licensees, including, for example, the highly competitive
environment in which they operate, the market for their products, their
engineering capabilities and their financial and other resources. In addition,
our separation from Silicon Graphics may negatively affect certain of our
existing licensee relationships, insofar as Silicon Graphics was a factor in
establishing and maintaining the relationship or in negotiating the financial
and other terms of our contracts with such licensees (due to, for example,
Silicon Graphics' status as a customer of such licensees).
BENEFITS OF THIS OFFERING TO SILICON GRAPHICS
Silicon Graphics, as the sole selling stockholder in this offering, will
receive all of the net proceeds of this offering, realizing a gain of $
per share on the stock it is selling. Silicon Graphics' unrealized gain with
respect to the shares of our common stock it will own subsequent to this
offering (based upon the public offering price on the cover page of this
prospectus) is expected to approximate $ million ($
million if the underwriters' over-allotment option is exercised in full).
YEAR 2000 ISSUE
Many computer programs and embedded date-reliant systems use two digits
rather than four to define the applicable year. Programs and systems that record
only the last two digits of the calendar year may not be able to distinguish
whether "00" means 1900 or 2000. If not corrected, date-related information and
16
<PAGE>
data could cause such programs or systems to fail or to generate erroneous
information.
Although our processor and related designs have no inherent time or date
function, we initiated a comprehensive assessment of our Year 2000 readiness in
September 1998. We have recently completed this assessment and have begun to
implement programs to make our information technology (IT) and related non-IT
and processes Year 2000 compliant. In addition, we recently replaced our
internal computer systems and operating and applications software. Each of the
suppliers of these systems and software has indicated to us that it believes its
products are Year 2000 compliant. We expect to complete changes to critical
systems by the third quarter of calendar year 1999. We believe that we have
allocated sufficient resources for our Year 2000 compliance efforts, and we
expect that our total costs associated with these efforts will be less than
$200,000, exclusive of ordinary costs to upgrade and maintain our equipment.
We intend to cooperate with our licensees and others with whom we do
business to coordinate Year 2000 compliance with operational processes and
marketed products. However, we are unable to directly assess the Year 2000
compliance of products and technologies developed by others and incorporating
our technology. To the extent that any such third-party product or technology is
not Year 2000 compliant, we may be adversely affected due to our association
with such product or technology. In addition, our revenue and operating results
could become subject to unexpected fluctuations and could be adversely effected
if our licensees or system original equipment manufacturers encounter Year 2000
compliance problems that affect their ability to distribute products that
incorporate our technology.
We will also be contacting critical suppliers to determine whether the
products and services they provide to us are Year 2000 compliant. We will
develop contingency plans should the need arise. A delay or failure by our
critical suppliers to be Year 2000 compliant could, in a worst case, interrupt
our business and have an adverse effect on our business, financial condition and
results of operations.
VOLATILITY OF STOCK PRICE
The market price of our common stock has fluctuated in the past and could
continue to be highly volatile and subject to wide fluctuations in response to
various factors, including:
- - quarterly variations in our operating results;
- - announcements of technological innovations or new products by us, our
licensees, digital consumer product manufacturers or our competitors;
- - developments with respect to patents or proprietary rights; and
- - changes in financial estimates by securities analysts.
In addition, the equity markets have experienced volatility that has
particularly affected the market prices of equity securities of many high
technology companies and that often has been unrelated or disproportionate to
their operating performance. These broad market fluctuations may adversely
affect the market price of the Class A Common Stock, and investors may be unable
to resell their shares at or above the offering price. See "Price Range of
Common Stock".
ANTI-TAKEOVER PROVISIONS
Provisions of our certificate of incorporation and by-laws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. Such provisions could also make more
difficult or delay the removal of our incumbent management. See "Description of
Capital Stock". However, these provisions do not have a substantial practical
significance to investors as long as we are controlled by Silicon Graphics.
------------------
17
<PAGE>
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this prospectus under the captions
"Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" including those
concerning (1) our strategy, (2) the future sources and costs of our revenue,
(3) our product development and sales and marketing efforts, and (4) our
relationship with Silicon Graphics, including the divestiture by Silicon
Graphics of its interest in us in a tax-free distribution to its stockholders or
otherwise, contain certain forward looking statements concerning our operations,
economic performance, financial condition and relationship with Silicon
Graphics. The forward looking statements contained in this prospectus are based
on current expectations and entail various risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in
such forward looking statements. Factors that could cause such differences
include, but are not limited to, those discussed under "Risk Factors".
USE OF PROCEEDS
We will not receive any proceeds from the
sale of Class A Common Stock in this offering.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol "MIPS" since our initial public offering on June 30, 1998. Prior to such
time, there was no public market for our common stock. Effective ,
1999 and in connection with the recapitalization, our common stock, as then
quoted on the Nasdaq National Market, was redesignated as Class A Common Stock.
On the effective date of our initial public offering, June 30, 1998, the
reported last sale price of our common stock was $13.44 per share. The following
table sets forth, for the periods indicated, the high and low reported last sale
prices per share of our common stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR 1999
First Quarter.......................................................... $ 23.25 $ 10.63
Second Quarter......................................................... $ 32.00 $ 14.84
Third Quarter (through February 25, 1999).............................. $ 45.00 $ 28.25
</TABLE>
On February 25, 1999, the reported last sale price on our common stock on
the Nasdaq National Market was $40.38 per share. As of February 19, 1999, there
were approximately 21 stockholders of record of our common stock.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently intend to retain any future earnings to fund the development and
growth of our business and do not expect to pay any cash or stock dividends for
the foreseeable future.
18
<PAGE>
CORPORATE INFORMATION
MIPS Technologies, Inc. was incorporated in Delaware in June 1992. Prior to
the separation of our business from Silicon Graphics' other operations in the
fourth quarter of fiscal 1998, our business was conducted by Silicon Graphics
primarily through its MIPS Group, a division of Silicon Graphics. Our
predecessor, MIPS Computer Systems, Inc., was founded in 1984 and was engaged in
the design and development of RISC processors for the computer systems and
embedded markets. Reference in this prospectus to "MIPS Technologies", "we",
"our" and "us" refer to MIPS Technologies, Inc. and its subsidiaries.
Our principal executive offices are located at 1225 Charleston Road,
Mountain View, California 94043, and our telephone number at that location is
(650) 567-5000. Information contained on our web site does not constitute part
of this prospectus.
MIPS, R3000, R4000, R5000, R8000 and R10000 are registered trademarks, and
R4300i and the MIPS logo are trademarks, of MIPS Technologies. Silicon Graphics
is a registered trademark of Silicon Graphics, Inc. This prospectus contains
other trademarks and registered trademarks of MIPS Technologies and other
companies.
19
<PAGE>
THE RECAPITALIZATION
GENERAL
On January 14, 1999, Silicon Graphics announced its intention to divest its
interest in us by September 30, 2000. Silicon Graphics has advised us that this
divestiture could be effected in one or more transactions and is expected to
include a distribution of a significant portion of its interest in us to Silicon
Graphics stockholders in a transaction intended to generally qualify as a
tax-free distribution under the Internal Revenue Code (a "Tax-Free
Distribution"). The actual timing and form of any disposition will be subject to
market and other conditions. In light of Silicon Graphics' intention to dispose
of its interest in us, on , 1999, we effected a recapitalization of our
capital stock under which each previously issued and outstanding share of our
common stock was redesignated as one share of Class A Common Stock. The
recapitalization was approved by Silicon Graphics and by the holders of a
majority of the shares of our common stock held by persons other than Silicon
Graphics and its affiliates. Under the terms of an exchange agreement between us
and Silicon Graphics, Silicon Graphics exchanged each share of Class A Common
Stock it owned immediately after the recapitalization for one share of Class B
Common Stock. Silicon Graphics currently beneficially owns all of the
outstanding shares of Class B Common Stock and no shares of Class A Common
Stock. Under our certificate of incorporation, prior to a Tax-Free Distribution,
Silicon Graphics will continue to own all of the outstanding shares of Class B
Common Stock.
The holders of the Class A Common Stock, voting separately as a class, are
entitled to elect 20% of the members of our board of directors (the "Class A
Directors"), and in no event less than one director. One Class A Director will
be elected at our 1999 Annual Meeting of Stockholders, and the Class A Director
so elected will serve until his or her term expires at our 2002 Annual Meeting
of Stockholders. The holders of the Class B Common Stock, voting separately as a
class, are entitled to elect the remaining directors. Accordingly, Silicon
Graphics will elect six of the seven members of our board of directors.
The Class A Common Stock and the Class B Common Stock have substantially
identical rights and preferences in all other respects, including with respect
to all other matters submitted to the vote of stockholders (except as otherwise
required by law) and with respect to dividend rights and rights upon
liquidation.
The recapitalization was designed to permit an orderly, multi-step increase
in the number of shares of our common stock that are publicly traded while
preserving Silicon Graphics' ability to effect a Tax-Free Distribution. To
effect a distribution that would be tax free to Silicon Graphics and its
stockholders, current tax law requires, among other things, that Silicon
Graphics own, at the time of the distribution, capital stock representing at
least 80% of our voting power. In addition, for tax-free treatment, Silicon
Graphics must distribute all of the MIPS Technologies capital stock it then owns
to its stockholders in a single transaction.
Silicon Graphics' ability, by virtue of its ownership of all of the
outstanding shares of Class B Common Stock, to elect 80% of the members of our
board of directors (rounded up to the nearest whole director) at all times prior
to a Tax-Free Distribution will satisfy the 80% voting power requirement for a
Tax-Free Distribution under current tax law. Accordingly, prior to a Tax-Free
Distribution, under current tax law, Silicon Graphics may reduce its economic
interest in us below 80% through secondary market sales, thereby increasing the
public float of the Class A Common Stock, without jeopardizing its ability to
effect a Tax-Free Distribution of its remaining interest.
CONVERSION AND EXCHANGE PROVISIONS
Our certificate of incorporation contains provisions pursuant to which,
under certain circumstances, all outstanding shares of Class B Common Stock will
be automatically
20
<PAGE>
converted into shares of Class A Common Stock on a one-for-one basis. Certain of
these automatic conversion provisions may be triggered prior to a Tax-Free
Distribution, including upon a change of control of Silicon Graphics or if
Silicon Graphics' economic interest in us falls below certain levels. In
addition, the outstanding shares of Class B Common Stock will be automatically
converted into shares of Class A Common Stock if we are acquired, subject to
certain exceptions.
In the event that Silicon Graphics pursues and consummates a Tax-Free
Distribution, we expect that we would continue to have a dual class capital
structure only for so long as may be required for Silicon Graphics to effect,
and maintain the tax-free status of, the Tax-Free Distribution. Our certificate
of incorporation currently provides that the Class B Common Stock will be
automatically converted into Class A Common Stock on, or pursuant to a vote of
our stockholders as soon as practicable after, the fifth anniversary of a
Tax-Free Distribution. In addition, under our certificate of incorporation, at
any time after a Tax-Free Distribution, we may exchange all of the outstanding
shares of Class B Common Stock for shares of Class A Common Stock subject to the
restriction noted below. However, the conversion and exchange provisions
identified in this paragraph may not be available to us if their existence in
our certificate of incorporation precludes Silicon Graphics from timely
obtaining a favorable ruling from the Internal Revenue Service regarding the
Tax-Free Distribution.
At the present time, we do not know whether, under current tax law, the
existence of these provisions would preclude Silicon Graphics from timely
obtaining such a ruling. Moreover, even if the exchange provision described
above is effective, we are prohibited from completing such an exchange under the
terms of a distribution tax indemnification agreement that we have agreed to
enter into with Silicon Graphics in connection with a Tax-Free Distribution
unless certain requirements are met. In addition, we are unable to predict if or
when any other conversion provision will be triggered. Accordingly, there can be
no assurance as to the length of time that we will continue to have the dual
class capital structure, and the Class B Common Stock could be outstanding
indefinitely.
For a more complete description of the conversion and exchange provisions
contained in our certificate of incorporation, see "Description of Capital
Stock" beginning on page .
PROPOSED TAX LEGISLATION
On February 1, 1999, the United States Treasury Department proposed
legislation which, if enacted, would require a distributing corporation
generally to own stock representing 80% of the value of the spun-off corporation
in addition to the current requirement that it own stock representing 80% of the
voting power, in order for a spin-off to qualify for tax-free treatment under
Section 355 of the Internal Revenue Code.
We cannot predict whether this or any similar proposal will be enacted or,
if enacted, whether the final legislation will contain transitional relief that
would allow Silicon Graphics to complete a Tax-Free Distribution. If the
legislation is enacted substantially as proposed and without transitional
relief, Silicon Graphics could be required to effect a Tax-Free Distribution
shortly after this offering in order to avoid the application of such
legislation. In addition, depending on the form of such legislation, if enacted,
Silicon Graphics may be unable to effect a Tax-Free Distribution and therefore
could elect to retain its interest in us indefinitely.
EXCHANGE AGREEMENT
In connection with the recapitalization, we entered into an exchange
agreement with Silicon Graphics pursuant to which Silicon Graphics will become
obligated to purchase a pre-determined number of shares of our common stock if
it has not disposed of its entire interest in us prior to December 31, 2000,
subject to certain exceptions. Silicon Graphics may purchase such shares from us
or a third party, at its election.
21
<PAGE>
The exchange agreement also obligates the parties to enter into a
distribution tax indemnification agreement prior to a Tax-Free Distribution. The
distribution tax indemnification agreement will contain covenants limiting our
ability to take certain actions following a Tax-Free Distribution that could
cause the distribution to become taxable to Silicon Graphics and, in some
instances, its stockholders. These covenants will, among other things, prohibit
us from (1) changing the relative voting rights of the Class A and Class B
Common Stock, (2) exchanging outstanding shares of Class B Common Stock for
shares of Class A Common Stock, (3) issuing capital stock in an acquisition or
private or public offering during the 30-month period following the Tax-Free
Distribution unless certain requirements are met, and (4) taking certain other
actions. We must indemnify Silicon Graphics if we breach these covenants and in
certain other circumstances, including if more than a specified percentage of
our stock is acquired. See "Arrangements Between MIPS Technologies and Silicon
Graphics -- Exchange Agreement".
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998,
on an actual basis and on a pro forma basis giving effect to the
recapitalization of our capital stock, which was effective as of , 1999.
You should read this information together with our financial statements and the
notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
ACTUAL PRO FORMA
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, par value $0.001: 50,000,000 shares authorized; no
shares issued and outstanding.................................... $ -- $ --
Common Stock, par value $0.001: 150,000,000 shares authorized;
37,292,286 shares issued and outstanding actual and no shares
issued and outstanding pro forma (1)............................. 37 --
Class A Common Stock, par value $0.001: 150,000,000 shares
authorized; no shares issued and outstanding actual and 5,542,286
shares issued and outstanding pro forma (1)...................... -- 5
Class B Common Stock, par value $0.001: 100,000,000 shares
authorized; no shares issued and outstanding actual and
31,750,000 shares issued and outstanding pro forma............... -- 32
Additional paid-in capital......................................... 136,235 136,235
Accumulated deficit................................................ (113,400) (113,400)
--------- -----------
Total stockholders' equity....................................... 22,872 22,872
--------- -----------
Total capitalization................................................. $ 22,872 $ 22,872
--------- -----------
--------- -----------
</TABLE>
- --------------
(1) Excludes 7,817,714 shares of common stock reserved for issuance under our
stock option and stock purchase plans, of which 4,117,000 shares were
subject to outstanding options as of December 31, 1998. See "Management --
1998 Long-Term Incentive Plan" and "Management -- Employee Stock Purchase
Plan".
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set forth below in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and our financial statements and the notes to those
statements included elsewhere in this prospectus. The selected consolidated
financial data set forth below as of June 30, 1996, 1997 and 1998, and for the
fiscal years then ended, have been derived from our financial statements which
have been audited by Ernst & Young LLP, independent auditors. The data as of
June 30, 1994 and 1995, and for the fiscal years then ended, and as of December
31, 1997 and 1998, and for the six months then ended, is unaudited and, in the
opinion of our management, include all adjustments (consisting only of normal
recurring accruals) necessary to present fairly our results of operations for
the periods then ended and our financial position as of such dates. The interim
period results are not necessarily indicative of results to be expected for a
full year.
The historical financial information presented below, particularly for
periods prior to the third quarter of fiscal 1998, may not be indicative of our
future performance and does not necessarily reflect what our financial position
and results of operations would have been had we operated as a separate, stand-
alone entity during the periods prior to the third quarter of fiscal 1998. The
historical financial information for such periods does not reflect many
significant changes that have occurred in our funding and operations and the
sources and costs of our revenue as a result of both the separation of our
business from that of Silicon Graphics and our shift in strategic direction.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(unaudited) (unaudited)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
Royalties................................. $ 8,402 $ 13,576 $ 19,716 $ 37,192 $ 55,980 $ 26,759 $ 24,854
Contract revenue.......................... 8,962 13,903 17,327 3,115 830 827 2,400
--------- --------- --------- --------- --------- --------- ---------
Total revenue........................... 17,364 27,479 37,043 40,307 56,810 27,586 27,254
Costs and expenses:
Cost of contract revenue.................. 2,768 7,364 5,580 1,345 375 375 125
Research and development.................. 24,396 39,033 48,402 68,827 43,446 35,127 9,223
Sales and marketing....................... 5,668 6,761 6,026 6,170 5,307 2,910 3,019
General and administrative................ 3,692 4,272 4,601 4,750 4,685 2,295 2,956
Restructuring charge...................... -- -- -- -- 2,614 2,614 --
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses................ 36,524 57,430 64,609 81,092 56,427 43,321 15,323
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)..................... (19,160) (29,951) (27,566) (40,785) 383 (15,735) 11,931
Interest income (expense)................... (70) (69) (99) (50) (7) (11) 438
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes........... (19,230) (30,020) (27,665) (40,835) 376 (15,746) 12,369
Provision for income taxes.................. -- -- -- -- -- -- 4,948
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)........................... $ (19,230) $ (30,020) $ (27,665) $ (40,835) $ 376 $ (15,746) $ 7,421
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per basic share........... $ (0.53) $ (0.83) $ (0.77) $ (1.13) $ 0.01 $ (0.44) $ 0.20
Net income (loss) per diluted share......... (0.53) (0.83) (0.77) (1.13) 0.01 (0.44) 0.19
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................... $ -- $ -- $ -- $ -- $ 45 $ -- $ 26,052
Working capital (deficiency)................ (11,230) (16,683) (8,531) (8,446) (4,530) (8,211) 19,065
Total assets................................ 12,338 15,744 15,289 19,674 4,696 16,724 33,289
Long-term obligations, net of current
maturities(1)............................. 457 739 331 -- -- -- --
Total stockholders' equity (deficit)........ (755) (3,736) 3,853 8,072 (747) 5,266 22,872
</TABLE>
- ------------------
(1) Long-term obligations consist of capital lease obligations. We leased
equipment under capital lease obligations that matured in fiscal 1998.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH
"SELECTED CONSOLIDATED FINANCIAL DATA" AND OUR FINANCIAL STATEMENTS AND THE
NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION
CONTAINS FORWARD LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS,
ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT US AND OUR INDUSTRY. THESE FORWARD
LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE INDICATED IN THESE FORWARD LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, AS MORE FULLY DESCRIBED IN THE "RISK FACTORS" SECTION
AND ELSEWHERE IN THIS PROSPECTUS. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY
ANY FORWARD LOOKING STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION BECOMES
AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
OVERVIEW
Our predecessor, MIPS Computer Systems, Inc., was founded in 1984 and was
engaged in the design and development of RISC processors for the computer
systems and embedded markets. Silicon Graphics adopted the MIPS architecture for
its computer systems in 1988 and acquired MIPS Computer Systems, Inc. in 1992.
Following the acquisition, Silicon Graphics continued the MIPS processor
business through its MIPS Group (a division of Silicon Graphics), which focused
primarily on the development of high-performance processors for Silicon
Graphics' workstations and servers. In order to increase the focus of the MIPS
Group on the design and development of processor intellectual property for the
embedded market, Silicon Graphics separated the business of the MIPS Group from
its other operations and transferred to us the assets, liabilities and
intellectual property related to this business.
Until the last few years, cost considerations limited the use of MIPS RISC
processors in high-volume digital consumer products. As the cost to manufacture
processors based on the MIPS technology decreased, the MIPS Group sought to
penetrate the consumer market, both through supporting and coordinating the
efforts of the MIPS semiconductor licensees and, most notably, by partnering
with Nintendo in its design of the Nintendo 64 video game player and related
cartridges. The combination of these efforts has led to significant growth in
MIPS-based devices. Based on industry sources, we believe that more than one
third of the market for RISC-based processors were based on the MIPS RISC
architecture.
Revenue related to sales of Nintendo 64 video game players and related
cartridges currently accounts for the substantial majority of MIPS Technologies'
revenue. In the short term, we intend to use our operating cash flow, including
royalties we receive with respect to sales of Nintendo 64 video game players and
related cartridges, to fund processor and related design efforts aimed at the
digital consumer products market and to establish and strengthen relationships
with semiconductor licensees and system original equipment manufacturers (system
OEMs). As part of these efforts, we intend to develop processors with increased
flexibility and modularity that will allow our semiconductor licensees, as well
as system OEMs, to provide high-performance, customized products more quickly.
The financial statements for periods prior to the third quarter of fiscal
1998 reflect the historical results of operations, financial position and cash
flows of the MIPS Group, certain portions of which were transferred to us by
Silicon Graphics in connection with the separation of the two businesses. The
financial statements for such periods have been carved out from the financial
statements of Silicon Graphics using the historical results of operations and
historical basis of the assets and liabilities of our business, as adjusted to
reflect allocations of certain corporate charges that our management believes
are reasonable. Our financial information for periods prior to the third quarter
of fiscal 1998 may not necessarily reflect the results of our operations,
25
<PAGE>
financial position and cash flows in the future or what the results of
operations, financial position and cash flows would have been had the MIPS Group
been a separate, stand-alone entity during those periods. The financial
information for such earlier periods does not reflect the many significant
changes that have occurred in our funding and operations and the sources and
costs of revenue as a result of both our separation from Silicon Graphics and
our shift in strategic direction.
REVENUE
Our revenue consists of royalties and contract revenue earned under
contracts with our licensees and under our agreement with Nintendo. Our
contracts with our licensees are typically subject to periodic renewal or
extension and expire at various dates through December 2009. We generate
royalties from the sale by semiconductor manufacturers of products incorporating
our technology. Royalty revenue generally is recognized in the quarter in which
a report is received from a licensee detailing the shipments of products
incorporating our intellectual property (i.e., generally in the quarter
following the sale of the licensee's product to its customer). Royalties may be
calculated as a percentage of the revenue received by the seller on sales of
such products or on a per unit basis. Under the terms of an agreement with
Silicon Graphics entered into in connection with the separation, we also receive
all royalties payable by Nintendo relating to sales of Nintendo 64 video game
players and related cartridges.
Contract revenue includes technology license fees and engineering services
fees. We receive license fees for the use of technology that we have developed
internally and, in some cases, that we have licensed from third parties. License
fees are typically recognized upon the execution of the license agreement and
transfer of intellectual property, provided no further significant performance
obligations exist. Technology license fees vary based on, among other things,
whether a particular technology is licensed for a single application or for
multiple or unlimited applications, and whether the license granted covers a
particular design or a broader architecture. Part of these fees may be payable
up-front and part may be due upon the achievement of certain milestones such as
provision of deliverables by us or production of semiconductor chips by the
licensee. Engineering services fees are recognized as revenue when defined
milestones are completed and the milestone payment is probable of collection. In
most instances, the technology we develop, including under engineering services
contracts, can be licensed to multiple customers.
In fiscal 1996, our total revenue was split relatively equally between
royalties and contract revenue. Royalties in fiscal 1996 were earned primarily
from NEC, while contract revenue primarily reflected engineering service fees
from Nintendo related to the Nintendo 64 video game system prior to its
commercial introduction. In fiscal 1997 and 1998 and the first six months of
fiscal 1999, our revenue mix changed significantly, with royalties representing
over 90% of our total revenue during those periods, due primarily to royalties
earned from Nintendo, and to a lesser extent NEC, on sales of Nintendo 64 video
game players and related cartridges.
Royalties from Nintendo and NEC on sales of Nintendo 64 video game players
and related cartridges accounted for approximately 79% of our total revenue for
fiscal 1998 and 75% of our total revenue for the first six months of fiscal
1999. We anticipate that revenue related to sales of Nintendo 64 video game
players and related cartridges will continue to represent a significant portion
of our total revenue for the next several years. We receive royalties from NEC
based on a percentage of the revenue derived by NEC from sales of the processor
included in the Nintendo 64 video game player. Current royalties from Nintendo
are based on unit sales of Nintendo 64 video game cartridges. We also received
royalties from Nintendo with respect to the graphics chip included in Nintendo
64 video game players, and these royalties had a lifetime cap based on unit
sales that was reached in the second quarter of fiscal 1998. There is no cap on
royalties from NEC with respect to its sale
26
<PAGE>
of processors to Nintendo for Nintendo 64 video game players or on royalties
from Nintendo with respect to sales of Nintendo 64 video game cartridges.
The market for home entertainment products is competitive and the
introduction of new products or technologies, as well as shifting consumer
preferences, could negatively impact the amount and timing of sales of Nintendo
64 video game players and related cartridges. In addition, the eventual
introduction of the next generation Nintendo video game system is likely to
result in declining sales of Nintendo 64 video game players and related
cartridges, although sales of video game cartridges, which account for a
significant portion of our royalties, will continue, albeit at a declining rate,
for a period of time after the introduction. We developed key elements of the
Nintendo 64 system in conjunction with Silicon Graphics. These elements included
certain software and graphics technologies which, as a result of our separation
from Silicon Graphics and our shift in strategic direction in early 1998, we no
longer offer. Accordingly, we will need to generate revenue growth from our
stated markets to offset the eventual decline of Nintendo 64 royalties. We
understand that the next generation Nintendo video game system will not
incorporate any of our technology. We value our relationship with Nintendo;
however, there can be no assurance that this relationship will result in any
revenues for us other than those generated by the sale of Nintendo 64 video game
players and related cartridges. In May 1998, we entered into a memorandum of
understanding with Silicon Graphics, Nintendo Co. Ltd. and ArtX, Inc. resolving
certain disputes among the parties. See "Business -- Litigation".
We expect that royalties will continue to represent a significant percentage
of our total revenue over the next several years due to our contractual
arrangements with Nintendo. The amount, timing and relative mix of royalties and
contract revenue is difficult to predict. Factors affecting the amount and
timing of our future royalties include:
- - the adoption of our technology by digital consumer product and business
equipment manufacturers;
- - consumer acceptance of products incorporating our technology;
- - changes in the average selling prices of semiconductor and digital consumer
products and business equipment; and
- - fluctuations in currency exchange rates.
Moreover, our royalty arrangements will vary from licensee to licensee
depending on a number of factors, including the amount of any license fee paid
and the marketing and engineering support required by the licensee. Contract
revenue may fluctuate significantly from period to period and any increase or
decrease in such revenue will not be indicative of future period-to-period
increases or decreases. Factors affecting the amount and timing of our future
contract revenue include:
- - the financial terms of our contractual arrangements with our semiconductor
licensees, which may provide for significant up-front payments or payments
based on the achievement of certain milestones; and
- - the adoption of our technology by semiconductor manufacturers, which is
influenced by a number of factors including competitive conditions in the
market for processor and core intellectual property.
Although a substantial portion of our total revenue to date has been derived
from royalties and contract revenue relating to sales of Nintendo 64 video game
products, we expect that royalties and contract revenue related to sales of
other digital consumer products, such as handheld personal computers, cellular
telephones and set-top boxes, as well as other video game products, will
constitute an increasingly significant portion of our total revenue. Our ability
to diversify our revenue base will depend primarily on the number and variety of
design
27
<PAGE>
wins we obtain from digital consumer product and business equipment
manufacturers, and consumer acceptance of products that incorporate our
technology. We generally do not have a direct contractual relationship with
digital consumer product manufacturers, and the royalty reports submitted by our
semiconductor licensees generally do not disclose which consumer products
include our RISC technology. As a result, it is difficult for us to identify or
predict the extent to which our future revenue will be dependent upon a
particular digital consumer product or product manufacturer.
Because revenue related to sales of digital consumer products is expected to
represent a substantial portion of our total revenue over the next several
years, we expect to experience seasonal fluctuations in our revenue and
operating results. We typically record royalty revenue from our licensees,
including Nintendo, in the quarter following the sale of the related digital
consumer product. Because a disproportionate amount of Nintendo 64 video game
cartridges are typically sold in the second fiscal quarter (which includes the
holiday selling season), we have realized a disproportionate amount of our
revenue and operating income in our third fiscal quarter. As we increase our
focus on processors, cores and related designs for high-volume digital consumer
products, similar seasonal fluctuations in our revenue and operating results can
be expected to continue.
A significant portion of our total revenue has been and is expected to
continue to be derived from a limited number of semiconductor companies. Revenue
from our top two semiconductor company licensees represented an aggregate of 48%
of our total revenue in fiscal 1996, 29% of our total revenue in fiscal 1997,
18% of our total revenue in fiscal 1998 and 14% of our total revenue for the six
months ended December 31, 1998. Although we continue to broaden our base of
licensees, it is likely that our revenue will continue to be concentrated at the
semiconductor licensee level. This revenue concentration for any given period
will vary depending on the addition or expiration of contracts, the nature and
timing of payments due under such contracts and the volumes and prices at which
our licensees sell products incorporating our technology. Accordingly, the
identity of particular licensees that will account for any such revenue
concentration will vary from period to period and may be difficult to predict.
The non-renewal of contracts by our semiconductor company licensees could
adversely affect our future operating results.
To date, companies based in Japan have accounted for the substantial
majority of our total revenue, and nearly all of our international revenue.
International revenue accounted for approximately 83% of our total revenue in
fiscal 1996, 87% of our total revenue in fiscal 1997, 90% of our total revenue
in fiscal 1998 and 90% of our total revenue for the six months ended December
31, 1998. Substantially all of this revenue has been denominated in U.S.
dollars. We expect that revenue derived from international licensees, primarily
in Asia, will continue to represent a significant portion of our total revenue.
Several countries in Asia are experiencing economic difficulties, characterized
by reduced economic activity, lack of liquidity, highly volatile foreign
currency exchange and interest rates and unstable stock markets. Several of our
licensees sell products into Asia that incorporate our processors and related
designs. Any negative impact of the circumstances in Asia on sales of such
products by our licensees could have a negative impact on our royalty revenue.
COSTS AND EXPENSES
Our costs and expenses include cost of contract revenue, research and
development expenses, sales and marketing expenses and general and
administrative expenses.
COST OF CONTRACT REVENUE
Cost of contract revenue presently consists primarily of sublicense fees. We
incur an obligation to pay these fees when we sublicense to our customers
technology that we have licensed from third parties. Sublicense fees are
recognized as cost of contract revenue when the obligation is incurred, which
28
<PAGE>
is typically the same period in which the related revenue is recognized. Prior
to fiscal 1998, cost of contract revenue also included nonrecurring engineering
service costs directly related to a development agreement with a specific
licensee which were expensed as incurred over the period of services. We believe
that future cost of contract revenue will be minimal.
RESEARCH AND DEVELOPMENT
The separation of our business from that of Silicon Graphics and our shift
in strategic direction have significantly impacted our research and development
cost structure. In particular, the markets we presently target allow us to use
small design teams and to rely largely on industry standard third-party design
tools. By contrast, Silicon Graphics' complex processor requirements and its
need to develop and maintain proprietary design tools demanded that the MIPS
Group employ large design teams. As a result, we have been able to reduce our
staffing requirements and costs.
The decrease in research and development staff resulting from the separation
and shift in strategic direction was offset in part by the addition of 24
employees in December 1998 to staff research and development activities in a new
development center in Copenhagen, Denmark. These employees are engaged in
product development and also provide support and design expertise for our
European-based customers. At December 31, 1998, our research and development
staff was 75 persons, compared to 36 persons at June 30, 1998 and 221 persons at
December 31, 1997. Reflecting this change in our research and development cost
structure, our research and development expenses for the second quarter and
first six months of fiscal 1999 decreased by $13.1 million and $25.9 million,
respectively, to $4.7 million and $9.2 million, compared to $17.8 million and
$35.1 million for the comparable periods in fiscal 1998. We expect that our
research and development staff and expenses will increase as we continue to
develop new designs for the digital consumer products and business equipment
markets.
The costs we incur with respect to internally developed technology and
engineering services are included in research and development expense as they
are incurred and are not directly related to any particular licensee, license
agreement or license fee.
SALES AND MARKETING
Sales and marketing expenses include salaries, travel expenses and costs
associated with direct marketing, advertising and other marketing efforts. Costs
of technical support are also included in sales and marketing expenses. Our
sales and marketing efforts are directed at establishing and supporting
licensing relationships with semiconductor manufacturers, fabless semiconductor
companies and system OEMs. At December 31, 1998, our sales and marketing staff
totaled 22 persons. Our sales and marketing staff and related expenses are
expected to increase as we seek to diversify our revenue base.
GENERAL AND ADMINISTRATIVE
Historically, a significant portion of our general and administrative
expenses have reflected an allocation of corporate overhead by Silicon Graphics
based on headcount and a percentage allocation based on certain factors
including net sales, headcount and relative expenditure levels. Presently,
certain tax and facilities services are provided to us pursuant to our
Management Services Agreement with Silicon Graphics. While our general and
administrative expenses have remained relatively stable since the separation, we
expect that our general and administrative expenses will increase in the future
due, in part, to costs related to our status as a stand-alone entity such as
increased patent related costs and expenses related to compliance with the
reporting and other requirements of a publicly-traded company.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED DECEMBER 31, 1997 AND 1998
Total revenue for the first six months of fiscal 1999 decreased by $332,000
to
29
<PAGE>
$27.3 million, compared to $27.6 million for the comparable period in fiscal
1998. Royalties for the first six months of fiscal 1999 decreased by $1.9
million to $24.9 million, compared to $26.8 million for the same period in
fiscal 1998. This decrease was due to the absence of royalties from the graphics
chips included in the Nintendo 64 video game player, which reached its cap in
the second quarter of fiscal 1998. Contract revenue for the first six months of
fiscal 1999 increased by $1.6 million to $2.4 million, compared to $827,000 for
the same period in fiscal 1998. This increase in contract revenue reflects fees
generated primarily from new agreements, and included engineering service fees
of $1.5 million based upon the achievement of defined milestones in the second
quarter of fiscal 1999.
Cost of contract revenue decreased by $250,000 to $125,000 for the first six
months of fiscal 1999 compared with the same period in fiscal 1998. The decrease
was attributable to a decrease in sublicensing activities which resulted in a
decrease in an obligation to pay sublicense fees to our licensors.
Research and development expenses for the first six months of fiscal 1999
decreased by $25.9 million, to $9.2 million, compared to research and
development expenses of $35.1 million for the comparable period in fiscal 1998.
This decrease reflects the significant reduction in our research and development
staff accompanying the separation and our change in strategic direction in the
second half of fiscal 1998. Research and development expenses for the first six
months of fiscal 1998 reflect the operations of the MIPS Group which had a staff
of 221 persons at December 31, 1997. Because the markets we target allow us to
rely largely on industry standard third-party design tools and to use smaller
design teams than were employed by the MIPS Group, we reduced our research and
development staff by approximately 185 persons in the third quarter of fiscal
1998. This decrease was offset, in part, by the addition of 24 employees to
staff our development center in Copenhagen, Denmark, which opened in December
1998.
Sales and marketing and general and administrative expenses for the first
six months of fiscal 1999 increased $770,000, to $6.0 million, compared to sales
and marketing and general and administrative expenses of $5.2 million for the
comparable period in fiscal 1998. This increase was due to an increase in
staffing levels and legal and consulting services.
The restructuring charge taken in the second quarter of fiscal 1998 included
$500,000 in severance related costs and $2.1 million in asset writedowns related
to the shift in the strategic direction.
Interest income (expense), net, for the first six months of fiscal 1999
increased by $449,000 to interest income of $438,000 compared to interest
expense of $11,000 for the comparable period in fiscal 1998. The increase was
primarily due to interest income earned from investment of the net proceeds of
approximately $16.0 million from our initial public offering and, to a lesser
extent, cash generated from operating activities.
While we are a part of Silicon Graphics' consolidated group for federal
income tax purposes, we are responsible for our income taxes through a tax
sharing agreement with Silicon Graphics. Therefore, to the extent we produce
taxable income, losses or credits, we make or receive payments as though we
filed separate federal, state and local income tax returns. We will be included
in Silicon Graphics' consolidated group for federal income tax purposes for so
long as Silicon Graphics beneficially owns at least 80% of the total voting
power and value of our outstanding common stock. Upon the consummation of this
offering we will no longer be a part of Silicon Graphics' consolidated group and
will file separate federal, state and local income tax returns.
We recorded a provision for income taxes of $4.9 million for the first six
months of fiscal 1999 compared to zero for the comparable period in fiscal 1998.
The provision for the first six months of fiscal 1999 was based on an estimated
federal and state combined rate of 40% on income before taxes. The net loss
30
<PAGE>
incurred in the first six months of fiscal 1998 is primarily attributable to our
operations as a division of Silicon Graphics and were included in the income tax
returns filed by Silicon Graphics. In light of both historical losses incurred,
as well as the fact that, by operation of the tax sharing agreement, we will not
receive any benefit for losses incurred or have any tax liability for any income
earned up to the closing date of the initial public offering, no income tax
provision or benefit has been reflected for the first six months of fiscal 1998.
RESULTS OF OPERATIONS -- YEARS ENDED JUNE 30, 1996, 1997 AND 1998
Our total revenue in fiscal 1996, 1997 and 1998 was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR TOTAL REVENUE
- --------------- --------------
<S> <C>
1996 $37.0 million
1997 40.3 million
1998 56.8 million
</TABLE>
Revenue for fiscal 1996 consisted of royalties from the sale by
semiconductor manufacturers of products incorporating our technology. Royalties
for fiscal 1997 and 1998 consisted of royalties from sale by semiconductor
manufacturers of products incorporating our technology and from sales of
Nintendo 64 video game players and related cartridges. The significant increase
in royalties in fiscal 1997 from fiscal 1996 and in fiscal 1998 from fiscal 1997
reflects royalties received from Nintendo and NEC related to sales of Nintendo
64 video game players and related cartridges. We earned our first significant
royalties from Nintendo 64 video game system sales in the third quarter of
fiscal 1997, following the commercial introduction of that system. In the second
quarter of fiscal 1998, royalties from the graphics chip included in the
Nintendo game player reached its cap.
Fiscal 1996 contract revenue included engineering service fees related to
development efforts for the Nintendo 64 video game system as well as
approximately $10.0 million in license fees from three licensees. Contract
revenue for fiscal 1997 consisted principally of engineering service fees from
Nintendo related to development efforts for Nintendo 64 video game products, and
for fiscal 1998 consisted principally of license fees related to code
compression technology. The decrease in contract revenue in fiscal 1997
reflected substantial completion in fiscal 1996 of the Nintendo 64 video game
system development prior to its commercial introduction by Nintendo. Under the
terms of our contracts with three of our licensees, such licensees pay us
royalties on sales to Silicon Graphics of certain products incorporating our
technology. We estimate that less than 5% of our total revenue for fiscal 1998
and less than 1% of our total revenue for the first six months of 1999 was
related to such sales.
Our cost of contract revenue in fiscal 1996, 1997 and 1998 was as follows:
<TABLE>
<CAPTION>
COST OF
FISCAL YEAR CONTRACT REVENUE
- --------------- ------------------
<S> <C>
1996 $5.6 million
1997 1.3 million
1998 375,000
</TABLE>
Cost of contract revenue in fiscal 1996 and 1997 was principally
attributable to non-recurring engineering fees related to Nintendo 64 video game
system development and in fiscal 1998 was principally attributable to sublicense
fees. The decrease in fiscal 1997 from 1996 was principally attributable to the
completion in fiscal 1996 of the Nintendo 64 video game system development.
Research and development expenses in fiscal 1996, 1997 and 1998 were as
follows:
<TABLE>
<CAPTION>
RESEARCH AND
FISCAL YEAR DEVELOPMENT EXPENSES
- --------------- -----------------------
<S> <C>
1996 $48.4 million
1997 68.8 million
1998 43.4 million
</TABLE>
The increase in research and development expenses in fiscal 1997 was
attributable to additional personnel, including consultants, working on next
generation processor development projects. The decrease in research and
development expenses in fiscal 1998 was primarily due to the reduction in our
research and development staff from 221
31
<PAGE>
persons at December 31, 1997 to 36 persons at June 30, 1998. This reduction
reflects the transfer to Silicon Graphics of employees engaged in the
development of next generation processors for Silicon Graphics' systems as well
as other staff reductions associated with our change in strategic direction.
Sales and marketing expenses in fiscal 1996, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
SALES AND
FISCAL YEAR MARKETING EXPENSES
- --------------- --------------------
<S> <C>
1996 $6.0 million
1997 6.2 million
1998 5.3 million
</TABLE>
The decrease in fiscal 1998 was primarily due to a decrease in advertising
and promotional spending.
General and administrative expenses, which remained relatively stable in
fiscal 1996, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
GENERAL AND
ADMINISTRATIVE
FISCAL YEAR EXPENSES
- --------------- --------------------
<S> <C>
1996 $4.6 million
1997 4.8 million
1998 4.7 million
</TABLE>
The restructuring charge taken in the second quarter of fiscal 1998 included
$500,000 in severance related costs and $2.1 million in asset write-downs
related to our shift in strategic direction.
Prior to the separation, we did not have a tax sharing agreement in place
but, rather, we were included in the income tax returns filed by Silicon
Graphics and its subsidiaries in various domestic and foreign jurisdictions.
Pursuant to the tax sharing agreement, we will realize no income tax benefit,
nor bear any income tax liability, related to our operations prior to the
completion of our initial public offering on July 6, 1998. Moreover, in light of
historical losses, on a stand-alone basis, our tax provision for fiscal 1998
would have been immaterial.
IMPACT OF CURRENCY
Certain of our international licensees pay royalties based on revenues that
are reported in a local currency (currently yen) and translated into U.S.
dollars at the exchange rate in effect when such revenues are reported by the
licensee. To date, substantially all of our revenue from international customers
has been denominated in U.S. dollars. However, to the extent that sales to
digital consumer product manufacturers by our manufacturing licensees are
denominated in foreign currencies, royalties we receive on such sales could be
subject to fluctuations in currency exchange rates. In addition, if the
effective price of the technology we sell to our licensees were to increase as a
result of fluctuations in foreign currency exchange rates, demand for technology
could fall which would, in turn, reduce our royalties. We are unable to predict
the amount of non-U.S. dollar denominated revenue earned by our licensees and,
therefore, have not attempted to mitigate the effect that currency fluctuations
may have on our royalty revenue.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our statement of operations data for each of
the six quarters in the period ended December 31, 1998. This unaudited quarterly
information has been prepared on the same basis as the annual audited financial
statements and, in the opinion of our management, includes all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
information set forth therein. The operating results for any quarter are not
necessarily indicative of results for any future period.
32
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1998 1998 1998 1998
--------- -------- --------- -------- --------- --------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Royalties............................. $14,287 $ 12,472 $18,231 $10,990 $11,611 $13,243
Contract revenue...................... 750 77 -- 3 650 1,750
--------- -------- --------- -------- --------- --------
Total revenue....................... 15,037 12,549 18,231 10,993 12,261 14,993
Costs and expenses:
Cost of contract revenue.............. 375 -- -- -- -- 125
Research and development.............. 17,338 17,789 4,446 3,873 4,552 4,667
Sales and marketing................... 1,448 1,462 1,274 1,123 1,289 1,730
General and administrative............ 1,257 1,038 986 1,404 1,135 1,821
Restructuring charge.................. -- 2,614 -- -- -- --
--------- -------- --------- -------- --------- --------
Total costs and expenses............ 20,418 22,903 6,706 6,400 6,976 8,343
--------- -------- --------- -------- --------- --------
Operating income (loss)................. (5,381) (10,354) 11,525 4,593 5,285 6,650
Interest income (expense)............... (7) (4) (2) 6 170 264
--------- -------- --------- -------- --------- --------
Income (loss) before income taxes....... (5,388) (10,358) 11,523 4,599 5,455 6,914
Provision for income taxes.............. -- -- -- -- 2,182 2,766
--------- -------- --------- -------- --------- --------
Net income (loss)....................... $(5,388) $(10,358) $11,523 $ 4,599 $ 3,273 $ 4,148
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
</TABLE>
Royalty revenue for the quarter ended December 31, 1997 decreased by $1.8
million, or 12.7%, compared to the prior quarter, reflecting, in part, a
decrease in royalties from the graphics chip included in the Nintendo video game
player which reached its cap during the December quarter. Royalty revenue for
the quarter ended March 31, 1998 increased by $5.8 million, or 46%, compared to
the prior quarter. This increase primarily reflects the seasonal nature of our
royalty stream, in particular royalties relating to sales of Nintendo 64 video
game products during the 1997 holiday selling season. Contract revenue for the
quarter ended December 31, 1998 increased by $1.1 million compared to the prior
quarter, due to fees generated primarily from new licensing agreements, and
included engineering service fees of $1.5 million based upon our achievement of
defined milestones during the quarter.
Research and development expenses for periods prior to the quarter ended
March 31, 1998 reflect the operations of the MIPS Group prior to the separation
of our business from that of Silicon Graphics. For the quarter ended March 31,
1998 and subsequent periods, our research and development expenses reflect the
reduction in our staff that accompanied the separation of our business from that
of Silicon Graphics and the shift in strategic direction. The restructuring
charge of $2.6 million in the second quarter of fiscal 1998 included $500,000 in
severance related costs and $2.1 million in asset writedowns related to the
separation and to our shift in strategic direction.
Our operating results for quarters subsequent to our initial public offering
in July 1998 reflect our responsibility for income taxes under our tax sharing
agreement with Silicon Graphics. The provision for income taxes was $2.2 million
for the quarter ended September 30, 1998 and $2.8 million for the quarter ended
December 31, 1998. Prior to our initial public offering, we were included in the
tax returns filed by Silicon Graphics and its subsidiaries in various domestic
and foreign jurisdictions and we did not separately record any provision for
income taxes.
We expect to experience significant fluctuations in our quarterly operating
results due to a variety of factors, many of which are outside of our control.
Factors that may adversely affect our quarterly operating results include our
ability to develop, introduce and market new processor and core designs and
design enhancements, the demand for and average selling prices of semiconductor
products that incorporate our technology, the
33
<PAGE>
establishment or loss of licensing relationships, the timing of new products and
product enhancements by us and our competitors, changes in our and our
licensees' development schedules and levels of expenditures on research and
development and general economic conditions. As a result, our total revenue and
operating results in any future period cannot be predicted with certainty, and
our operating results in any quarter may not be indicative of our future
performance. In addition, we expect to experience seasonal fluctuations in our
revenue and operating results. See "-- Revenue".
LIQUIDITY AND CAPITAL RESOURCES
On July 6, 1998 we completed our initial public offering of 5,500,000 shares
of our common stock. Of the 5,500,000 shares offered, we offered 1,250,000
shares and 4,250,000 shares were offered by Silicon Graphics. Net proceeds to us
from the initial public offering were approximately $16.0 million. Our principal
capital requirements are to fund working capital needs, and to a lesser extent
capital expenditures, in order to support our revenue growth. Prior to our
initial public offering, our capital requirements were satisfied by funds
provided by Silicon Graphics through its cash management system. Since the
initial public offering, we have not participated in Silicon Graphics' cash
management system and Silicon Graphics has not provided additional funds to
finance our operations.
At December 31, 1998 we had cash and cash equivalents of $26.1 million and
working capital of $19.1 million. For the six months ended December 31, 1997,
our operating activities used net cash of $10.4 million, reflecting the net loss
we incurred during the period. For the six months ended December 31, 1998, our
operating activities provided net cash of $11.2 million, primarily reflecting
net income and an increase in accrued liabilities, partially offset by an
increase in accounts receivable. The increase in accrued liabilities was the
result of an increase in accrued compensation related to higher staffing levels,
as well as accumulated performance bonuses and increased accrued administrative
costs associated with being a new public company. The increase in accounts
receivable was due to amounts owed to us under new license agreements entered
into during the period.
Net cash used in investing activities was $452,000 for the six months ended
December 31, 1997 and $1.4 million for the six months ended December 31, 1998.
Net cash used in investing activities in both periods presented consisted of
equipment purchases and licensing of computer aided design tools used in
development. Capital expenditures have been, and future expenditures are
anticipated to be, primarily for facilities and equipment to support expansion
of our operations and licensing of computer aided design tools used in
development. We expect that our capital expenditures will increase as our
employee base grows.
Net cash provided by financing activities was $10.9 million for the six
months ended December 31, 1997 compared to $16.2 million for the comparable
period in 1998. Financing activities for the six months ended December 31, 1997
consisted primarily of net funds provided by Silicon Graphics. Net cash provided
by financing activities for the six months ended December 31, 1998 consisted
primarily of cash received in connection with the issuance of common stock in
the initial public offering.
Our future liquidity and capital requirements are expected to vary greatly
from quarter to quarter, depending on numerous factors, including, among others:
- - the cost, timing and success of product development efforts,
- - the cost and timing of sales and marketing activities,
- - the extent to which our existing and new technologies gain market acceptance,
- - the level and timing of contract revenues and royalties,
34
<PAGE>
- - competing technological and market developments, and
- - the cost of maintaining and enforcing patent claims and other intellectual
property rights.
We believe that cash generated by our operations, together with our existing
cash balance, will be sufficient to meet our projected operating and capital
requirements for the foreseeable future. However, we may in the future be
required to raise additional funds through public or private financing,
strategic relationships or other arrangements. Additional equity financing may
be dilutive to holders of our common stock, and debt financing, if available,
may involve restrictive covenants. Moreover, strategic relationships, if
necessary to raise additional funds, may require that we relinquish our rights
to certain of our technologies. Our failure to raise capital when needed could
have a material adverse effect on our business, results of operations and
financial condition. We have had no direct third-party indebtedness.
Our ability to issue additional shares of our common stock in connection
with acquisitions or to raise equity capital during the 30 month period
following a Tax-Free Distribution by Silicon Graphics will be constrained by the
terms of certain of our agreements with Silicon Graphics. See "Arrangements
Between MIPS Technologies and Silicon Graphics -- Exchange Agreement" and "--
Corporate Agreement".
YEAR 2000 ISSUE
Many computer programs and embedded date-reliant systems use two digits
rather than four to define the applicable year. Programs and systems that record
only the last two digits of the calendar year may not be able to distinguish
whether "00" means 1900 or 2000. If not corrected, date-related information and
data could cause such programs or systems to fail or to generate erroneous
information.
Although our processor and related designs have no inherent time or date
function, we initiated a comprehensive assessment of our Year 2000 readiness in
September 1998. We have recently completed this assessment and have begun to
implement programs to make our information technology (IT) and related non-IT
and processes Year 2000 compliant. In addition, we recently replaced our
internal computer systems and operating and applications software. Each of the
suppliers of these systems and software has indicated to us that it believes its
products are Year 2000 compliant. We expect to complete changes to critical
systems by the third quarter of calendar year 1999. We believe that we have
allocated sufficient resources for our Year 2000 compliance efforts, and we
expect that our expenses in these efforts will be less than $200,000, exclusive
of ordinary costs to upgrade and maintain our equipment.
We intend to cooperate with our licensees and others with whom we do
business to coordinate Year 2000 compliance with operational processes and
marketed products. However, we are unable to directly assess the Year 2000
compliance of products and technologies developed by others and incorporating
our technology. To the extent that any such third-party product or technology is
not Year 2000 compliant, we may be adversely affected due to our association
with such product or technology. In addition, our revenue and operating results
could become subject to unexpected fluctuations and could be adversely effected
if our licensees or system OEMs encounter Year 2000 compliance problems that
affect their ability to distribute products that incorporate our technology.
We will also be contacting critical suppliers to determine whether the
products and services they provide are Year 2000 compliant. We will develop
contingency plans should the need arise. A delay or failure by critical
suppliers to be Year 2000 compliant could, in a worst case, interrupt our
business and have an adverse effect on our business, financial condition and
results of operations.
35
<PAGE>
BUSINESS
INDUSTRY BACKGROUND
Rapid advances in semiconductor technology have enabled the development of
higher performance processors at lower cost. As a result, it is now
cost-effective for system OEMs to embed these processors into a wider range of
electronic products and systems, including a new generation of digital consumer
products and business equipment. Processors may be purchased individually and
placed on a printed circuit board or they may be embedded into larger silicon
chips. Improvements in semiconductor manufacturing processes have enabled the
integration of entire systems onto a single integrated circuit to create complex
system-on-a-chip solutions. In many cases, these system-on-a-chip solutions are
the most cost-effective method of creating new product solutions.
However, design tool capabilities and the internal design resources of
semiconductor designers and manufacturers and system OEMs have not kept pace
with the increase in the number of transistors that can be placed on a single
chip. Consequently, a significant and growing "design gap" for semiconductor
designers and manufacturers has developed. To address this "design gap",
semiconductor designers and manufacturers are increasingly licensing proven and
reusable intellectual property components such as processors, cores, memories
and logic blocks from third-party suppliers to create differentiated products
and reduce development costs and time-to-market. The availability of low-cost,
high-performance processors and the development of system-on-a-chip technology
have contributed to the emergence and rapid growth of the market for embedded
systems, particularly advanced digital consumer products.
Embedded systems are broadly defined as microcontrollers, processors and
cores plus related software, incorporated into devices other than personal
computers, workstations, servers, mainframes and minicomputers. Until recently,
this market was dominated by low-cost 4-, 8- and 16-bit microcontrollers
embedded primarily into low-cost, high-volume consumer products such as home
appliances, facsimile machines, printers, telephone answering machines and
various automobile systems. The use of higher performance 32-and 64-bit
processors was common in higher cost but lower volume applications such as
telecommunications switching equipment and data networking routers. Although
microcontrollers are adequate for basic system control functions, they lack the
performance and bandwidth capabilities to implement today's advanced functions.
Recently, however, the price of 32- and 64-bit processors has reached the point
where it is now cost-effective to embed these solutions into low-cost, high-
volume digital consumer products. According to INSIDE THE NEW COMPUTER INDUSTRY,
the market for RISC processors increased from approximately 55 million units in
calendar year 1996 to 133 million units in calendar year 1998. This increase was
due in large part to growth in the market for digital consumer products,
including video games with 3-D interactive capabilities.
Digital consumer products that incorporate high-performance processors and
software can offer advanced functionality such as realistic 3-D graphics
rendering, digital audio and video, and communications and high-speed signal
processing. A prominent example is the home video game console, in which the use
of 32- and 64-bit embedded processors enables the processing of realistic
graphic images in products that retail for less than $150. Other examples of
digital consumer products that incorporate high-performance processors include
digital cable set-top boxes, Internet appliances and handheld personal
computers. These battery-powered devices, such as the Philips Nino and the NEC
MobilePro, are targeted at retail price points ranging from $449 to $899 and are
designed to allow consumers to access electronic mail, connect to the Internet
and run software applications such as word processors and spreadsheets.
36
<PAGE>
As the lower cost of processing power has enabled higher functioning
processors for these digital consumer products, multiple software operating
systems have been developed to establish the user interface and control for
these products. Many companies, including Microsoft, Wind River Systems, Inc.
and Integrated Systems Inc., currently provide operating systems software that
support embedded systems applications. Microsoft created the Windows CE
operating system specifically for next generation digital consumer products such
as the mobile computing and Windows-based terminals markets. The widespread
adoption of the Windows CE operating system could accelerate the growth of the
digital consumer products market and hence the demand for embedded processors.
To meet the demands of the digital consumer products market, system OEMs
rely on semiconductor manufacturers to design and deliver critical components
within rigorous price and performance parameters. To ensure availability in
these high-volume markets, these OEMs prefer multiple sources of supply. In
order to supply products for these markets, semiconductor suppliers are
increasingly combining their own intellectual property with that of third-party
suppliers in the form of processor cores and other functional blocks. This
intellectual property must be customizable to allow the semiconductor
manufacturer to adapt it for specific applications and to meet stringent
time-to-market requirements. It must also be scalable to enable the manufacturer
to design a wide breadth of products. Finally, as the requirements to implement
advanced functionality such as 3-D graphics escalate, this intellectual property
must meet more demanding performance standards.
THE MIPS SOLUTION
We are a leading designer and developer of RISC-based high-performance
processor intellectual property for embedded systems applications. We are the
only company that currently offers embedded 64-bit processor designs for
high-volume digital consumer product applications. We have established a
distribution channel for our intellectual property by licensing our technology
to key semiconductor designers and manufacturers. Each of these licensees
possesses leading design and/or process technology and can leverage a strong
market position in strategic embedded markets. To date, the MIPS RISC
architecture has been used to create over 60 standard processors and several
hundred customer- and application-specific products. These standard processors
have a cumulative installed base of over 120 million units, and have been
embedded into a variety of products such as video games, color printers and
handheld personal computers. According to INSIDE THE NEW COMPUTER INDUSTRY, the
market for RISC-based processors totaled 133 million units in calendar year
1998, a 36% increase over 1997. Based on industry sources, we believe that more
than one third of these units were based on the MIPS RISC architecture.
Our technology focuses on providing cost-effective and high-performance
processors, cores and related designs for high-volume embedded applications. The
MIPS RISC architecture is flexible and allows semiconductor manufacturers to
integrate their intellectual property with our processor, core and related
designs to develop differentiated and innovative products for a variety of
embedded applications within demanding time-to-market requirements.
The advantages of the MIPS architecture relate primarily to scalability of
die size and performance. Products incorporating the MIPS architecture range
from disk drives using processor cores with a die size of less than two square
millimeters to high-performance workstations using processors with a die size of
300 square millimeters. In addition, while designed for high performance, our
RISC-based architectures have been incorporated in a number of low-power
applications such as handheld personal computers. The MIPS architecture is
designed around upward compatible instruction sets that enable manufacturers
developing products across a broad range of price/performance points to use
common support tools and software.
37
<PAGE>
Through our network of semiconductor manufacturing and design companies,
system OEMs and independent software vendors, we have developed the
infrastructure to support our architecture as a standard platform for the
embedded market.
SEMICONDUCTOR LICENSEES
We currently have nine key semiconductor licensees that develop, manufacture
(or have manufactured) and sell silicon solutions based on the MIPS RISC
processor architecture. Our current semiconductor licensees include, among
others, Broadcom Corporation, Integrated Device Technology, LSI Logic
Corporation, NEC Corporation, NKK Corporation, Philips Electronics N.V., Quantum
Effect Design, Inc., Texas Instruments, Inc. and Toshiba Corporation. NEC,
Toshiba and Philips, which have been licensees since 1989, 1989 and 1995,
respectively, are among the world's largest semiconductor suppliers to the
consumer electronics market and are investing significant resources to address
the emerging digital consumer products market. Broadcom, a licensee since August
1998, is a key supplier of semiconductor products to the digital set-top box and
networking markets. LSI Logic, a licensee since 1987, is a leading supplier of
custom system-on-a-chip solutions for consumer devices, such as the Sony
PlayStation, and the communications equipment market. IDT, a licensee since
1988, is a supplier of MIPS-based processors for the set-top box used in WebTV's
Internet appliance and for communications equipment such as routers from Cisco
Systems, Inc. Several of these licensees have made significant investments in
our technology and market development which has resulted in multiple design
teams around the world engaged in the development of MIPS-based processors and
cores.
Using our flexible intellectual property, these licensees, and the multiple
design teams within these companies, are able to design optimized semiconductor
products for multiple segments of the embedded market. These licensees and their
associated design teams have developed a broad portfolio of processors and
standard products based on the MIPS RISC architecture as well as application
specific extensions which can be licensed back to us and offered to other
licensees. For example, MIPS16, an extension to the instruction set architecture
that reduces memory requirements and costs by allowing instructions to be
expressed with 16 rather than 32 bits, was developed jointly by us and LSI Logic
and is presently licensed by us to several of our semiconductor manufacturing
licensees.
We also develop and license custom core designs intended to address the
specific silicon process technology of the manufacturer to which it is licensed.
We believe that our ability to provide these custom core designs is a
significant competitive advantage. Because they are designed with the
manufacturer's specific silicon process technology in mind, these core designs
have superior performance levels and high value for the target licensee.
SYSTEM OEMs
Products based on the MIPS RISC architecture are used by a variety of system
OEMs in the embedded market. A number of high-profile digital consumer products
incorporate the MIPS RISC architecture, including the Nintendo 64 and Sony
PlayStation video game systems, the Philips Nino and NEC MobilePro handheld
personal computers, the Echo Star digital set-top box and WebTV's Internet
appliance. We participate in various sales and technical efforts directed to
system OEMs and have increased our business development organization to build
brand awareness of the MIPS RISC architecture among system OEMs.
INDEPENDENT SOFTWARE VENDORS
Our RISC architecture is further enabled by a variety of third-party
independent software vendors that provide operating systems and engineering
development tools such as compilers, debuggers and in-circuit emulation testers.
Currently, these companies provide over 150 products in support of our RISC
architecture. This substantial software support
38
<PAGE>
allows system OEMs to design the MIPS processor technology into their products.
In particular, software operating systems developed by Microsoft, Wind River
Systems, Inc. and Integrated Systems Inc. are compatible with our RISC
architecture. We intend to work with Microsoft to optimize our processor designs
for products running on the Windows CE operating system.
STRATEGY
We seek to be the world's leading provider of processor and core
intellectual property for the embedded market. To establish MIPS RISC-based
processors and cores as the industry standard and to proliferate our technology
into multiple markets and applications, We have implemented a business model
based on the non-exclusive licensing of our intellectual property. Key elements
of this strategy include:
TARGET EMERGING MARKET FOR DIGITAL CONSUMER PRODUCTS
As the price of high-performance 32- and 64-bit processors has declined,
system OEMs have embedded these processors into next generation digital consumer
products. We believe that our 32- and 64-bit processor designs are well suited
for this market due to the scalability and performance of the MIPS RISC
architecture and the cost and time-to-market advantages provided by our
intellectual property. We target our processors for use in video game products,
handheld personal computers, set-top boxes, DVD players, digital televisions and
cameras and mobile telecommunications products.
LEVERAGE TECHNOLOGICAL EXPERTISE
We will focus our research and development efforts on enhancing our existing
technology to create processors, cores and related designs that are optimized
for specific embedded applications. Our strategy is to use our 32- and 64-bit
processor technology and a modular approach that emphasizes reusable and
licensable processor technologies. We believe that this increased flexibility
and modularity will allow our licensees to provide high-performance, customized
products more quickly to our customers. We also custom design cores based on a
manufacturer's specific silicon process technology. These custom core designs
have superior performance levels and a high value for the target licensee. In
addition to advancing our processor technology, we also intend to leverage our
expertise in high-performance/ high-bandwidth computer systems architecture to
develop intellectual property aimed at improving the performance and cost-
effectiveness of next generation digital consumer products.
STRATEGIC DEVELOPMENT OF LICENSEES
Our strategy has been to license the MIPS architecture to a relatively
limited set of world-class semiconductor manufacturing and design companies. We
believe that these long-term relationships have been fundamental to the
proliferation of MIPS-based products. We presently license our technology to
nine key semiconductor companies, each of which possesses leading design and/or
process technology and can leverage a strong market position in a variety of
embedded market applications. Our recently announced licensing relationships
with Texas Instruments and Broadcom are current examples of this strategy. We
may establish licenses with additional companies that we believe can offer
value-added design capabilities in our existing target markets as well as expand
the market for our processor and related designs.
STRENGTHEN MIPS' POSITION AS THE INDUSTRY STANDARD
As an early entrant in the intellectual property market, we have established
a strong brand awareness and a network of semiconductor licensees, system OEMs
and independent software vendors to support our processor and related design
efforts. We seek to expand the industry's support of the MIPS architecture by
continuing to focus on our relationships with semiconductor designers and
manufacturers, software vendors and system OEMs. We also intend to further
39
<PAGE>
enhance the MIPS brand and create market "pull" through targeted advertising and
co-marketing with our licensees and participation in standards setting for the
processor industry.
MARKETS AND APPLICATIONS
DIGITAL CONSUMER PRODUCTS
Together with our existing semiconductor manufacturing licensees and our
associated design teams, we seek to leverage our RISC architecture into
solutions for a wide variety of sophisticated, high-volume digital consumer
products such as video game products, handheld personal computers and set-top
boxes. To date, MIPS RISC-based processors have been designed into many digital
consumer products. Revenue related to the video game market presently accounts
for a substantial majority of our total revenue, and such revenue is expected to
continue to account for a significant portion of our total revenue for at least
the next several years. See "Risk Factors -- Revenue Concentration" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
VIDEO GAMES. The market for video games, which represents the first
high-volume consumer application for 32- and 64-bit processors, accounted for
approximately 30 million units in 1997, of which an estimated 90% used our
technology. Our key design wins in this market include the Nintendo 64 video
game system, which uses our R4300i processor manufactured by NEC, and the Sony
PlayStation, which uses our R3000 class embedded processor developed by LSI
Logic.
SET-TOP BOXES. As digital transmission of video signals becomes more widely
available and utilized, we believe that the market for compatible set-top boxes
could represent an area of growth in the use of 32- and 64-bit processors and
related designs. Key design wins in this market include the set-top box used in
WebTV's Internet appliance, which uses our R4000 class processor manufactured by
IDT, Echostar's Dish Network set-top box, which uses our R3000 class processor
manufactured by IDT, and General Instrument's DVi-5000+ advanced interactive
digital set-top terminal, introduced in 1998, which uses a MIPS-based product
from NEC. We also expect that Broadcom will use one of our processors in its
set-top box products.
HANDHELD PERSONAL COMPUTERS. While the market for handheld personal
computers has only recently begun to develop, we expect that this market will
continue to grow. To date, our RISC-based processor designs have been
incorporated into products such as the Philips Nino and Sharp's Mobilon, both of
which use our R3000 class processor developed by Philips. In addition, NEC has
incorporated our R4000 class processor design into its MobilePro handheld
personal computer, and Vadem has incorporated a similar processor into its Clio.
OTHER DIGITAL CONSUMER PRODUCTS. Other potential digital consumer product
applications for our 32- and 64-bit processors include Windows-based terminals,
mobile telecommunications products, Digital Versatile Disk (DVD) players,
digital televisions and cameras and the automobile PC, a product that provides
drivers with a variety of services, including directions, using voice
recognition and voice synthesis.
BUSINESS EQUIPMENT
Significant design wins in network and office automation applications
include networking management equipment from Cisco and laser printers from
Hewlett-Packard, QMS, Lanier and Kodak.
PRODUCTS
We design, develop and license intellectual property for high-performance
processors. Our intellectual property is used in the design of processors,
cores, instruction set architectures (ISAs) and application specific extensions
(ASEs) that enable our semiconductor licensees to design and/or manufacture
flexible, high-performance processors and cores for embedded systems within
demanding time-to-market requirements. Through licensing and royalty-based
arrangements with our semiconductor
40
<PAGE>
licensees, we seek to strengthen the position of the MIPS architecture and
proliferate our designs in embedded systems applications. We have not
historically and do not intend to manufacture processors and related devices.
BASIC PROCESSORS
We currently provide flexible, modular processor designs covering a range of
performance/price points to enable our licensees to provide both standardized
and customized semiconductor products more quickly to system OEMs.
R3000. The R3000 is a 32-bit processor introduced in 1988 that has served
as the basis for many derivatives by our semiconductor licensees. The small die
size (less than two square millimeters in one implementation) and performance
characteristics of the R3000 make it well-suited for applications such as video
game consoles, handheld personal computers, networking equipment and laser
printers and copiers.
R4000. The R4000 is a 64-bit processor introduced in 1992 that has served
as the basis for a variety of derivatives, including the R4300i which is used in
Nintendo 64 video game players. The R4000 was designed for applications in which
high performance is the principle objective, such as video games and network
servers and interactive consumer applications such as set-top boxes.
R5000. The R5000 is a 64-bit processor developed by QED in January 1996
that is presently licensed to us. The R5000, which we can sublicense to other
licensees, is a dual instruction issue processor that has served as the
processor in several Silicon Graphics workstations. Its performance
characteristics make it an attractive processor for more powerful and
sophisticated embedded applications.
JADE. Announced in November 1998, the Jade processor core is a
high-performance, low-power, 32-bit core designed for custom silicon-on-silicon
applications. This processor, an enhancement to the R3000, implements our
instruction set architecture and certain key features from the R4000. The Jade
core is available in both optimized and synthesizable formats and is designed
for easy integration with a wide variety of custom logic and peripherals.
OPAL. Announced in November 1998, the Opal processor core is a 64-bit core
aimed at companies with short time-to-market requirements that also require the
higher performance of a 64-bit core. The Opal core is available in both
optimized and synthesizable formats.
RUBY. Announced in November 1998, the Ruby processor is based on the MIPS V
instruction set architecture with special 64-bit operations for high performance
graphics. The Ruby processor is well suited for digital consumer devices and for
enterprise networking and communications products.
INSTRUCTION SET ARCHITECTURES
Instruction set architectures are combinations of binary instructions and
the hardware to execute them which together determine the native capability of a
processor. Instruction set architecture standards are important because, among
other things, they become the common points around which tools are built,
software libraries and compilers are written and software operating systems are
developed. Elements of an instruction set architecture may be copyrighted or
patented, thus preventing unrestricted use without a license. We license our
instruction set architectures to promote the development and marketing of our
compatible parts by our semiconductor licensees.
MIPS I/II. The MIPS I/II instruction set architecture is the basic series
of instructions for 32-bit operations. This instruction set, which is presently
used in a wide range of applications, allows the performance of integer and
floating point computation, logical operations, data movement and a variety of
other functions. Many of the R3000 class cores implement the MIPS II instruction
set architecture. Full MIPS I/II compatibility is
41
<PAGE>
protected by patents, copyrights and trademarks that we own.
MIPS III. In addition to providing full support for the MIPS II instruction
set architecture, the MIPS III instruction set architecture extends the MIPS II
instruction set architecture to 64-bit operations, increases the number of
floating point registers and adds certain other functions. The MIPS III
instruction set architecture is implemented in the R4000 series of products.
MIPS III is an instruction set that is necessary to operate 64-bit MIPS
processors in 64-bit mode.
MIPS IV. MIPS IV enhances floating point operations and adds additional
instructions that improve performance in a number of engineering and scientific
applications. The MIPS IV instruction set architecture is implemented in the
R5000 series of products.
MIPS V. MIPS V provides instructions that enhance performance in 3-D
graphics applications. Hardware for the MIPS V instruction set architecture has
not been implemented.
APPLICATION SPECIFIC EXTENSIONS
Application specific extensions are intended to provide design flexibility
for our application-specific products and are offered to our semiconductor
manufacturing licensees as optional, additional features to our processors and
cores.
MIPS16. MIPS16 is an application specific extension to our RISC
architecture introduced in October 1996 that permits substantially reduced
systems costs by reducing memory requirements through the use of 16-bit
instruction representation.
Our current processors, cores and related products incorporate the
technologies and intellectual property used by the MIPS Group in designing
processors for Silicon Graphics' high-performance computer systems, servers and
workstations. These high-end processor designs include our R8000 and R10000
processors. The R8000 processor, introduced in 1994, has floating-point and
computational capabilities that are valuable in engineering and scientific
markets. The R10000 processor, introduced in 1995, is a sophisticated 64-bit
processor capable of using dynamic instruction scheduling (out-of-order
execution) and speculative branches. Applications using the highly scalable
R10000 processor include supercomputers and high-performance servers for
commercial applications, including database management and transaction
processing. R10000 processors are used in many of the products presently sold by
Silicon Graphics. Although the R8000 and R10000 were not specifically designed
for embedded market applications, they contain sophisticated and valuable
technology and intellectual property that has been, and will continue to be,
available to us for incorporation into processor and related designs for the
embedded market.
RESEARCH AND DEVELOPMENT
We believe that our future competitive position will depend in large part on
our ability to develop new and enhanced processors, cores and related designs in
a timely and cost-effective manner. We believe that these capabilities are
necessary to meet the evolving and rapidly changing needs of semiconductor
manufacturers and system OEMs in our target markets. To this end, we have
assembled a team of highly skilled engineers that possess significant experience
in the design and development of complex processors. We are building on this
base of experience and the technologies that we have developed to enhance the
MIPS RISC architecture and develop a broader line of processors and cores that
are optimized for various applications. Our strategy is to use a modular
approach that emphasizes re-usable, licensable processors, cores and software
technology. We believe that this increased flexibility and modularity will allow
our semiconductor licensees to provide high-performance, customized products
more quickly to their customers. In addition, we develop and license
standardized instruction set architecture and application specific extensions to
work within and around our RISC
42
<PAGE>
architecture to enhance and tailor the capabilities of our processor designs for
specific applications.
We develop and license our processor designs in several forms. Custom core
designs are intended to address the specific silicon process technology of the
manufacturer to which it is licensed. We believe that our ability to provide
these custom core designs is a significant competitive advantage. Because
they are designed with the manufacturer's specific silicon process technology in
mind, these core designs have superior performance levels and high value for the
target licensee.
We also generate both high-level description language representations of our
custom core designs called synthesizable or "soft" cores, and intermediate
representations with some process targeting called optimized cores.
Synthesizable and optimized cores are flexible and can be licensed to multiple
customers and used in multiple applications. Synthesizable cores are delivered
as high-level, process independent circuit descriptions, leaving the process
implementation details to the system OEM. These designs provide the greatest
flexibility to semiconductor companies. Optimized cores are generated using
standard ASIC methodologies, including circuit synthesis and automatic
place-and-route. The use of optimized cores simplifies and expedites the task of
porting a design to a specific manufacturing process. Implementation advantages
of a new process technology can be quickly exploited using optimized cores
without significant circuit redesign.
We are working with Microsoft to optimize the MIPS RISC-based processor
designs for products running on the Windows CE operating system. The Windows CE
operating system, which was developed using the MIPS RISC architecture, targets
the general embedded and digital consumer products markets as well as the mobile
computing and Windows-based terminals markets. The Windows CE operating system
has the advantage of a flexible and modular system and a large installed base of
developers who are experienced with Windows API development tools. This could
provide system OEMs with a familiar software platform and could accelerate the
growth of the digital consumer products market.
At December 31, 1998, our research and development staff totaled 75 persons
compared to 36 employees at June 30, 1998. This increase reflects, in part, the
addition of 24 employees operating out of a new development center opened in
Denmark in December 1998. Employees staffing this development center engage in
product development and provide support and design expertise for our customers
based in Europe. In the third quarter of fiscal 1998, we reduced our research
and development staff by 185 persons, reflecting the transfer to Silicon
Graphics of employees engaged in the development of next generation processors
for Silicon Graphics' systems as well as other staff reductions associated with
the separation and our shift in strategic direction.
Because we expect to use industry-standard third-party design tools, we will
not be required to develop and maintain the proprietary design tools that were
necessary in connection with the design of high-performance processors for
Silicon Graphics. As a result, we expect that our staffing requirements will be
lower than those required prior to the separation. However, we intend to hire
additional highly-skilled technical personnel to staff our anticipated research
and development activities. See "Risk Factors -- Dependence on Key Personnel".
Research and development expenses in fiscal 1996, 1997 and 1998 were as
follows:
<TABLE>
<CAPTION>
RESEARCH AND
FISCAL YEAR DEVELOPMENT EXPENSES
- ------------------- -----------------------
<S> <C>
1996 $48.4 million
1997 $68.8 million
1998 $43.4 million
</TABLE>
SALES AND MARKETING
Our sales and marketing activities are focused principally on establishing
and maintaining licensing arrangements with semiconductor manufacturers and
participating
43
<PAGE>
in marketing, sales and technical efforts directed to system OEMs. We license
our RISC-based processors, cores and related design technology on a
non-exclusive and worldwide basis to semiconductor manufacturers who, in turn,
sell products incorporating these technologies to system OEMs. The partnerships
we establish form a distribution channel and are an important element of our
strategy to proliferate the MIPS RISC architecture as the standard in the
embedded processor industry.
In establishing these partnerships, we seek to license our technology to
those companies we believe can offer value-added design capabilities in our
existing target markets as well as expand the market for our processor and
related designs.
We presently have two customers that individually account for more than 10%
of our total revenue: Nintendo and NEC. Substantially all of the revenue derived
from these two customers reflects contract revenue and royalties related to
development and sales of Nintendo 64 video game players and related cartridges.
Revenue related to sales of Nintendo 64 video game cartridges is expected to
continue to account for a significant portion of our total revenue for the next
several years and, therefore, we expect that a significant portion of our total
revenue will continue to be derived from Nintendo and, to a lesser extent, NEC.
We understand that the next generation Nintendo video game system will not
incorporate any of our technology. Because revenue related to sales of Nintendo
64 video game cartridges is expected to represent a substantial portion of our
total revenue, we also expect to experience seasonal fluctuations in our revenue
and operating results. See "Risk Factors -- Revenue Concentration" and "--
Seasonality" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Revenue". For financial information regarding
revenue derived from our international licensees, see Note 13 of Notes to
Financial Statements.
Although the precise terms of our contracts vary from licensee to licensee,
they typically provide for technology license and engineering service fees which
may be payable up-front and/or upon the achievement of certain milestones such
as provision of deliverables by us or production of semiconductor products by
the licensee. Our contracts also provide for the payment of royalties to us
based on a percentage of the net revenue earned by the licensee from the sale of
products incorporating our technology and, in some cases, based on unit sales of
such products. Our contracts with our semiconductors licensees are typically
subject to periodic renewal or extension. We also offer licensees the option to
license our technology on a single-use or unlimited-use basis, and may provide
licensees with various technical support, training and consulting services and
sales and marketing support.
Certain of our marketing activities are also aimed at system OEMs. Through
targeted advertising and co-marketing programs with our licensees, we seek to
increase awareness of the MIPS RISC architecture. We believe that these efforts
will provide product differentiation that will generate demand for our
technology from digital consumer product and business equipment manufacturers,
thereby increasing demand from semiconductor manufacturers for our designs in
their products.
Because our past processor design efforts have primarily focused on serving
the needs of Silicon Graphics, and although we have always maintained a sales
and marketing staff to support our strategic relationships, our sales and
marketing activities have not historically been central to our operations.
Following the separation of our business from that of Silicon Graphics, our
sales and marketing activities have become significantly more critical to our
success, and our staff and related expenses are expected to increase as we seek
to diversify our revenue base.
INTELLECTUAL PROPERTY
We regard our patents, copyrights, mask work rights, trademarks, trade
secrets and similar intellectual property as critical to our success, and rely
on a combination of patent,
44
<PAGE>
trademark, copyright, mask work and trade secret laws to protect our proprietary
rights. Our failure to obtain or maintain adequate protection of our
intellectual property rights for any reason could have a material adverse effect
on our business, results of operations and financial condition.
We own 54 U.S. patents on various aspects of our technology, with expiration
dates ranging from 2006 to 2017, 15 pending U.S. patent applications, as well as
all foreign counterparts relating thereto. There can be no assurance that
patents will issue from any patent applications we submitted, that any patents
we hold will not be challenged, invalidated or circumvented or that any claims
allowed from our patents will be of sufficient scope or strength to provide
meaningful protection or any commercial advantage to us.
In addition, there can be no assurance that third parties will not assert
claims of infringement against us or against our licensees in connection with
their use of our technology. Such claims, even those without merit, could be
time consuming, result in costly litigation and/or require us to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to us, or at all.
Moreover, the laws of certain foreign countries may not protect our
intellectual property to the same extent as do the laws of the United States
and, because of the importance of our intellectual property rights to our
business, this could have a material adverse effect on our business, results of
operations and financial condition.
We also use licensing agreements and employee and third party nondisclosure
and assignment agreements to limit access to and distribution of our proprietary
information and to obtain ownership of technology prepared on a work-for-hire
basis. There can be no assurance that the steps we have taken to protect our
intellectual property rights will be adequate to deter misappropriation of such
rights or that we will be able to detect unauthorized uses and take immediate or
effective steps to enforce our rights. There can also be no assurance that the
steps we have taken to obtain ownership of contributed intellectual property
will be sufficient to assure our ownership of all proprietary rights.
We also rely on unpatented trade secrets to protect our proprietary
technology. No assurance can be given that others will not independently develop
or otherwise acquire the same or substantially equivalent technologies or
otherwise gain access to our proprietary technology or disclose such technology
or that we can ultimately protect our rights to such unpatented proprietary
technology. In addition, no assurance can be given that third parties will not
obtain patent rights to such unpatented trade secrets, which patent rights could
be used to assert infringement claims against us.
From time to time we have entered, and in the future may enter, into cross
licensing arrangements with others, pursuant to which we license certain of our
patents in exchange for patent licenses from such licensees. Although these
types of cross licensing arrangements are common in the semiconductor and
processor industries, and do not generally provide for transfers of know-how or
other proprietary information, such arrangements may facilitate the ability of
such licensees, either alone or in conjunction with others, to develop
competitive products and designs.
We have entered into arrangements with Silicon Graphics pursuant to which
certain intellectual property was assigned to us, subject to the grant of a
license to Silicon Graphics; certain intellectual property was retained by
Silicon Graphics, subject to the grant of a license to us; and certain
intellectual property was retained by Silicon Graphics without any ongoing
interest to us. Our inability to use Silicon Graphics' intellectual property in
the future could have a material adverse affect on our business and results of
operations.
In the past, the MIPS Group has benefitted from our status as a division of
Silicon Graphics in our access to the intellectual property of third parties
through licensing
45
<PAGE>
arrangements or otherwise, and in the negotiation of the financial and other
terms of any such arrangements. There can be no assurance that the separation of
our business from that of Silicon Graphics will not adversely affect our ability
to negotiate commercially attractive intellectual property licensing
arrangements with third parties in the future, particularly if we cease to be a
majority-owned subsidiary of Silicon Graphics.
In addition, in connection with any future intellectual property
infringement claims, we will not have the benefit of asserting counterclaims
based on Silicon Graphics' intellectual property portfolio, nor will we be able
to provide licenses to Silicon Graphics' intellectual property in order to
resolve such claims.
COMPETITION
The market for embedded processors and cores is highly competitive and
characterized by rapidly changing technological needs and capabilities. We
believe that the principal competitive factors in the embedded processor market
are performance, functionality, price, customizability and power consumption.
Our processors and cores compete with those of ARM Holdings plc, Hitachi
Semiconductor (America) Inc. and Power PC (an alliance between Motorola, Inc.
and IBM Corporation). We also compete against certain semiconductor
manufacturers whose product lines include processors for embedded and
non-embedded applications, including Advanced Micro Devices, Inc., Intel
Corporation, Motorola, Inc. and National Semiconductor Corporation. In addition,
we may face competition from the producers of unauthorized MIPS-based clones and
non-RISC based technology designs.
In addition, we must continue to differentiate our processors, cores and
related designs from those available or under development by the internal design
groups of semiconductor manufacturers, including our current and prospective
manufacturing licensees. Many of these internal design groups have substantial
programming and design resources and are part of larger organizations, which
have substantial financial and marketing resources. There can be no assurance
that internal design groups will not develop products that compete directly with
our processor and related designs or will not actively seek to participate as
merchant vendors in the intellectual property component market by selling to
third-party semiconductor manufacturers or, if they do, that we will be able to
compete with them successfully. To the extent that these alternative
technologies provide comparable performance at a lower or similar cost than our
technology, semiconductor manufacturers may adopt and promote these alternative
technologies. Certain of our competitors have greater name recognition and
customer bases as well as greater financial and marketing resources than us, and
such competition could adversely affect our business, results of operations and
financial condition.
EMPLOYEES
As of December 31, 1998, we had 110 full time employees. Of this total, 75
were in research and development, 22 were in sales and marketing and 13 were in
finance and administration. Our future success will depend in part on our
ability to attract, retain and motivate highly qualified technical and
management personnel who are in great demand in the semiconductor industry. We
intend to hire additional highly skilled technical personnel to staff our
anticipated research and development activities. None of our employees are
represented by a labor union or subject to a collective bargaining agreement. We
believe that our relations with our employees are good.
LITIGATION
On April 6, 1998, we filed an action against ArtX, Inc. and certain
employees of ArtX, Inc. with Silicon Graphics in the Superior Court of the State
of California alleging, among other things, misappropriation of trade secrets
and breach of contractual and fiduciary duties in connection with the
defendants' actions in developing graphics technology for Nintendo's
46
<PAGE>
next generation video game system. On April 23, 1998, Nintendo notified Silicon
Graphics and us of its belief that the disclosure of certain information
regarding the contract for the development of the Nintendo 64 video game system
in our registration statement relating to our initial public offering filed with
the Securities and Exchange Commission on April 21, 1998 constituted a breach of
that contract. Silicon Graphics and we strongly disagree that any such breach
has occurred. On May 27, 1998, we entered into a memorandum of understanding
with Silicon Graphics, Nintendo and ArtX, Inc. pursuant to which Silicon
Graphics and we have dismissed without prejudice the pending lawsuit against
ArtX, Inc., and Nintendo has agreed that, in the absence of a lawsuit against
Nintendo or ArtX, Inc., it will not assert any claim that the Nintendo 64
contract has been breached in connection with the filing of our registration
statement.
From time to time, we receive communications from third parties asserting
patent or other rights covering our products and technologies. Based upon our
evaluation, we may take no action or we may seek to obtain a license. There can
be no assurance in any given case that a license will be available on terms we
consider reasonable, or that litigation will not ensue. In addition, from time
to time we evaluate possible patent infringement claims against third parties
and may assert such claims if appropriate.
FACILITIES
Our executive, administrative and technical offices currently occupy
approximately 27,500 square feet (with an option to increase to 55,000 square
feet) in a building subleased from Silicon Graphics in Mountain View,
California. Payments by us to Silicon Graphics under this sublease are equal to
amounts payable by Silicon Graphics under its sublease for the property with a
third party. This sublease will expire on May 31, 2002, subject to earlier
termination in certain circumstances.
In addition, we sublease approximately 9,000 square feet of office space
from LSI Logic in Copenhagen, Denmark. The sublease is on a month-to-month basis
until April 1999, and we have an option to assume the related lease at that
time. If the lease is assumed, it will expire in February 2006, subject to our
earlier termination. If the lease is not assumed, LSI Logic may terminate the
sublease on 90 days notice.
We believe that these facilities are adequate to meet our current needs but
that we may need to seek additional space in the future.
47
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors
and their ages as of February 1, 1999, were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------------- ----------- ------------------------------------------
<S> <C> <C>
John E. Bourgoin......................... 53 Chief Executive Officer, President and
Director
Lavi Lev................................. 42 Senior Vice President, Engineering
Kevin C. Eichler......................... 39 Vice President, Chief Financial Officer
and Treasurer
Derek Meyer.............................. 38 Vice President, Sales and Marketing
Sandy Creighton.......................... 45 Vice President, General Counsel and
Secretary
Dr. Forest Baskett(1).................... 55 Director
Kenneth L. Coleman(2).................... 56 Director
Fred M. Gibbons(1)(2)(3)................. 49 Director
Anthony B. Holbrook(2)(3)................ 59 Director
William M. Kelly(1)...................... 45 Director
Teruyasu Sekimoto........................ 59 Director
</TABLE>
- --------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Option Administration Committee.
JOHN E. BOURGOIN has served as our Chief Executive Officer since February
1998 and our President since September 1996, and has served on our board of
directors since May 1997. Mr. Bourgoin has also served as a Senior Vice
President of Silicon Graphics from September 1996 through May 1998. Prior to
joining Silicon Graphics, Mr. Bourgoin was Group Vice President, Computation
Products Group at Advanced Micro Devices, Inc.
LAVI LEV has served as our Senior Vice President -- Engineering since March
1998, and was Vice President -- Engineering of Silicon Graphics from 1996 to
March 1998. From 1995 to 1996, he served as Vice President, Engineering at
MicroUnity Systems Engineering and between 1992 and 1995 he was a manager at Sun
Microsystems, Inc. Prior to joining Sun Microsystems, Inc., Mr. Lev was employed
by Intel Corporation and was involved in the development of the Pentium
processor.
KEVIN C. EICHLER has served as our Vice President, Chief Financial Officer
and Treasurer since May 1998. Prior to joining us and since 1996, Mr. Eichler
served as Vice President, Finance, Chief Financial Officer, Treasurer and
Secretary of Visigenic Software Inc., an independent provider of software tools
for distributed object technologies for the Internet, Intranet and enterprise
computing environments. From 1995 to 1996, he served as Executive Vice
President, Finance and Chief Financial Officer of National Information Group, a
provider of technology solutions for financial services companies. From 1991 to
1995, Mr. Eichler served as Executive Vice President, Finance and Chief
Financial Officer of Mortgage Quality Management, Inc., a national provider of
quality control services and technologies to residential mortgage lenders.
48
<PAGE>
Prior to 1991, Mr. Eichler held management positions with NeXT Software and
Microsoft.
DEREK MEYER joined us in May 1996 as Director of Worldwide Marketing and
Sales and became Vice President -- Sales and Marketing in March 1998. Prior to
joining us and since 1994, Mr. Meyer served as marketing director for the
TriMedia division of Philips Semiconductors and prior to that time he was
director of SPARC marketing for Sun Microsystems, Inc.
SANDY CREIGHTON joined us in June 1998 as Vice President, General Counsel
and Secretary. Prior to joining us and since 1991, Ms. Creighton was Deputy
General Counsel at Sun Microsystems, Inc.
DR. FOREST BASKETT has served on our board of directors since January 1998.
Since 1990, Dr. Baskett has served as Senior Vice President, Research and
Development of Silicon Graphics, and since 1994, has also served as its Chief
Technology Officer.
KENNETH L. COLEMAN has served on our board of directors since January 1998.
Since April 1997, Mr. Coleman has been Senior Vice President, Customer and
Professional Services of Silicon Graphics. Prior to that time, he was Senior
Vice President, Administration of Silicon Graphics.
FRED M. GIBBONS has served on our board of directors since July 1998. Since
1999, Mr. Gibbons has been a partner with Concept Stage Venture Management, an
investment firm based in California. From 1995 through 1998, Mr. Gibbons was
also a lecturer at the Stanford University Graduate School of Engineering. In
1981, Mr. Gibbons founded Software Publishing Corporation based in San Jose,
California, a company engaged in the development of software systems for
personal computer applications, and was its Chief Executive Officer through
1994. Prior to 1981, Mr. Gibbons was employed as a product and marketing manager
for Hewlett-Packard Company.
ANTHONY B. HOLBROOK has served on our board of directors since July 1998.
Mr. Holbrook retired as Chief Technical Officer of Advanced Micro Devices, Inc.
in August 1994. Mr. Holbrook joined Advanced Micro Devices, Inc. in 1973 and
served in a number of executive capacities. He was elected a corporate officer
in 1978 and in 1982 was named Executive Vice President and Chief Operating
Officer. In 1986, Mr. Holbrook was named President of Advanced Micro Devices,
Inc. and was elected to the board of directors. In 1989, he moved from Chief
Operating Officer to Chief Technical Officer and in 1990 from President to Vice
Chairman, a position he held until April 1996. Prior to joining Advanced Micro
Devices, Inc., Mr. Holbrook held engineering management positions with Fairchild
Semiconductor and Computer Micro Technology Corporation. Mr. Holbrook is also a
director of SDI, Inc., a solid state laser manufacturer.
WILLIAM M. KELLY has served on our board of directors since January 1998. He
joined Silicon Graphics in 1994 as Vice President, Business Development, General
Counsel and Secretary and, since 1997, has been Senior Vice President, Corporate
Operations of Silicon Graphics. During 1996, Mr. Kelly also served as Senior
Vice President, Silicon Interactive Group of Silicon Graphics and he served as
acting Chief Financial Officer of Silicon Graphics from May 1997 to February
1998. Prior to joining Silicon Graphics, Mr. Kelly was an attorney in private
practice.
TERUYASU SEKIMOTO has served on our board of directors since January 1998.
Mr. Sekimoto joined Silicon Graphics in 1987 as representative director of
Silicon Graphics Japan. He became Vice President, North Pacific Area in 1991,
Senior Vice President, East Asia in 1995 and [ ], in 1999.
Ownership interests of our directors or officers in the common stock of
Silicon Graphics or service as both our director and as an officer or employee
of Silicon Graphics could create or appear to create potential conflicts of
interest when directors and officers are faced with decisions that could have
different implications for us and Silicon Graphics, such as potential
acquisitions or financing transactions as well as other
49
<PAGE>
corporate opportunities that may be suitable for both us and Silicon Graphics.
See "Risk Factors -- Potential Conflicts of Interest". Our certificate of
incorporation includes certain provisions relating to the allocation of business
opportunities that may be suitable for both us and Silicon Graphics based on the
relationship to us and Silicon Graphics of the individual to whom the
opportunity is presented and the method by which is presented. See "Description
of Capital Stock -- Corporate Opportunities". In addition, under Delaware law,
our officers and directors have fiduciary duties to our stockholders.
CLASS OF THE BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors serving
staggered three-year terms. The terms of office of the directors will expire as
follows: Messrs. Bourgoin, Coleman and Holbrook (the Class A Director) at the
annual meeting of stockholders in 1999, Messrs. Sekimoto and Gibbons at the
annual meeting of stockholders in 2000 and Dr. Baskett and Mr. Kelly at the
annual meeting of stockholders in 2001. Silicon Graphics has the ability to
change the size and composition of our board of directors. However, to ensure
that there will be at least one Class A Director at all times, our board of
directors may not consist of less than five members. In addition, the holders of
the Class B Common Stock may not remove the Class A Director except for cause.
BOARD COMMITTEES
Our board of directors has an Audit Committee, a Compensation Committee and
an Option Administration Committee. The responsibilities of the Audit Committee
include recommending to our board of directors the independent public
accountants to be selected to conduct the annual audit of our accounts;
reviewing the proposed scope of such audit and approving the audit fees to be
paid; and reviewing the adequacy and effectiveness of our internal auditing,
accounting and financial controls with the independent public accountants and
our financial and accounting staff.
The responsibilities of the Compensation Committee include developing
performance criteria for and periodically evaluating the performance of our
Chief Executive Officer, reviewing and recommending the salary, bonus and stock
incentive compensation of our Chief Executive Officer and reviewing the
salaries, bonuses and stock incentive compensation of our other officers as
proposed by our Chief Executive Officer.
The responsibilities of the Option Administration Committee include
administering the Incentive Plan, reviewing and approving grants under the
Incentive Plan (other than grants to the Chief Executive Officer) and approving
other performance-based compensation which is intended to be excluded from the
deductibility limitations imposed by Section 162(m) of the Internal Revenue Code
of 1986, as amended.
Our board of directors may, from time to time, establish certain other
committees to facilitate the management of MIPS Technologies.
DIRECTOR COMPENSATION
Directors who do not receive compensation as one of our officers or
employees or any of our affiliates are paid an annual board membership fee. All
directors are reimbursed for reasonable expenses incurred in attending our board
of director or committee meetings.
Our board of directors and Silicon Graphics approved our Director's Stock
Option Plan in July 1998. The plan authorizes 600,000 shares of Class A Common
Stock for issuance plus an annual increase each July 1 equal to the lesser of
(1) 100,000 shares, (2) the number of shares subject to option grants in the
prior one-year period, or (3) a lesser amount determined by our board of
directors. Upon a non-employee director's election or appointment to our board
of directors, he or she will automatically receive an initial nonstatutory stock
option to purchase 40,000 shares of Class A Common Stock. Each director who has
been a non-employee director for at least six months will
50
<PAGE>
automatically receive an annual nonstatutory stock option to purchase 10,000
shares of Class A Common Stock each year on the date of the annual stockholder
meeting. All stock options are granted with an exercise price equal to the fair
market value of Class A Common Stock on the date of grant. Initial stock options
vest 24% on the first anniversary of the grant date and 2% each month
thereafter; annual stock option grants vest 2% each month over a 50-month period
from the date of the grant. Pursuant to the terms of the director stock option
plan, Messrs. Holbrook and Gibbons were each granted options to purchase 40,000
shares of Class A Common Stock upon commencement of their term as members of our
board of directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned for services rendered
to us and Silicon Graphics in all capacities for the fiscal years ended June 30,
1998 and 1997 by our Chief Executive Officer and our two other executive
officers whose salary and bonus exceeded $100,000 during the fiscal year ended
June 30, 1998 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
--------------------------------------------------- -----------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS/SARS COMPENSATION (2)
- ---------------------------------- --------- --------- --------- ------------------ -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin ................. 1998 $ 372,053 $ -- $ 21,343 559,500 $ 2,226
Chief Executive Officer and 1997 280,000 89,086 9,382 125,000 1,200
President
Lavi Lev ......................... 1998 $ 245,542 $ -- $ 309,228 298,400 $ 1,880
Senior Vice President, 1997 215,192 106,550 83,024 64,000 2,400
Engineering
Derek Meyer ...................... 1998 $ 201,456 $ -- $ 32,210 209,700(3) $ 1,793
Vice President, Sales and 1997 182,215 25,987 36,543 12,000 2,079
Marketing
</TABLE>
- --------------
(1) "Other Annual Compensation" for fiscal 1998 for the Named Executive Officers
included, in addition to certain DE MINIMIS items which are not required to
be separately described, (a) for Mr. Bourgoin: $11,348 for club membership
fees and $5,538 for an automobile allowance; (b) for Mr. Lev: $150,000 in
the form of a gross-up award related to a forgivable loan, $100,000 in
monthly amortization of a forgivable loan from Silicon Graphics and $50,538
in relocation expenses and housing allowances; and (c) for Mr. Meyer;
$32,210 on the sale of 2,500 restricted shares of Silicon Graphics common
stock.
(2) Consists of matching contributions made by Silicon Graphics under its 401(k)
plan.
(3) Consists of options exercisable to purchase 205,200 shares of MIPS
Technologies' common stock, granted by us, and options exercisable to
purchase 4,500 shares of Silicon Graphics' common stock, granted by Silicon
Graphics. In connection with their acceptance of employment with us, our
executive officers and employees that were previously employed by Silicon
Graphics mutually agreed with Silicon Graphics to forfeit all unvested
options to purchase Silicon Graphics common stock and all unvested
restricted shares of Silicon Graphics common stock. In addition, such
individuals had 30 or 90 days (depending on the terms of the option grant)
to exercise any vested options to purchase Silicon Graphics common stock,
and any vested options that remained unexercised at the end of that period
were forfeited.
51
<PAGE>
OPTION GRANTS
The following tables set forth certain information with respect to option
grants made by us to the Named Executive Officers covering our Class A Common
Stock and by Silicon Graphics covering its common stock during the fiscal year
ended June 30, 1998.
<TABLE>
<CAPTION>
MIPS TECHNOLOGIES, INC.
OPTION GRANTS IN FISCAL 1998
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM (1)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ---------------------------------------------- ---------- --------------- -------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin.............................. 559,500 18.67% $12.00 05/22/08 $4,222,399 $10,700,387
Lavi Lev...................................... 298,400 9.96 12.00 05/22/08 2,251,946 5,706,873
Derek Meyer................................... 205,200 6.85 12.00 05/22/08 1,548,590 3,924,431
</TABLE>
<TABLE>
<CAPTION>
POTENTIAL
SILICON GRAPHICS, INC. REALIZABLE VALUE
OPTION GRANTS IN FISCAL 1998 AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
--------------------------------------------------------------- STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED OPTION TERM (1)
UNDERLYING TO EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ---------------------------------------- --------------- --------------- -------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin........................ -- -- $ -- -- $ -- $ --
Lavi Lev................................ -- -- -- -- -- --
Derek Meyer............................. 4,500(2) * 12.88 11/13/07 36,437 92,337
</TABLE>
- --------------
* Less than 1%.
(1) Potential realizable value assumes that the price of the applicable stock
increases from the date of grant until the end of the option term (10 years)
at the annual rates specified (5% and 10%). The 5% and 10% assumed annual
rates of appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent an estimate or projection of the future
price of the applicable stock. MIPS Technologies does not believe that this
method accurately illustrates the potential value of a stock option. Actual
gains, if any, on stock option exercises depend upon the actual future price
of the applicable stock and the continued employment of the option holders
through the vesting period. Accordingly, the potential realizable values set
forth in these tables may not be achieved.
(2) In connection with their acceptance of employment with MIPS Technologies,
executive officers and employees who were previously employed by Silicon
Graphics mutually agreed with Silicon Graphics to forfeit all unvested
options to purchase Silicon Graphics common stock and all unvested
restricted shares of Silicon Graphics common stock. In addition, such
individuals had 30 or 90 days (depending on the terms of the option grant)
to exercise any vested options to purchase Silicon Graphics common stock,
and any vested options that remained unexercised at the end of that period
were forfeited.
52
<PAGE>
OPTION EXERCISES AND OPTION VALUES
The following tables set forth certain information with respect to stock
option exercises by the Named Executive Officers during the fiscal year ended
June 30, 1998 and stock options held by them at fiscal year-end.
<TABLE>
<CAPTION>
MIPS TECHNOLOGIES, INC.
STOCK OPTION EXERCISES AND
JUNE 30, 1998 FISCAL YEAR-END VALUES
--------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1998 JUNE 30, 1998 (1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin.............. -- -- -- 559,500 -- $ 804,002
Lavi Lev...................... -- -- -- 298,400 -- 428,801
Derek Meyer................... -- -- -- 205,200 -- 294,872
</TABLE>
- --------------
(1) The amounts in this column reflect the difference between the closing market
price of our common stock on June 30, 1998, which was $13.44, and the option
exercise price. The actual value of unexercised options fluctuates with the
market price of the underlying stock.
<TABLE>
<CAPTION>
SILICON GRAPHICS, INC.
STOCK OPTION EXERCISES AND
JUNE 30, 1998 FISCAL YEAR-END VALUES
--------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT JUNE 30, 1998 IN-THE-MONEY OPTIONS AT
(1) JUNE 30, 1998 (2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin.............. -- -- 50,000 -- $ -- --
Lavi Lev...................... -- -- 21,734 -- 3,828 --
Derek Meyer................... -- -- 4,548 -- -- --
</TABLE>
- --------------
(1) All options listed in this table were either exercised or forfeited within
30 days to 90 days (depending on the terms of the option grant) after the
Named Executive Officers severed their employment relationships with Silicon
Graphics and became one of our employees.
(2) The amounts in this column reflect the difference between the closing market
price of the Silicon Graphics' common stock on June 30, 1998, which was
$12.13, and the option exercise price. The actual value of unexercised
options fluctuates with the market price of the underlying stock.
1998 LONG-TERM INCENTIVE PLAN
At the time of our initial public offering, we adopted the MIPS
Technologies, Inc. 1998 Long-Term Incentive Plan (the "Incentive Plan") in order
to attract, retain and motivate our officers and other key employees and
consultants, to compensate them for their contributions to our growth and
profits and to encourage equity ownership. The Incentive Plan authorizes the
issuance of various forms of stock-based awards to such individuals, including
stock options, stock appreciation rights, stock awards (such as restricted
stock), performance unit awards and other forms of equity-related awards which
the Option Administration Committee, in its capacity as the administrator of the
Incentive Plan, determines to be consistent with the purposes of the Incentive
Plan and our interests. An aggregate of 6,600,000 shares of Class A Common Stock
have been authorized for issuance under the Incentive Plan.
Under the Incentive Plan awards may be granted to officers, key employees
and consultants (including non-employee directors) as determined by the Option
Administration Committee, although incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code may only be granted to employees.
The Option Administration
53
<PAGE>
Committee has full discretion to determine the type of award, the number of
shares related to each grant, and all other terms and conditions of awards,
provided that stock options must have a minimum 12-month vesting period (subject
to acceleration on a change in control or termination of employment as
determined by the Option Administration Committee).
As of December 31, 1998 there were outstanding options to purchase an
aggregate of 4,037,000 shares of Class A Common Stock at exercise prices ranging
from $12.00 to $22.13 per share, or a weighted average exercise price per share
of $13.90 under the Incentive Plan and there were outstanding 15,000 shares of
restricted stock, subject to repurchase.
EMPLOYEE STOCK PURCHASE PLAN
At the time of our initial public offering, we also adopted the MIPS
Technologies, Inc. Employee Stock Purchase Plan (the "Purchase Plan") in order
to provide employees the opportunity to purchase our Class A Common Stock.
Pursuant to the terms of the Purchase Plan, employees may purchase shares of our
Class A Common Stock through payroll deductions at a 15% discount from the lower
of its fair market value measured at the beginning of a pre-determined 24-month
offering period and at the end of each of four six-month exercise periods within
such offering period. An aggregate of 600,000 shares of Class A Common Stock,
subject to an annual increase to be added each July 1, beginning July 1, 1999,
equal to the lesser of 600,000 shares or 0.5% of the total number of our common
stock outstanding on a fully diluted basis on the preceding June 30 (subject to
an overall cap of 2% of the outstanding shares as of the end of the preceding
fiscal year), have been authorized for issuance under the Purchase Plan. In
order to encourage equity ownership by our employees and consultants overseas,
we have implemented a supplemental stock purchase plan with terms substantially
similar to the Purchase Plan for individuals based outside the United States. An
aggregate of 60,000 shares of Class A Common Stock have been authorized for
issuance under the Non-U.S. Purchase Plan.
CHANGE IN CONTROL AGREEMENTS
At the time of our initial public offering we also agreed to enter into
change in control agreements with our executive officers providing for certain
benefits following (1) a change in control of us and (2) certain terminations of
employment during the 24-month period following such a change in control. A
"change in control" is generally defined in the agreements to encompass
significant transactions resulting in a change in the corporate control of us,
including, among other things, an acquisition of 30% of the class of our common
stock entitled to elect a majority of our directors, the unapproved replacement
of a majority of our directors and the reacquisition by Silicon Graphics of all
or substantially all of our outstanding equity securities.
In the event of a change in control, each of our executive's options and
shares of restricted stock will become fully vested and the executive may elect,
within six months following the change in control, to have his or her options
"cashed out" at a price
54
<PAGE>
determined in the agreements. If an executive's employment is terminated other
than for cause or if an executive resigns for good reason (as such terms are
defined in the agreements), in either case within 24 months after a change in
control, the executive will be entitled to receive a lump sum cash payment equal
to 24 months' salary. Supplements to the change in control agreements provide
the executives with certain benefits upon termination of employment in limited
circumstances following a change in control of Silicon Graphics while Silicon
Graphics is still our controlling stockholder.
RELATED TRANSACTIONS
We have three outstanding loans to Mr. Lev. The first loan is a forgivable,
non-interest bearing note with a principal amount outstanding at June 30, 1998
of approximately $258,000. The principal of this loan is forgiven (reduced)
ratably on a periodic basis through December 2000, subject to Mr. Lev's
continued employment. The second loan is a forgivable, non-interest bearing
(except in certain limited circumstances) note with a principal amount
outstanding at June 30, 1998 of $250,000. The principal of this loan is
forgivable on March 1, 2002, subject to Mr. Lev's continued employment at all
times prior to such date. The third loan bears interest at an annual rate of
7.19% and had a principal amount outstanding at June 30, 1998 of $275,000. The
largest aggregate amount of these loans outstanding during the period since July
1, 1996 was approximately $900,000.
ARRANGEMENTS BETWEEN MIPS TECHNOLOGIES AND SILICON GRAPHICS
RELATIONSHIP WITH SILICON GRAPHICS
Silicon Graphics presently owns all of the issued and outstanding Class B
Common Stock of MIPS Technologies, representing approximately 85% of the
outstanding Class A and Class B Common Stock. Upon completion of this offering,
Silicon Graphics will own approximately 25,750,000 shares of Class B Common
Stock, representing all of the issued and outstanding Class B Common Stock and
69% of the outstanding Class A and Class B Common Stock (67% if the
underwriters' over-allotment option is exercised in full). For so long as
Silicon Graphics continues to beneficially own all of the issued and outstanding
Class B Common Stock, it will be able to direct the election of a majority of
the directors of MIPS Technologies and to exercise a controlling influence over
its business and affairs, including any determinations with respect to mergers
or other business combinations, the acquisition or disposition of assets, future
issuances of debt and equity securities and the payment of dividends on our
common stock. Similarly, for so long as Silicon Graphics continues to
beneficially own in excess of 50% of the outstanding Class A and Class B Common
Stock, it will have the power to determine matters submitted to a vote of
stockholders without the consent of other stockholders, will have the power to
prevent or cause a change in control of MIPS Technologies and could take other
actions that might be favorable to Silicon Graphics.
On January 14, 1999, Silicon Graphics announced its intention to divest its
interest in MIPS Technologies by September 30, 2000. Silicon Graphics has
advised us that this divestiture could be effected in one or more transactions
and will likely include a distribution of a significant portion of its interest
in MIPS Technologies to Silicon Graphics stockholders in a Tax-Free
Distribution. Silicon Graphics could dispose of the shares of Class B Common
Stock that it owns in one or more public or private offerings, in a dividend or
other distribution to its stockholders, in an exchange offer for outstanding
shares of its common stock, or otherwise. However, other than this offering,
Silicon Graphics has not formulated any definitive plans regarding the
divestiture of its interest in MIPS Technologies. Accordingly, there can be no
assurance as to the period of time that Silicon Graphics will continue to retain
the shares of Class B Common Stock, except that, in connection with
55
<PAGE>
this offering and our initial public offering, Silicon Graphics has agreed not
to sell or otherwise dispose of any shares of Class A or Class B Common Stock
prior to 180 days after completion of this offering without the lead
underwriter's prior written consent. This agreement does not apply to a
distribution by Silicon Graphics of all of its interest in MIPS Technologies if,
in order to avoid the application of certain recently proposed tax legislation,
such a distribution must be completed prior to the date that is 180 days after
completion of this offering in order for Silicon Graphics to effect a Tax-Free
Distribution.
For a description of certain provisions of MIPS Technologies' certificate of
incorporation concerning the allocation of business opportunities that may be
suitable for both MIPS Technologies and Silicon Graphics, see "Description of
Capital Stock -- Corporate Opportunities".
In connection with the recapitalization, Silicon Graphics and MIPS
Technologies entered into the Exchange Agreement, which imposes certain
obligations on the parties relative to a Tax-Free Distribution. In addition, for
the purposes of governing certain of the relationships between the parties
following the separation of their businesses and the initial public offering,
MIPS Technologies and Silicon Graphics entered into the Separation Agreement,
the Corporate Agreement, the Technology Agreement, the Trademark Agreement, the
Tax Sharing Agreement and the Management Services Agreement, each of which was
effective as of the closing date of the initial public offering (the "Separation
Documents"). Because the Separation Documents were entered into at a time when
MIPS Technologies was still a wholly owned subsidiary of Silicon Graphics, they
are not the result of arm's-length negotiations between the parties. The
Exchange Agreement and the Separation Documents summarized below have been filed
as exhibits to the Registration Statement of which this prospectus forms a part
and the summaries are qualified in their entirety by reference to the full text
of the agreements. See "Where You Can Find Additional Information".
EXCHANGE AGREEMENT
Subject to the terms and conditions of the Exchange Agreement, if Silicon
Graphics has not disposed of its entire interest in MIPS Technologies (whether
through a Tax-Free Distribution or otherwise) prior to December 31, 2000,
Silicon Graphics will accrue an obligation to purchase, on a quarterly basis, a
predetermined number of shares of Class A Common Stock and/or Class B Common
Stock. This purchase obligation terminates in the quarter preceding the quarter
in which Silicon Graphics disposes of its entire interest in MIPS Technologies
or exchanges its shares of Class B Common Stock for Class A Common Stock as a
result of a Change in Tax Law (as defined below). MIPS Technologies may waive
all or part of Silicon Graphics' obligation to make any such purchase if the
independent directors of MIPS Technologies and its Chief Executive Officer
unanimously determine that such purchase is not in the interests of MIPS
Technologies and its stockholders other than Silicon Graphics. At its sole
option, Silicon Graphics may satisfy its purchase obligation by purchasing newly
issued shares of Class B Common Stock from MIPS Technologies or issued and
outstanding shares of Class A Common Stock in the public market or otherwise
from a third party. Shares of Class A Common Stock purchased by Silicon Graphics
in satisfaction of this obligation shall be exchanged for shares of Class B
Common Stock. Silicon Graphics will have registration rights with respect to the
shares of Class A and Class B Common Stock it purchases pursuant to this
obligation.
The Exchange Agreement also requires Silicon Graphics to exchange all of its
shares of Class B Common Stock for shares of Class A Common Stock if, prior to a
Tax-Free Distribution, the Internal Revenue Code is amended (a "Change in Tax
Law") to provide in effect generally that in a tax-free spin-off of a
subsidiary, the distributing company must hold not less than 80% of the value of
the subsidiary's stock and such Change in Tax
56
<PAGE>
Law would apply to a Tax-Free Distribution by Silicon Graphics.
Under the terms of the Exchange Agreement, Silicon Graphics has agreed to
indemnify and hold harmless MIPS Technologies and its affiliates, officers,
directors, employees, agents, successors and assigns from and against any and
all losses incurred by them with respect to third party claims, to the extent
such claims arise out of the recapitalization or any distribution by Silicon
Graphics of all of its interest in MIPS Technologies.
The Exchange Agreement also obligates the parties to enter into a
Distribution Tax Indemnification Agreement prior to a Tax-Free Distribution that
generally will limit the ability of MIPS Technologies to take certain actions
following a Tax-Free Distribution that would cause the distribution to become
taxable to Silicon Graphics and, in some instances, its stockholders. In
particular, under the Distribution Tax Indemnification Agreement, MIPS
Technologies will agree not to, among other things:
- - issue capital stock in an acquisition or private or public offering within
the 30-month period following the Tax-Free Distribution, except (1) pursuant
to the exercise of employee, director or consultant stock options or awards
and (2) the issuance of up to a cumulative amount of 10% of the outstanding
stock of MIPS Technologies at the time of the Tax-Free Distribution;
- - amend the voting rights with respect to the Class B Common Stock or Class A
Common Stock during the five-year period following the Tax-Free Distribution;
- - exchange any shares of Class B Common Stock for Class A Common Stock,
including pursuant to the MIPS Exchange Right, during the five-year period
following the Tax-Free Distribution;
- - knowingly and voluntarily take any other action during the 30-month period
following the Tax-Free Distribution which it believes will more likely than
not result in the Tax-Free Distribution becoming taxable; or
- - take any other action that would be a breach of any reasonable covenant or
representation related to MIPS Technologies and that is within its reasonable
control in the initial or any supplemental ruling request regarding a
Tax-Free Distribution submitted to the Internal Revenue Service.
Under the terms of the Distribution Tax Indemnification Agreement, MIPS
Technologies will be required to indemnify Silicon Graphics from any taxes
imposed on Silicon Graphics due to a breach of the above covenants and any taxes
resulting from an acquisition of more than 10% of the stock of MIPS Technologies
(taking into account permitted issuances described above) during the 30-month
period following the Tax-Free Distribution, unless (1) a supplemental ruling is
obtained from the Internal Revenue Service to the effect that such proposed
action will not cause the Tax-Free Distribution to become taxable, (2) Silicon
Graphics consents to such action or (3) MIPS Technologies delivers to Silicon
Graphics an opinion of nationally recognized tax counsel, reasonably
satisfactory to Silicon Graphics, that such action will not cause the Tax-Free
Distribution to become taxable.
The limitations on the issuance of shares of capital stock of MIPS
Technologies and other restrictions discussed above could have a negative impact
on its financial flexibility following a Tax-Free Distribution.
SEPARATION AGREEMENT
Pursuant to the Separation Agreement, Silicon Graphics transferred, or
agreed to transfer, the Company Assets to MIPS Technologies and MIPS
Technologies, assumed or agreed to assume, and has agreed to faithfully perform
and fulfill all Company Liabilities in accordance with their respective terms.
Except as expressly set forth in the Separation Agreement or in another
Separation Document, neither party made any representation or warranty as to the
business, assets or liabilities transferred or assumed as
57
<PAGE>
part of the separation, as to any consents or approvals required in connection
therewith, as to the value or freedom from any security interests of any of the
assets transferred or as to the absence of any defenses or freedom from
counterclaim with respect to any claim of any party, or as to the legal
sufficiency of any assignment, document or instrument delivered to convey title
to any asset transferred. Except as otherwise expressly set forth in the
Separation Agreement or in another Separation Document, all assets were
transferred on an "as is", "where is" basis, and MIPS Technologies has agreed to
bear the economic and legal risks that the conveyance is insufficient to vest in
the transferee good and marketable title, free and clear of any security
interest.
RELEASES AND INDEMNIFICATION
The Separation Agreement provides for a full and complete release and
discharge as of the closing date of the initial public offering of all
Liabilities existing or arising from all acts or events occurring or failing to
occur or alleged to have occurred or to have failed to occur and all conditions
existing or alleged to have existed on or prior to such date, between MIPS
Technologies and Silicon Graphics (including any contractual arrangements or
arrangements existing or alleged to exist between MIPS Technologies and Silicon
Graphics on or before such date), except as expressly set forth in the
Separation Agreement.
MIPS Technologies has agreed to indemnify, defend and hold harmless Silicon
Graphics, each member of the Silicon Graphics Group, and each of their
directors, officers and employees, from and against any and all Liabilities
relating to, arising out of or resulting from (1) the failure of MIPS
Technologies or any other person to pay, perform or otherwise promptly discharge
any Company Liabilities or any Company Contract in accordance with its terms;
(2) the Company Business, any Company Liability or any Company Contract; (3) any
breach by MIPS Technologies of any Separation Document; and (4) any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, with respect to all information
contained in the prospectus or the registration statement relating to the
initial public offering, subject to certain exceptions.
Silicon Graphics has agreed to indemnify, defend and hold harmless MIPS
Technologies, each of its subsidiaries, and each of their directors, officers
and employees, from and against any and all Liabilities relating to, arising out
of or resulting from (1) the failure of Silicon Graphics or any other person to
pay, perform or otherwise promptly discharge any liabilities of Silicon Graphics
other than the Company Liabilities; (2) any Liability other than the Company
Liabilities; and (3) any breach by Silicon Graphics of any Separation Document.
DISPUTE RESOLUTION
The Separation Agreement contains provisions that govern the resolution of
disputes, controversies or claims that may arise between them. These provisions
contemplate that efforts will be made to resolve disputes, controversies and
claims by escalation of the matter to senior management (or other mutually
agreed representatives of the parties). If the matter is not resolved within a
period of 90 days, then upon written notice by either party to the other, any
unresolved matter shall be submitted to mediation conducted by a mediator
mutually acceptable to the parties.
Either party may apply to any court having jurisdiction and seek injunctive
relief so as to maintain the status quo until such time as the mediation is
concluded or the controversy is otherwise resolved. In the event that any
dispute, controversy or claim is, or is reasonably likely to be, in excess of
$30 million, subject to certain conditions, any party may submit such dispute,
controversy or claim to a court of competent jurisdiction and the mediation
provisions contained in the Separation Agreement will not apply.
58
<PAGE>
TERMINATION; FURTHER ASSURANCES
In addition to the actions specifically provided elsewhere in the Separation
Agreement, each of MIPS Technologies and Silicon Graphics has agreed to use its
reasonable best efforts to take all actions reasonably necessary, proper or
advisable under applicable laws, regulations and agreements, to consummate and
make effective the transactions contemplated by the Separation Documents.
Set forth below are certain defined terms contained in the Separation
Agreement.
"Company Assets" generally means (1) all personal property, inventory,
receivables, books and records, goodwill, sales material and governmental
permits and licenses, in each case to the extent they relate to the Company
Business, (2) all intellectual property transferred or licensed pursuant to the
Technology Agreement and the Trademark Agreement, (3) all Company Contracts (as
defined in the Separation Agreement), (4) any assets reflected in the Company
Balance Sheet as "Assets" of MIPS Technologies, subject to any dispositions of
such assets subsequent to the date of the Company Balance Sheet, and (5) any and
all other assets, rights and claims held immediately prior to the closing date
for the initial public offering by Silicon Graphics and used primarily in the
Company Business, in each case other than assets that are expressly contemplated
by the Separation Documents as assets to be retained by Silicon Graphics.
"Company Liabilities" generally means: (1) all Liabilities expressly
contemplated by the Separation Documents as Liabilities to be assumed by MIPS
Technologies, and all agreements, obligations and Liabilities of MIPS
Technologies under the Separation Documents; (2) all Liabilities (other than
income taxes) primarily relating to (a) the operation of the Company Business;
(b) the operation of any business conducted by MIPS Technologies or any of its
subsidiaries at any time after the closing date of the initial public offering;
and (c) any Company Assets; and (3) all Liabilities reflected as "Liabilities"
or obligations of MIPS Technologies in the Company Balance Sheet, subject to any
discharge of such Liabilities subsequent to the date of the Company Balance
Sheet, in each case other than liabilities that are expressly contemplated by
the Separation Documents as liabilities to be retained or assumed by Silicon
Graphics, and all agreements and obligations of Silicon Graphics under the
Separation Documents.
"Company Business" means the business and operations of the various divisions
and subsidiaries of Silicon Graphics engaged in the development and licensing of
processor and related designs for the embedded market based on RISC
architecture, consisting principally of Silicon Graphics' MIPS Group.
CORPORATE AGREEMENT
PRE-EMPTIVE RIGHT OF SILICON GRAPHICS TO PURCHASE SHARES OF CAPITAL STOCK
Pursuant to the Corporate Agreement, MIPS Technologies granted to Silicon
Graphics a continuing option to purchase, under certain circumstances,
additional shares of common stock or shares of non-voting capital stock of MIPS
Technologies (the "Stock Option"). The Stock Option may be exercised by Silicon
Graphics simultaneously with the issuance of any equity security of MIPS
Technologies, with respect to the common stock, only to the extent necessary for
Silicon Graphics to maintain (1) control of MIPS Technologies (within the
meaning of Section 368(a)(2)(H) and (c) of the Internal Revenue Code) provided
such control has theretofore been maintained; (2) the status of MIPS
Technologies as a member of the affiliated group of corporations (within the
meaning of Section 1504 of the Internal Revenue Code) of which Silicon Graphics
is the common parent, provided such status has theretofore been maintained or
(3) its then-existing percentage of the total voting power and value of MIPS
Technologies, whichever percentage is highest, and, with respect to shares of
non-voting capital stock, to the extent necessary to own 80% of each outstanding
class of such stock. The purchase price of the shares of common stock
59
<PAGE>
purchased upon any exercise of the Stock Option will be based on the market
price of the common stock at the time of such exercise, and the purchase price
of non-voting capital stock will be the price at which such stock may be
purchased by third parties. The Stock Option expires in the event that Silicon
Graphics reduces its beneficial ownership of common stock to less than 50% of
the outstanding shares of common stock.
REGISTRATION RIGHTS
The Corporate Agreement also provides that, upon request of Silicon
Graphics, MIPS Technologies will use its best efforts to effect the registration
under the applicable federal and state securities laws of any of the shares of
MIPS Technologies common stock and non-voting capital stock beneficially owned
by Silicon Graphics for sale in accordance with Silicon Graphics' intended
method of disposition thereof, and will take such other actions as may be
necessary to permit the sale thereof in other jurisdictions, subject to certain
specified limitations. Silicon Graphics also has the right, subject to certain
limitations, to include the shares of common stock and non-voting capital stock
(and any other securities issued in respect of or in exchange for either of such
securities) beneficially owned by it in certain other registrations of common
equity securities of MIPS Technologies initiated by MIPS Technologies on its own
behalf or on behalf of its other stockholders. MIPS Technologies has agreed to
pay all out-of-pocket costs and expenses in connection with each such
registration, except for underwriting discounts and commissions attributable to
the shares of stock sold by Silicon Graphics. In connection with this offering,
however, Silicon Graphics has agreed to waive this provision and will pay all
related expenses.
Until such time as Silicon Graphics ceases to beneficially own in excess of
50% of the outstanding common stock, it may request or participate in an
unlimited number of such registrations. After such time, Silicon Graphics will
be limited to a total of four demand and an unlimited number of "piggyback"
registrations. Subject to certain limitations specified in the Corporate
Agreement, such registration rights will be assignable by Silicon Graphics and
its assigns. The Corporate Agreement contains indemnification and contribution
provisions by MIPS Technologies for the benefit of Silicon Graphics in
connection with such registrations.
COVENANT AGAINST CERTAIN ACTIONS
The Corporate Agreement also provides that for so long as Silicon Graphics
maintains beneficial ownership of a majority of the number of outstanding shares
of common stock, MIPS Technologies may not take any action or enter into any
commitment or agreement which may reasonably be anticipated to result, with or
without notice and with or without lapse of time, or otherwise, in a
contravention (or an event of default) by Silicon Graphics of: (1) any provision
of applicable law or regulation, including but not limited to provisions
pertaining to the Internal Revenue Code or the Employee Retirement Income
Security Act of 1974, as amended; (2) any provision of Silicon Graphics'
certificate of incorporation or by-laws; (3) any credit agreement or other
material instrument binding upon Silicon Graphics or any of its assets or (4)
any judgment, order or decree of any governmental body, agency or court having
jurisdiction over Silicon Graphics or any of its assets.
TECHNOLOGY AGREEMENT
Under the Technology Agreement, Silicon Graphics assigned and licensed
certain intellectual property rights to MIPS Technologies, with a license back
of certain rights to Silicon Graphics. This assignment by Silicon Graphics
included all of its right, title and interest in and to 52 United States patents
with expiration dates ranging from 2006 through 2015, 14 pending United States
patent applications, and all foreign counterpart rights to the foregoing. In
addition to these patent rights, Silicon Graphics assigned other related
intellectual property rights, including various copyrights, mask work rights and
trade secrets.
60
<PAGE>
This assignment provided MIPS Technologies with Silicon Graphics'
intellectual property related to the MIPS RISC processor architecture for use in
embedded applications. Silicon Graphics also licensed other intellectual
property rights to MIPS Technologies for use in its business. Certain of these
rights were licensed on a worldwide, royalty-free and exclusive basis solely for
MIPS Technologies' use in the development and licensing of processor and related
designs for embedded applications. MIPS Technologies and Silicon Graphics may in
the future enter into additional royalty-bearing licenses with respect to other
Silicon Graphics intellectual property.
Under the Technology Agreement, MIPS Technologies granted to Silicon
Graphics a worldwide, royalty-free, non-exclusive license with respect to the
intellectual property assigned by Silicon Graphics to MIPS Technologies. This
license back to Silicon Graphics will be for its use in connection with the
design and sale of Silicon Graphics systems and products. Under the Separation
Agreement, MIPS Technologies is generally obligated to indemnify Silicon
Graphics for third-party claims relating to MIPS Technologies' intellectual
property. The Technology Agreement excludes trademarks and trademark-related
intellectual property, which is covered by the Trademark Agreement.
TRADEMARK AGREEMENT
Pursuant to the Trademark Agreement, Silicon Graphics assigned to MIPS
Technologies all trademarks, service marks, trade dress, logos and related
goodwill concerning the MIPS marks for processors and other semiconductor
devices. This assignment included all domestic and foreign registrations as well
as common law rights throughout the world. MIPS Technologies granted back to
Silicon Graphics a worldwide, royalty-free, and non-exclusive license to use the
MIPS marks in connection with Silicon Graphics' products that use processors
embodying the MIPS architecture. The Trademark Agreement requires that Silicon
Graphics comply with reasonable quality standards. Neither Silicon Graphics nor
MIPS Technologies has any indemnification obligations or warranties as to the
trademarks and trademark-related rights as part of the Trademark Agreement.
TAX SHARING AGREEMENT
MIPS Technologies is presently included in Silicon Graphics' consolidated
federal income tax group, and MIPS Technologies' federal income tax liability
has been included in the consolidated federal income tax liability of the
Silicon Graphics group. Under the terms of the Tax Sharing Agreement, MIPS
Technologies is obligated to make payments to Silicon Graphics such that, with
respect to any period, the amount of taxes to be paid by MIPS Technologies,
subject to certain adjustments, is determined as though MIPS Technologies were
to file separate federal, state and local income tax returns.
Following this offering, because Silicon Graphics will own less than 80% of
the outstanding common stock of MIPS Technologies, it will no longer be included
in Silicon Graphics' consolidated federal income tax group, but will instead be
required to file separate tax returns. However, MIPS Technologies will remain
jointly and severally liable for the federal income tax liability of each other
member of the Silicon Graphics' consolidated federal income tax group that arose
during the period in which MIPS Technologies was included in such group. See
"Risk Factors -- Control by and Relationship with Silicon Graphics".
MANAGEMENT SERVICES AGREEMENT
Under the Management Services Agreement, Silicon Graphics agreed to provide
certain administrative and corporate support services to MIPS Technologies on an
interim or transitional basis following the initial public offering. Services
available under the Management Services Agreement include accounting, treasury,
tax, facilities and information services. Presently, Silicon Graphics provides
certain tax and facilities services to MIPS Technologies under this agreement.
61
<PAGE>
Specified charges for such services are generally intended to allow Silicon
Graphics to recover the fully allocated direct costs of providing the services,
plus all out-of-pocket costs and expenses, but without any profit. Silicon
Graphics must provide any such services through the same or similarly qualified
personnel and the same or similar facilities as it has in the past, but the
selection of personnel to perform the various services shall be within the sole
control of Silicon Graphics. Silicon Graphics is not required to increase the
volume or quality of the services provided beyond the level at which they were
performed for MIPS Technologies in the past. The Management Services Agreement
has a three-year term and is subject to automatic termination at such time as
Silicon Graphics' beneficial ownership interest in the outstanding common stock
ceases to exceed 50%. Either party may terminate the Management Services
Agreement with respect to one or more of the services provided thereunder upon
giving at least 30 days prior written notice to the other party.
FACILITIES LEASE ARRANGEMENTS
MIPS Technologies presently subleases from Silicon Graphics approximately
27,500 square feet (with an option to increase to 55,000 square feet) in one
building in Mountain View, California. Payments by MIPS Technologies to Silicon
Graphics under this sublease are presently approximately $51,000 per month,
increasing to approximately $67,000 per month by August 2001. The amounts
payable by MIPS Technologies under this sublease are generally equal to the
amounts payable by Silicon Graphics under its sublease for the property with a
third party. This sublease will expire on May 31, 2002, subject to earlier
termination in certain circumstances.
62
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDER
SILICON GRAPHICS
Silicon Graphics presently owns approximately 85% of the total Class A and
Class B Common Stock outstanding, consisting of all of the issued and
outstanding shares of Class B Common Stock. Upon completion of this offering,
Silicon Graphics will beneficially own approximately 69% of the total Class A
and Class B Common Stock outstanding, consisting of all of the issued and
outstanding shares of Class B Common Stock (67% if the underwriters'
over-allotment option is exercised in full). For a description of the historical
relationship between MIPS Technologies and Silicon Graphics, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 1 of Notes to Financial Statements. In connection with the recapitalization
effected on , 1999, MIPS Technologies and Silicon Graphics entered
into an exchange agreement which governs certain matters between the parties
following the recapitalization, and in connection with the separation of their
businesses and the initial public offering of MIPS Technologies common stock in
1998, MIPS Technologies and Silicon Graphics entered into various agreements
intended to govern the relationship between the parties on a going-forward
basis. For a description of these agreements, see "The Recapitalization" and
"Arrangements Between MIPS Technologies and Silicon Graphics".
Silicon Graphics is a leader in high-performance computing, providing a
broad range of workstations and graphics servers that deliver advanced 3-D
graphics and computing capabilities for engineering and creative professionals.
Silicon Graphics and Cray Research-branded servers are a market leaders in
technical computing applications, and its highly scalable servers have a growing
presence in the enterprise market, with a particular emphasis on Internet, large
corporate data and telecommunications applications. Silicon Graphics also
markets applications software targeted at engineering and creative professionals
in the digital content creation and manufacturing sectors. The principal
executive offices of Silicon Graphics are located at 2011 North Shoreline Blvd.,
Mountain View, California 94043.
63
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS, EXECUTIVE OFFICERS AND
SILICON GRAPHICS
The following table sets forth, as of February 26, 1999, certain information
regarding the beneficial ownership of the Class A Common Stock and the Class B
Common Stock prior to and after this offering (assuming no exercise of the
underwriters' over-allotment option) by (1) Silicon Graphics, (2) each other
person known by MIPS Technologies to own beneficially more than 5% of either the
Class A Common Stock or the Class B Common Stock, (3) each of MIPS Technologies'
directors, (4) each Named Executive Officer and (5) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK
---------------- CLASS B COMMON STOCK
----------------------------------------
TOTAL COMMON STOCK
OWNED PRIOR TO -----------------------------
AND AFTER OWNED PRIOR TO OWNED AFTER
THIS OFFERING THIS OFFERING THIS OFFERING(1) PERCENTAGE OF TOTAL
---------------- ------------------- ------------------ COMMON STOCK(1)
PERCENTAGE PERCENTAGE PERCENTAGE -----------------------------
OF OF OF PRIOR TO AFTER
NAME OF SHAREHOLDER NUMBER CLASS NUMBER CLASS NUMBER CLASS THIS OFFERING THIS OFFERING
- ------------------------------ ------- ------- ----------- ------ --------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Silicon Graphics, Inc......... -- -- 31,750,000 100% 25,750,000 100% 85.2% 69.0%
John E. Bourgoin (2).......... 17,168 * -- -- -- -- * *
Lavi Lev (3).................. 1,970 * -- -- -- -- * *
Derek Meyer................... 2,079 * -- -- -- -- * *
Dr. Forest Baskett............ -- * -- -- -- -- * *
Kenneth L. Coleman............ 1,285 * -- -- -- -- * *
Fred M. Gibbons............... -- * -- -- -- -- * *
Anthony B. Holbrook........... -- * -- -- -- -- * *
William M. Kelly.............. -- * -- -- -- -- * *
Teruyasu Sekimoto............. -- * -- -- -- -- * *
Directors and Executive
Officers as a Group (11
persons).................... 26,054 * -- -- -- -- * *
</TABLE>
- --------------
* Less than 1%. None of the options held by the directors and executive
officers were exercisable on February 26, 1999 or within 60 days thereafter.
(1) Assumes the underwriters' overallotment option is not exercised.
(2) Includes restricted stock awards under the 1998 Long-Term Incentive Plan
totaling 15,000 shares effective upon the completion of the initial public
offering.
(3) Mr. Lev disclaims beneficial ownership of 1,000 of these shares.
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
MIPS Technologies' certificate of incorporation was amended (the "Amended
Certificate of Incorporation") in connection with the recapitalization to
include a variety of provisions regarding its dual class capital structure. The
following is a general description of the relative rights of the holders of the
Class A and Class B Common Stock.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of MIPS Technologies consists of 300,000,000
shares, of which (1) 150,000,000 are shares of Class A Common Stock, par value
$0.001 per share, (2) 100,000,000 are shares of Class B Common Stock, par value
$0.001 per share and (3) 50,000,000 are shares of preferred stock, par value
$0.001 per share, issuable in series. As of the date hereof (without giving
effect to this offering), there are 5,542,286 shares of Class A Common Stock
outstanding and 31,750,000 shares of Class B Common Stock outstanding. All of
the shares of Class A Common Stock are held by persons other than Silicon
Graphics and its affiliates and all of the shares of Class B Common Stock are
held by Silicon Graphics. All of the shares of Class A Common Stock that will be
outstanding following this offering will be validly issued, fully paid and
nonassessable.
COMMON STOCK
VOTING RIGHTS
With respect to the election of directors, the holders of the Class A Common
Stock, voting separately as a class, are entitled to elect 20% of the directors
of the Board of Directors of MIPS Technologies (rounded down, if necessary, to
the nearest whole director), and in no event less than one director. Each share
of Class A Common Stock has one vote in the election of such directors.
The holders of the Class B Common Stock, voting separately as a class, are
entitled to elect the remaining directors (other than directors elected by the
holders of preferred stock). Each share of Class B Common Stock has one vote in
the election of such directors. References to the number of directors on the
Board of Directors do not include any directors whom the holders of any
preferred stock may have the exclusive right to elect.
If, at any time, all the outstanding shares of Class B Common Stock have
been converted into or exchanged for shares of Class A Common Stock, subject to
the rights of holders of preferred stock, the holders of the Class A Common
Stock, voting as a class, are entitled to elect all members of the Board of
Directors.
The holders of Class A Common Stock and Class B Common Stock will in all
other matters vote together as a single class, with each share of Class A Common
Stock and Class B Common Stock having one vote, except as required by law.
However, with respect to any proposed amendment to the Amended Certificate of
Incorporation which would alter the special rights of the Class A Common Stock
or the Class B Common Stock, the affected class shall also be entitled to vote
on such amendment separately as a class.
Following a Tax-Free Distribution, for so long as any person or group of
persons acting in concert beneficially owns 10% or more of the outstanding
shares of Class B Common Stock, such person or group will not be entitled to
exercise any voting rights with respect to such shares of Class B Common Stock
in any election of directors unless such person or group is also the beneficial
owner of at least an equivalent percentage of the outstanding shares of Class A
Common Stock. This provision is designed to ensure that, following a Tax-Free
Distribution and for so long as the Class B Common Stock retains its special
voting rights, a holder of such shares will not have voting rights with respect
to the election of directors that are significantly disproportionate to its
economic interest.
The Amended Certificate of Incorporation does not provide for cumulative
voting in the election of directors.
65
<PAGE>
DIVIDENDS
The holders of Class A Common Stock and the holders of Class B Common Stock
will share equally on a per share basis in all dividends and other distributions
in cash or property (other than shares of MIPS Technologies common stock) as may
be declared thereon from time to time by the Board of Directors from funds
legally available therefor. In the case of dividends or other distributions
payable in, or reclassifications involving, common stock, including
distributions pursuant to stock splits or divisions of common stock, only shares
of Class A Common Stock will be paid or distributed with respect to shares of
Class A Common Stock and only shares of Class B Common Stock will be paid or
distributed with respect to shares of Class B Common Stock. The number of shares
of Class A Common Stock and Class B Common Stock so paid or distributed will be
equal in number on a per share basis.
MIPS Technologies may not subdivide or combine shares of either class of its
common stock without at the same time proportionally subdividing or combining
shares of the other class.
CONVERSION
Prior to a Tax-Free Distribution, any share of Class B Common Stock
transferred to a person, other than Silicon Graphics or any of its subsidiaries,
will automatically convert into one share of Class A Common Stock upon such
disposition. Shares of Class B Common Stock will not be automatically converted
into shares of Class A Common Stock (1) in any transfer effected in connection
with a distribution of shares of Class B Common Stock to stockholders of Silicon
Graphics in a transaction (including any distribution in exchange for shares of
capital stock or other securities of Silicon Graphics) intended to qualify as a
Tax-Free Distribution or (2) in any transfer following a Tax-Free Distribution.
Following a Tax-Free Distribution, shares of Class B Common Stock shall be
transferable as Class B Common Stock, subject to applicable laws.
Shares of Class B Common Stock will automatically convert into shares of
Class A Common Stock on the fifth anniversary of a Tax-Free Distribution;
provided, however, that such automatic conversion will not occur if the
inclusion of this conversion provision in the Amended Certificate of
Incorporation would have a material adverse effect on the ability of Silicon
Graphics to timely obtain a favorable ruling from the IRS regarding the tax-free
status of such Tax-Free Distribution.
If the automatic conversion does not occur due to the circumstances
described in the preceding paragraph, approval of the conversion of the Class B
Common Stock into Class A Common Stock will be submitted to a vote of
stockholders as soon as practicable after the fifth anniversary of such Tax-Free
Distribution; provided, however, that such conversion will not be so submitted
to a vote of stockholders if the inclusion of this conversion provision in the
Amended Certificate of Incorporation would have a material adverse effect on the
ability of Silicon Graphics to timely obtain a favorable ruling from the IRS
regarding the tax-free status of such Tax-Free Distribution. If submitted to a
vote of stockholders, approval of such conversion will require the affirmative
vote of a majority of the shares of Class A Common Stock and Class B Common
Stock present and voting, voting together as a single class, with each share
entitled to one vote for such purpose.
Under current tax law, it is uncertain whether the conversion provisions
described in the preceding two paragraphs would have a material adverse effect
on the ability of Silicon Graphics to timely obtain a favorable ruling from the
IRS regarding the tax-free status of such Tax-Free Distribution. No assurance
can be given that the Class B Common Stock would be converted under either
conversion provision.
All shares of Class B Common Stock will automatically convert into Class A
Common Stock if, at any time prior to a Tax-Free
66
<PAGE>
Distribution, the aggregate number of outstanding shares of Class B Common Stock
beneficially owned by Silicon Graphics and/or any of its subsidiaries is less
than 50% of the aggregate number of outstanding shares of Class A and Class B
Common Stock; provided, however, that such automatic conversion will not occur
if, prior to the closing of any transaction or the occurrence of any event that
would trigger such conversion, the independent directors of the Board of
Directors and the Chief Executive Officer of MIPS Technologies unanimously
determine that such automatic conversion is not in the interests of MIPS
Technologies and its public stockholders (i.e., stockholders other than Silicon
Graphics and its affiliates). Upon the closing of any subsequent transaction or
the occurrence of any event which would further reduce Silicon Graphics'
ownership interest, each share of Class B Common Stock will automatically
convert into one share of Class A Common Stock unless a similar determination is
made by the independent directors and the Chief Executive Officer. In any event,
all shares of Class B Common Stock will automatically convert into shares of
Class A Common Stock if the aggregate number of outstanding Class B Common Stock
held by Silicon Graphics and/or any of its affiliates is less than 30% of the
aggregate number of outstanding shares of Class A and Class B Common Stock.
These provisions are intended to ensure that Silicon Graphics retains control of
the Board of Directors only if it has a substantial economic interest in MIPS
Technologies. These automatic conversion provisions will not apply following a
Tax-Free Distribution.
In any merger or consolidation of MIPS Technologies in which all or
substantially all of its capital stock is exchanged for the stock of another
entity and the stockholders of MIPS Technologies immediately prior to the merger
or consolidation own less than 50% of the outstanding shares of such other
entity immediately after such merger or consolidation, each share of Class B
Common Stock will automatically convert into one share of Class A Common Stock
immediately prior to the effectiveness of such merger or consolidation. However,
such conversion will not occur if the inclusion of this conversion provision in
the Amended Certificate of Incorporation would have a material adverse effect on
the ability of Silicon Graphics to timely obtain a favorable ruling from the IRS
regarding the tax-free status of such Tax-Free Distribution. Under current tax
law, it is uncertain whether this conversion provision would have such an
effect.
Prior to a Tax-Free Distribution and upon the closing of a merger or
consolidation involving Silicon Graphics or a tender offer for shares of Silicon
Graphics capital stock, if the stockholders of Silicon Graphics immediately
prior to such merger, consolidation or tender offer own less than 50% of the
outstanding shares of Silicon Graphics (or, if the capital stock of Silicon
Graphics is exchanged or converted in any such transaction for capital stock of
another corporation, such corporation) immediately after such merger,
consolidation or tender offer, each share of Class B Common Stock held by
Silicon Graphics or its successor will automatically convert into one share of
Class A Common Stock.
All conversions will be effected on a share-for-share basis.
Prior to a Tax-Free Distribution and for so long as Silicon Graphics or any
of its subsidiaries owns any shares of Class B Common Stock, shares of Class A
Common Stock acquired by Silicon Graphics or any of its subsidiaries will
automatically convert into shares of Class B Common Stock on a one-for-one
basis. After a Tax-Free Distribution, shares of Class A Common Stock will not
convert into shares of Class B Common Stock at any time or under any
circumstances.
MERGER OR REORGANIZATION
In the event of any merger, consolidation or reorganization of MIPS
Technologies with or into another entity in connection with which shares of
Class A and Class B Common Stock are converted into or exchangeable for shares
of stock, other securities or property (including cash), all holders of Class A
and Class B Common Stock will be entitled to receive the
67
<PAGE>
same kind and amount of shares of stock and other securities and property
(including cash). However, in the event that the shares of Class B Common Stock
have not been converted into or exchanged for shares of Class A Common Stock,
then (1) in any such transaction, the holders of shares of Class A and Class B
Common Stock may receive different kinds of shares of stock if the only
difference in such shares is the inclusion of voting rights which maintain the
different voting rights of the Class A Common Stock and the Class B Common Stock
with respect to the election of directors of MIPS Technologies or (2) if all or
substantially all of the Class A and Class B Common Stock is exchanged for
capital stock of another entity and such transaction is required to be accounted
for as a "pooling-of-interests", the holders of shares of Class A and Class B
Common Stock will receive shares of stock in the acquiring entity based on the
relative fair value of a share of Class A Common Stock and a share of Class B
Common Stock measured as of the announcement date for such transaction.
EXCHANGE OF CLASS B COMMON STOCK
The Amended Certificate of Incorporation provides that, prior to a Tax-Free
Distribution, Silicon Graphics may exchange all (but not less than all) of the
outstanding shares of Class B Common Stock for shares of Class A Common Stock on
a one-for-one basis. Under the terms of the Exchange Agreement, Silicon Graphics
is obligated to effect such an exchange if there has been a Change in Tax Law.
Following a Tax-Free Distribution, MIPS Technologies may exchange all (but
not less than all) of the outstanding shares of Class B Common Stock for shares
of Class A Common Stock on a one-for-one basis. However, MIPS Technologies will
be unable to effect such an exchange if the inclusion of this provision in the
Amended Certificate of Incorporation would have a material adverse effect on
Silicon Graphics' ability to timely obtain a favorable ruling from the IRS
regarding the tax-free status of the Tax-Free Distribution. Under current tax
law, it is uncertain whether the inclusion of this exchange provision would have
such an effect. Even if this exchange provision remains available, Silicon
Graphics may limit MIPS Technologies' ability to effect such an exchange
pursuant to the Distribution Tax Indemnification Agreement to be entered into
between Silicon Graphics and MIPS Technologies prior to a Tax-Free Distribution.
See "The Recapitalization -- The Exchange Agreement".
LIQUIDATION
In any liquidation, dissolution or winding-up of MIPS Technologies, whether
voluntary or involuntary, the assets of MIPS Technologies will be distributed
pro rata to the holders of the Class A Common Stock and Class B Common Stock
after payment in full of the amounts required to be paid to holders of preferred
stock, if any.
OTHER RIGHTS
No shares of Class A or Class B Common Stock are subject to redemption or
have preemptive or preferential rights to purchase additional shares of common
stock of MIPS Technologies.
PREFERRED STOCK
The preferred stock is issuable from time to time either as a class without
series or in one or more series and with such designation, rights, privileges,
restrictions and conditions for each class or series as shall be stated in the
resolutions providing for designation and issue of each such series adopted by
the Board of Directors. The Board of Directors is authorized by the Amended
Certificate of Incorporation to determine, among other things, the voting,
dividend, redemption, conversion and liquidation powers, rights and preferences
and the limitations thereon of such series. MIPS Technologies believes that the
ability of the Board of Directors to issue one or more series of preferred stock
will provide it with flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that may arise. The
authorized shares of preferred stock will be available for issuance
68
<PAGE>
without further action by stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which the MIPS Technologies securities may be listed or traded.
Although the Board of Directors has no present plans to issue any preferred
stock, it could issue a series of preferred stock that could, depending on the
terms of such series, impede the completion of a merger, tender offer or other
takeover attempt. The Board of Directors will make any determination to issue
such shares based on its judgment as to the best interests of MIPS Technologies
and its stockholders. The Board of Directors could issue preferred stock with
voting and other rights that could adversely effect the voting power of the
holders of the Class A and Class B Common Stock, and that could discourage an
acquisition attempt through which an acquiror may be able to change the
composition of Board of Directors, including a tender offer or other transaction
that some, or a majority, of MIPS Technologies stockholders might believe to be
in their best interests or in which stockholders might receive a premium for
their stock over the then current market price of such stock.
CORPORATE OPPORTUNITIES
The Amended Certificate of Incorporation provides that Silicon Graphics will
have no duty to refrain from engaging in the same or similar activities or lines
of business as MIPS Technologies, and neither Silicon Graphics nor any officer
or director thereof (except as provided below), will be liable to MIPS
Technologies or its stockholders for breach of any fiduciary duty by reason of
any such activities of Silicon Graphics. In the event that Silicon Graphics
acquires knowledge of a potential transaction or matter which may be a corporate
opportunity for both Silicon Graphics and MIPS Technologies, Silicon Graphics
will have no duty to communicate or offer such corporate opportunity to MIPS
Technologies and will not be liable to MIPS Technologies or its stockholders for
breach of any fiduciary duty as a stockholder of MIPS Technologies by reason of
the fact that Silicon Graphics pursues or acquires such corporate opportunity
for itself, directs such corporate opportunity to another person, or does not
communicate information regarding such corporate opportunity to MIPS
Technologies.
In the event that a director or officer of MIPS Technologies who is also a
director or officer of Silicon Graphics acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both MIPS
Technologies and Silicon Graphics, such director or officer of MIPS Technologies
will have fully satisfied and fulfilled the fiduciary duty of such director or
officer to MIPS Technologies and its stockholders with respect to such corporate
opportunity if such director or officer acts in a manner consistent with the
following policy:
(1) a corporate opportunity offered to any person who is an officer of MIPS
Technologies, and who is also a director but not an officer of Silicon
Graphics, shall belong to MIPS Technologies;
(2) a corporate opportunity offered to any person who is a director but not an
officer of MIPS Technologies, and who is also a director or officer of
Silicon Graphics, shall belong to MIPS Technologies if such opportunity is
expressly offered to such person in writing solely in his or her capacity as
a director of MIPS Technologies, and otherwise shall belong to Silicon
Graphics; and
(3) a corporate opportunity offered to any person who is an officer of both MIPS
Technologies and Silicon Graphics shall belong to MIPS Technologies if such
opportunity is expressly offered to such person in writing solely in his or
her capacity as an officer of MIPS Technologies, and otherwise shall belong
to Silicon Graphics.
For purposes of the foregoing:
(1) a director of MIPS Technologies who is chairman of the MIPS Board of
Directors or of a committee thereof will not be deemed to be an officer of
MIPS
69
<PAGE>
Technologies by reason of holding such position (without regard to whether
such position is deemed an office of MIPS Technologies under its by-laws),
unless such person is a full-time employee of MIPS Technologies; and
(2)(a) the term "MIPS Technologies" will mean MIPS Technologies and all
corporations, partnerships, joint ventures, associations and other entities
in which MIPS Technologies beneficially owns (directly or indirectly) fifty
percent or more of the outstanding voting stock, voting power, partnership
interest or similar voting interests, and (b) the term "Silicon Graphics"
will mean Silicon Graphics, Inc. and all corporations, partnerships, joint
ventures, associations and other entities (other than MIPS Technologies,
defined in accordance with clause (a) of this section (2)) in which Silicon
Graphics beneficially owns (directly or indirectly) fifty percent or more of
the outstanding voting stock, voting power, partnership interests or similar
voting interests.
The foregoing provisions will expire on the date that Silicon Graphics
ceases to own beneficially common stock of MIPS Technologies representing at
least 20% of the total voting power of all classes of its outstanding common
stock and no person who is a director or officer of MIPS Technologies is also a
director or officer of Silicon Graphics or any of its subsidiaries (other than
MIPS Technologies).
In addition to any vote of the stockholders required by the certificate of
incorporation of MIPS Technologies, until the time that Silicon Graphics ceases
to own beneficially common stock of MIPS Technologies representing at least 20%
of the total voting power of all classes of its outstanding common stock, the
affirmative vote of the holders of more than 80% of the total voting power of
all classes of outstanding common stock is required to alter, amend or repeal in
a manner adverse to the interests of Silicon Graphics and its subsidiaries
(other than MIPS Technologies), or adopt any provision adverse to the interests
of Silicon Graphics and its subsidiaries (other than MIPS Technologies), or
inconsistent with, the corporate opportunity provisions described above.
Any person purchasing or otherwise acquiring common stock of MIPS
Technologies will be deemed to have notice of, and to have consented to, the
foregoing provisions regarding corporate opportunities.
CERTIFICATE OF INCORPORATION AND
BY-LAW PROVISIONS THAT MAY HAVE
AN ANTI-TAKEOVER EFFECT
Certain provisions of the Amended Certificate of Incorporation and by-laws
of MIPS Technologies summarized below may be deemed to have an anti-takeover
effect and may delay, discourage or prevent a tender offer or takeover attempt
that a stockholder might consider to be in its best interest, including attempts
that might result in a premium being paid over the market price of the Class A
Common Stock.
BOARD OF DIRECTORS
Subject to any rights of holders of preferred stock to elect additional
directors under specified circumstances, the number of directors of MIPS
Technologies will be not less than five and not more than ten, with the exact
number to be fixed from time to time by resolution of our Board of Directors.
The directors, other than those elected by the holders of preferred stock, will
be classified, with respect to the time they hold office, into three classes, as
nearly equal in number as possible. If there is only one Class A Director, such
Class A Director shall be in the class of directors whose initial term ends on
the date of the 1999 Annual Meeting of Stockholders. Each director will hold
office until such person's successor is duly elected and qualified.
The Amended Certificate of Incorporation and Amended By-Laws provide that,
subject to any rights of holders of preferred stock, and unless the Board of
Directors otherwise determines, newly created directorships resulting from any
increase in the number of
70
<PAGE>
directors shall be filled by the vote of the majority of the directors then in
office, provided that following such appointment, 20% (rounded down to the
nearest whole number) of the number of the directors on the Board of Directors
as so increased, excluding the number of directors whom the holders of any
series of preferred stock have the right to elect, consists of directors elected
by (or appointed on behalf of) the holders of Class A Common Stock. Any director
so elected or appointed shall hold office for the remainder of the full term of
the class of director in which the new directorship was created and until his or
her successor is elected and qualified.
Any vacancies on the Board of Directors created by the death, resignation,
disqualification or removal of a director may be filled by the vote of the
majority of the directors then in office elected by, or appointed on behalf of,
the same class of stock that elected that director whose death, resignation or
removal created the vacancy, unless there are no such directors, in which case
such vacancy may be filled by the vote of the majority of all directors then in
office, even if less than a quorum, or by the sole remaining director. Any
vacancy on the Board of Directors created by the death, resignation,
disqualification or removal of a director elected by (or appointed on behalf of)
the holders of a class of stock may also be filled by a vote of the holders of
such class of stock, unless there are no outstanding shares of such class of
stock, in which case any such vacancy may be filled by a vote of the holders of
the remaining class of stock. Any director elected to fill any such vacancy will
hold office for the remainder of the full term of the director whose vacancy is
being filled and until his or her successor is elected and qualified. No
decrease in the number of directors shall shorten the term of any incumbent
director.
Subject to the rights of any outstanding series of preferred stock, any
director may be removed from office, with cause, by the affirmative vote of the
holders of at least a majority of the outstanding Class A and Class B Common
Stock, voting as a single class. Prior to a Tax-Free Distribution, any director
elected by the holders of the Class B Common Stock may be removed, with or
without cause, by the affirmative vote of the holders of at least a majority of
the outstanding Class B Common Stock.
The provisions of the corporate documents described above would preclude a
third-party from removing incumbent directors and simultaneously gaining control
of the Board of Directors by filling the vacancies created by removal with its
own nominees. Under the classified board provision described above, it would
take at least two elections of directors for any individual or group to gain
control of the Board of Directors. Accordingly, these provisions could
discourage a third party from initiating a proxy contest, making a tender offer
or otherwise attempting to gain control of MIPS Technologies.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
As of the time at which Silicon Graphics and its affiliates cease to
beneficially own an aggregate of at least a majority of the then outstanding
shares of Class A and Class B Common Stock (the "Trigger Date"), any action
required or permitted to be taken by the stockholders may be effected only at a
duly called annual or special meeting of stockholders and may not be effected by
a written consent in lieu of such a meeting. Effective as of the Trigger Date,
except as otherwise required by law and subject to the rights of the holders of
any preferred stock, special meetings of stockholders for any purpose may be
called only by certain specified officers of MIPS Technologies or by any officer
at the request in writing of a majority of the Board of Directors and the power
of stockholders to call a special meeting is specifically denied. Prior to the
Trigger Date, MIPS Technologies will call a special meeting of stockholders
promptly upon the request of Silicon Graphics.
These provisions may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting unless
71
<PAGE>
a special meeting is called by the Board of Directors or certain specified
officers.
ADVANCE NOTICE PROCEDURES
An advance notice procedure for the nomination, other than by or at the
direction of the Board of Directors, of candidates for election as directors, as
well as for other stockholder proposals, to be considered at annual meetings of
stockholders, must be followed to take such actions. In general, notice of
intent to nominate a director or raise matters at such meetings will have to be
received in writing by MIPS Technologies not less than 60 nor more than 90 days
prior to the anniversary of the previous year's annual meeting of stockholders,
and must contain certain information concerning the person to be nominated or
the matters to be brought before the meeting and concerning the stockholder
submitting the proposal. If the chairman of a meeting determines that an
individual was not nominated, or other business was not brought before the
meeting, in accordance with the advance notice procedures, such individual will
not be eligible for election as a director, or such business will not be
conducted at such meeting, as the case may be.
The advance notice procedures do not apply to Silicon Graphics and its
affiliates prior to the Trigger Date.
CHARTER AMENDMENTS
The Amended Certificate of Incorporation provides that the affirmative vote
of the holders of at least 80% of the outstanding Class A and Class B Common
Stock is required to amend, repeal or adopt any provision inconsistent with the
foregoing charter provisions. The Amended Certificate of Incorporation further
provides that certain provisions of the By-laws may be altered, amended or
repealed by the affirmative vote of directors constituting not less than a
majority of the entire Board of Directors (if effected by action of the Board of
Directors) or by the affirmative vote of the holders of at least 80% of the
voting power of all classes of outstanding capital stock, voting together as a
single class (if effected by action of the stockholders).
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for a
three-year period following the date that such stockholder becomes an interested
stockholder unless (1) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (2) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares), or (3) on or subsequent to such date, the
business combination is approved by the board of directors of the corporation
and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock of the
corporation which is not owned by the interested stockholder. Except as
otherwise specified in Section 203, an interested stockholder is defined to
include (a) any person that is the owner of 15% or more of the outstanding
voting securities of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within three years immediately prior to the date of
determination and (b) the affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. MIPS Technologies has
not elected to be exempt from the restrictions
72
<PAGE>
imposed under Section 203. However, Silicon Graphics and its affiliates are
excluded from the definition of "interested stockholder" pursuant to the terms
of Section 203. The provisions of Section 203 may encourage persons interested
in acquiring MIPS Technologies to negotiate in advance with the Board of
Directors, since the stockholder approval requirement would be avoided if a
majority of the directors then in office approves either the business
combination or the transaction which results in any such person becoming an
interested stockholder. Such provisions also may have the effect of preventing
changes in the management of MIPS Technologies. It is possible that such
provisions could make it more difficult to accomplish transactions which MIPS
Technologies' stockholders may otherwise deem to be in their best interests.
LIMITATION OF LIABILITY
The Amended Certificate of Incorporation provides that a director of MIPS
Technologies will not be personally liable to MIPS Technologies or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except, if required by the DGCL as amended from time to time, for liability (1)
for breach of the director's duty of loyalty to MIPS Technologies or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) under Section 174 of
the DGCL, which concerns unlawful payments of dividends, stock purchases or
redemptions, or (4) for any transaction from which the director derived an
improper personal benefit. Neither the amendment or repeal of such provision
will eliminate or reduce the effect of such provision in respect of any matter
occurring, or any cause of action, suit or claim that, but for such provision,
would accrue or arise prior to such amendment or repeal. While the Amended
Certificate of Incorporation provides directors with protection from monetary
damages for breaches from their duty of care, it does not eliminate such duty.
Accordingly, the Amended Certificate of Incorporation will have no effect on the
availability of equitable remedies such as an injunction or rescission based on
a director's breach of his or her duty of care.
LISTING
MIPS Technologies will apply to redesignate its existing common stock as
Class A Common Stock on the Nasdaq National Market under the symbol "MIPS".
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Class A Common Stock is Boston
EquiServe Limited Partnership located at 150 Royall Street, Canton,
Massachusetts. Its phone number is (781) 575-2000.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of this offering, MIPS Technologies will have 37,292,286
shares of common stock issued and outstanding consisting of 11,542,286 shares of
Class A Common Stock and 25,750,000 shares of Class B Common Stock. All of the
shares of Class A Common Stock sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless purchased by an "affiliate" of MIPS
Technologies (as that term is defined in Rule 144 under the Securities Act
("Rule 144")), in which case such shares will be subject to the resale
limitations of Rule 144. The shares of Class B Common Stock outstanding
following this offering, all of which will be beneficially owned by Silicon
Graphics, have not been registered under the Securities Act and may not be sold
in the absence of an effective registration statement under the Securities Act
other than in accordance with Rule 144 or another exemption from registration.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
common stock for
73
<PAGE>
at least one year, including a person who may be deemed an "affiliate", is
entitled to sell in any three-month period, a number of shares that does not
exceed the greater of 1% of the class of stock being sold or the average weekly
trading volume of the class of stock being sold during the four calendar weeks
immediately preceding such sale. A person who is not deemed an "affiliate" of
MIPS Technologies at any time during the three months preceding a sale and who
has beneficially owned shares for at least two years is entitled to sell such
shares under Rule 144 without regard to the volume limitations described above.
As defined in Rule 144, an "affiliate" of an issuer is a person that directly or
indirectly through the use of one or more intermediaries controls, is controlled
by, or is under common control with, such issuer. Rule 144A under the Securities
Act ("Rule 144A") provides a non-exclusive safe harbor exemption from the
registration requirements of the Securities Act for specified resales of
restricted securities to certain institutional investors. In general, Rule 144A
allows unregistered resales of restricted securities to a "qualified
institutional buyer", which generally includes an entity, acting for its own
account or for the account of other qualified institutional buyers, that in the
aggregate owns or invests at least $100 million in securities of unaffiliated
issuers. Rule 144A does not extend an exemption to the offer or sale of
securities that, when issued, were of the same class as securities listed on a
national securities exchange or quoted on an automated quotation system. The
shares of Class B Common Stock outstanding as of the date of this prospectus
would be eligible for resale under Rule 144A because such shares, when issued,
were not of the same class as any listed or quoted securities. The foregoing
summary of Rule 144 and Rule 144A is not intended to be a complete description
thereof.
Silicon Graphics is not obligated to retain or dispose of the shares of
Class B Common Stock that it owns, except that it has agreed not to sell or
otherwise dispose of any shares of Class A or Class B Common Stock for a period
of 180 days after completion of this offering without the consent of Goldman,
Sachs & Co. This agreement does not apply to a distribution by Silicon Graphics,
in certain limited circumstances, of all of the shares of Class B Common Stock
that it owns in a Tax-Free Distribution.
Silicon Graphics has recently announced its intention to dispose of its
interest in MIPS Technologies by September 30, 2000. Subject to the above
restriction and applicable federal securities laws, Silicon Graphics may dispose
of all or a portion of the shares of Class B Common Stock that it owns in one or
more transactions, including a public or private offering, a distribution of the
shares to its stockholders, an offer to exchange the shares for outstanding
shares of its common stock, or otherwise. Although it has not formulated
definitive plans to do so, Silicon Graphics expects that its divestiture will
likely include a distribution of a significant number of shares of Class B
Common Stock to its stockholders in a Tax-Free Distribution. Silicon Graphics
has registration rights with respect to its shares of Class B Common Stock which
would facilitate any future disposition. See "Arrangements Between MIPS
Technologies and Silicon Graphics".
There can be no assurance as to the period of time that Silicon Graphics
will retain its shares of Class B Common Stock following this offering.
Moreover, the United States Treasury Department has recently proposed tax
legislation which, if enacted, could result in a distribution by Silicon
Graphics of all of its Class B Common Stock shortly after the completion of this
offering. See "The Recapitalization -- Proposed Tax Legislation". No prediction
can be made as to the effect, if any, that market sales of outstanding shares of
common stock owned by Silicon Graphics, or the availability of such shares for
sale, will have on the market price of the Class A Common Stock prevailing from
time to time. Nevertheless, the disposition by Silicon Graphics of substantial
amounts of Class A or Class B Common Stock in the public market, including
through a Tax-Free Distribution, or the perception that any sale or other
disposition could occur, could adversely affect
74
<PAGE>
the prevailing market price of the Class A Common Stock. See "Risk Factors --
Possible Future Dispositions of Common Stock by Silicon Graphics". In addition,
as of December 31, 1998, there were outstanding options to purchase 4,117,000
shares of Class A Common Stock which will be eligible for sale in the public
market from time to time subject to vesting. Directors and certain officers of
MIPS Technologies have agreed with the Underwriters not to dispose of or hedge
any of their Class A Common Stock or securities convertible into or exchangeable
for shares of Class A Common Stock during the period from the date of this
prospectus continuing through the date that is two trading days after the date
of MIPS Technologies' public announcement of its 1999 fourth quarter operating
results (the date of such announcement is currently expected to be July 20,
1999). As of February 26, 1999, such directors and officers owned 11,054 shares
of MIPS Technologies common stock that may be sold, and held options to purchase
approximately 465,000 shares of common stock that will be exercisable, on July
23, 1999 or within 30 days thereafter. These stock options generally have
exercise prices below the current market price of the Class A Common Stock. The
possible sale of a significant number of such shares by the holders thereof may
have an adverse effect on the price of the Class A Common Stock.
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock applicable to Non-U.S. Holders. In general, a "Non-U.S. Holder" is any
holder of Class A Common Stock other than (1) a citizen or resident of the
United States, (2) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state (other than
any partnership treated as foreign under U.S. Treasury regulations), (3) an
estate, the income of which is includable in gross income for United States
federal income tax purposes regardless of its source or (4) a trust if (a) a
court within the United States is able to exercise primary supervision over the
administration of the trust and (b) one or more United States persons have the
authority to control all substantial decisions of the trust. This discussion is
based on current law and is for general information only. This discussion does
not address aspects of United States federal taxation other than income and
estate taxation and does not address all aspects of income and estate taxation,
nor does it consider any specific facts or circumstances that may apply to a
particular Non-U.S. Holder (including certain U.S. expatriates). ACCORDINGLY,
OFFEREES OF CLASS A COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISERS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME
AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF CLASS A COMMON
STOCK.
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a non-resident alien) by virtue of being present in the
United States for at least 31 days in the calendar year and for an aggregate of
at least 183 days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). In addition to the
"substantial presence test" described in the immediately preceding sentence, an
alien may be treated as a resident alien if he or she (1) meets a lawful
permanent residence test (a so-called "green card" test) or (2) elects to be
treated as a U.S. resident and meets the "substantial presence test" in the
immediately following year. Resident aliens are subject to U.S. federal tax as
if they were U.S. citizens.
75
<PAGE>
DIVIDENDS
In general, dividends, if any, paid to a Non-U.S. Holder will be subject to
United States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are either (1) effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States, or (2) attributable to a permanent establishment in the United States
maintained by the Non-U.S. Holder if certain income tax treaties apply.
Dividends effectively connected with such a United States trade or business or
attributable to such a United States permanent establishment generally will not
be subject to United States withholding tax if the Non-U.S. Holder files the
appropriate U.S. Internal Revenue Service form with the payor of the dividend
(which form, under U.S. Treasury regulations generally effective for payments
made after December 31, 1999 ("Final Regulations"), will require such Non-U.S.
Holder to provide a U.S. taxpayer identification number) and generally will be
subject to United States federal income tax on a net income basis, in the same
manner as if the Non-U.S. Holder were a resident of the United States. A
non-U.S. Holder that is a corporation may be subject to an additional branch
profits tax at a rate of 30% (or such lower rate as may be specified by an
applicable treaty) on the deemed or actual repatriation from the United States
of its "effectively connected earnings and profits" subject to certain
adjustments. Under currently effective United States Treasury regulations (the
"Current Regulations"), if MIPS Technologies has no definitive knowledge
regarding the tax status of a stockholder, MIPS Technologies must withhold tax
at the rate of 30% on all dividend payments if such stockholder's address is
outside the United States. To determine the applicability of a tax treaty
providing for a lower rate of withholding, dividends paid to an address in a
foreign country generally are presumed, under current Internal Revenue Service
guidelines, to be paid to a resident of that country absent knowledge to the
contrary. Under the Final Regulations, however, a Non-U.S. Holder of Class A
Common Stock who wishes to claim the benefit of an applicable treaty rate
generally will be required to satisfy applicable certification and other
requirements. In addition, under the Final Regulations, in the case of Class A
Common Stock held by a foreign partnership, (1) the certification requirement
will generally be applied to the partners of the partnership and (2) the
partnership will be required to provide certain information, including a United
States taxpayer Identification number. The Final Regulations also provide
look-through rules for tiered partnerships. A Non-U.S. Holder that is eligible
for a reduced rate of U.S. withholding tax pursuant to a tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for refund
with the IRS.
SALE OF CLASS A COMMON STOCK
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of such holder's shares of
Class A Common Stock unless: (1) the gain is effectively connected with a trade
or business carried on by the Non-U.S. Holder within the United States, or
alternatively, if certain tax treaties apply, is attributable to a permanent
establishment in the United States maintained by the Non-U.S. Holder (and in
either case, the branch profits tax discussed above may also apply if the
Non-U.S. Holder is a corporation); (2) the Non-U.S. Holder is an individual who
holds shares of Class A Common Stock as a capital asset and is present in the
United States for 183 days or more in the taxable year of disposition, and
either (a) such individual has "tax home" (as defined for United States federal
income tax purposes) in the United States (unless the gain from the disposition
is attributable to an office or other fixed place of business maintained by such
Non-U.S. Holder in a foreign country and such gain has been subject to a foreign
income tax equal to at least 10% of the gain derived from such disposition), or
(b) the gain is attributable to an office or other fixed place of business
maintained by such individual in the United States; or (3) MIPS Technologies is
or has been a United States real property holding corporation (a "USRPHC") for
United States federal income tax purposes (which MIPS
76
<PAGE>
Technologies does not believe that it is or is likely to become) at any time
within the shorter of the five-year period preceding such disposition or such
Non-U.S. Holder's holding period. If MIPS Technologies were or were to become a
USRPHC at any time during this period, gains realized upon a disposition of
Class A Common Stock by a Non-U.S. Holder which did not directly or indirectly
own more than 5% of the Class A Common Stock during this period generally would
not be subject to United States federal income tax, provided that the Class A
Common Stock had been regularly traded on an established securities market.
ESTATE TAX
Class A Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for United States federal estate tax purposes)
of the United States at the time of death will be includable in the individual's
gross estate for United States federal estate tax purposes (unless an applicable
estate tax treaty provides otherwise), and therefore may be subject to United
States federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
MIPS Technologies must report annually to the IRS and to each Non-U.S.
Holder the amount of dividends paid to, and the tax withheld with respect to,
each Non-U.S. Holder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. Copies of
this information also may be made available under the provisions of a specific
treaty or agreement with the tax authorities in the country in which the
Non-U.S. Holder resides or is established.
Under the Current Regulations, United States backup withholding tax (which
generally is imposed at the rate of 31% on certain payments to persons that fail
to furnish the information required under the United States information
reporting requirements) and information reporting requirements (other than those
discussed above) generally will not apply to dividends paid on Class A Common
Stock to a Non-U.S. Holder at an address outside the United States. Backup
withholding and information reporting generally will apply to dividends paid on
shares of Class A Common Stock to a Non-U.S. Holder at an address in the United
States, if such holder fails to establish an exemption or to provide certain
other information to the payor. Under the Final Regulations, however, a Non-U.S.
Holder of Class A Common Stock that fails to certify its Non-U.S. Holder status
in accordance with the requirements of the Final Regulations may be subject to
United States backup withholding on payments of dividends.
The payment of proceeds from the disposition of Class A Common Stock to or
through a United States office of a broker will be subject to information
reporting and backup withholding unless the owner, under penalties of perjury,
certifies, among other things, such owner's status as a Non-U.S. Holder or
otherwise establishes an exemption. The payment of proceeds from the disposition
of Class A Common Stock to or through a non-U.S. office of a non-U.S. broker
generally will not be subject to backup withholding and information reporting,
except as noted below. In the case of proceeds from a disposition of Class A
Common Stock paid to or through a non-U.S. office of a broker that is (1) a
United States person, (2) a "controlled foreign corporation" for United States
federal income tax purposes or (3) a foreign person 50% or more of whose gross
income from certain periods is effectively connect with a United States trade or
business, information reporting (but not backup withholding) will apply unless
the broker has documentary evidence in its files that the owner is a Non-U.S.
Holder (and the broker has no actual knowledge of the country).
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded or
credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
77
<PAGE>
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for MIPS Technologies by Shearman & Sterling, Menlo Park, California, and for
the Underwriters by Venture Law Group, A Professional Corporation, Menlo Park,
California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements as of June 30, 1997 and 1998 and for each of the three years in the
period ended June 30, 1998, as set forth in their report. We have included our
financial statements in this prospectus in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
MIPS Technologies has filed with the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Class A Common Stock offered in
this offering. This prospectus, filed as part of that Registration Statement,
does not contain all the information in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to MIPS
Technologies and the Class A Common Stock, you should refer to the Registration
Statement and the exhibits and schedules filed as a part thereof. Statements in
this prospectus regarding the contents of any contract or any other document are
not necessarily complete and you should refer to the copy of such contract or
document filed as an exhibit to the Registration Statement for additional
information.
The Registration Statement, including exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material may be
obtained from the Public Reference Section of the Commission located at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Registration
Statement is also publicly available through the Commission's web site at
http://www.sec.gov.
As a result of our initial public offering, we became subject to the
informational requirements of the Exchange Act and have filed periodic reports
and other information with the Securities and Exchange Commission. We will
furnish to our stockholders annual reports containing consolidated financial
statements audited by an independent public accounting firm and quarterly
reports for the first three quarters of each fiscal year containing unaudited
consolidated financial information.
78
<PAGE>
MIPS TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Auditors...................................................... F-2
Balance Sheets...................................................................... F-3
Statements of Operations............................................................ F-4
Statement of Stockholders' Equity (Deficit)......................................... F-5
Statements of Cash Flows............................................................ F-6
Notes to Financial Statements....................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
MIPS Technologies, Inc.
We have audited the accompanying balance sheets of MIPS Technologies, Inc.
(the "Company") as of June 30, 1997 and 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MIPS Technologies, Inc. at
June 30, 1997 and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1998 in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
July 20, 1998
F-2
<PAGE>
MIPS TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- --------------
1997 1998 1998
--------- --------- --------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................... $ -- $ 45 $ 26,052
Accounts receivable................................ 381 250 2,602
Prepaid expenses and other current assets.......... 2,775 618 453
--------- --------- --------------
Total current assets............................. 3,156 913 29,107
Equipment and furniture, net......................... 15,190 2,787 3,155
Other assets......................................... 1,328 996 1,027
--------- --------- --------------
$ 19,674 $ 4,696 $ 33,289
--------- --------- --------------
--------- --------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................... $ 5,834 $ 3,087 $ 3,661
Accrued liabilities................................ 5,437 2,356 6,381
Current portion of capital lease obligations....... 331 -- --
--------- --------- --------------
Total current liabilities........................ 11,602 5,443 10,042
Deferred revenue, less current portion............... -- -- 375
Stockholders' equity (deficit):
Common stock, $0.001 par value: 150,000,000 shares
authorized. Issued and outstanding: 36,000,000
shares at June 30, 1997 and June 30, 1998 and
37,292,286 shares at December 31, 1998........... 36 36 37
Additional paid-in capital........................... 129,236 120,041 136,235
Accumulated deficit.................................. (121,200) (120,824) (113,400)
--------- --------- --------------
Total stockholders' equity (deficit)............. 8,072 (747) 22,872
--------- --------- --------------
$ 19,674 $ 4,696 $ 33,289
--------- --------- --------------
--------- --------- --------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
MIPS TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Royalties................................ $ 19,716 $ 37,192 $ 55,980 $ 26,759 $ 24,854
Contract revenue......................... 17,327 3,115 830 827 2,400
--------- --------- --------- --------- ---------
Total revenue........................ 37,043 40,307 56,810 27,586 27,254
Costs and expenses (see Note 11 regarding
related party transactions with Silicon
Graphics):
Cost of contract revenue................. 5,580 1,345 375 375 125
Research and development................. 48,402 68,827 43,446 35,127 9,223
Sales and marketing...................... 6,026 6,170 5,307 2,910 3,019
General and administrative............... 4,601 4,750 4,685 2,295 2,956
Restructuring charge..................... -- -- 2,614 2,614 --
--------- --------- --------- --------- ---------
Total costs and expenses............. 64,609 81,092 56,427 43,321 15,323
--------- --------- --------- --------- ---------
Operating income (loss).................. (27,566) (40,785) 383 (15,735) 11,931
Interest income (expense)................ (99) (50) (7) (11) 438
--------- --------- --------- --------- ---------
Income (loss) before income taxes........ (27,665) (40,835) 376 (15,746) 12,369
Provision for income taxes............... -- -- -- -- 4,948
--------- --------- --------- --------- ---------
Net income (loss)........................ $ (27,665) $ (40,835) $ 376 $ (15,746) $ 7,421
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per basic share........ $ (0.77) $ (1.13) $ 0.01 $ (0.44) $ 0.20
Net income (loss) per diluted share...... (0.77) (1.13) 0.01 (0.44) 0.19
Common shares outstanding-basic.......... 36,000 36,000 36,000 36,000 37,225
Common shares outstanding-diluted........ 36,000 36,000 36,033 36,000 38,239
</TABLE>
F-4
<PAGE>
MIPS TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL ACCUMULATED STOCKHOLDERS'
STOCK PAID-IN-CAPITAL DEFICIT EQUITY (DEFICIT)
------------- -------------- ------------- ------------------
<S> <C> <C> <C> <C>
Balances at June 30, 1995.... $ 36 $ 48,928 $ (52,700) $ (3,736)
Net loss................... -- -- (27,665) (27,665)
Net financing provided from
Silicon Graphics......... -- 35,254 -- 35,254
--- -------------- ------------- --------
Balances at June 30, 1996.... 36 84,182 (80,365) 3,853
Net loss................... -- -- (40,835) (40,835)
Net financing provided from
Silicon Graphics......... -- 45,054 -- 45,054
--- -------------- ------------- --------
Balances at June 30, 1997.... 36 129,236 (121,200) 8,072
Net income................. -- -- 376 376
Net financing returned to
Silicon Graphics......... -- (1,965) -- (1,965)
Net equipment transferred
to Silicon Graphics...... -- (7,230) -- (7,230)
--- -------------- ------------- --------
Balances at June 30, 1998.... 36 120,041 (120,824) (747)
Net income (unaudited)..... -- -- 7,421 7,421
Common stock issued under
employee stock option and
purchase plans
(unaudited).............. -- 323 -- 323
Currency translation
adjustment (unaudited)... -- -- 3 3
Shares issued in initial
public offering, net of
issuance costs of $1,628
(unaudited).............. 1 15,871 -- 15,872
--- -------------- ------------- --------
Balances at December 31, 1998
(unaudited)................ $ 37 $ 136,235 $ (113,400) $ 22,872
--- -------------- ------------- --------
--- -------------- ------------- --------
</TABLE>
See accompanying notes.
F-5
<PAGE>
MIPS TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)....................... $ (27,665) $ (40,835) $ 376 $ (15,746) $ 7,421
Adjustments to reconcile net income to
cash provided by (used in) operations:
Depreciation.......................... 8,201 7,343 5,044 3,063 997
Restructuring charge.................. -- -- 2,114 2,614 --
Other non-cash charges................ 28 99 362 116 133
Changes in operating assets and
liabilities:
Accounts receivable................. (218) 146 131 -- (2,352)
Accounts payable.................... 753 1,899 (2,747) (91) 4,401
Other assets and liabilities........ (8,267) (3,385) (832) (381) 574
--------- --------- --------- --------- ---------
Net cash flow provided by (used
in) operating activities,
excluding Silicon Graphics
financing....................... (27,168) (34,733) 4,448 (10,425) 11,174
Investing activities -- capital
expenditures............................ (7,257) (9,913) (2,107) (452) (1,365)
Financing activities:
Net proceeds from issuance of common
stock................................. -- -- -- -- 16,195
Payments on capital lease obligations... (829) (408) (331) (218) --
Net financing provided from (returned
to) Silicon Graphics.................. 35,254 45,054 (1,965) 11,095 --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities............ 34,425 44,646 (2,296) 10,877 16,195
Effect of exchange rate changes on cash... -- -- -- -- 3
--------- --------- --------- --------- ---------
Net increase in cash...................... -- -- 45 -- 26,007
Cash and cash equivalents, beginning of
period.................................. -- -- -- -- 45
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of
period.................................. $ -- $ -- $ 45 $ -- $ 26,052
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosures of cash flow
information:
Net equipment transferred to Silicon
Graphics............................ $ -- $ -- $ 7,230 $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Interest paid......................... $ 99 $ 50 $ 13 $ -- $ 10
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-6
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
NOTE 1. FORMATION AND DESCRIPTION OF BUSINESS
FORMATION OF MIPS TECHNOLOGIES, INC. (THE "COMPANY"). MIPS Technologies'
predecessor, MIPS Computer Systems, Inc., was founded in 1984 and was engaged in
the design and development of RISC processors for the computer systems and
embedded markets. Silicon Graphics adopted the MIPS architecture for its
computer systems in 1988 and acquired MIPS Computer Systems, Inc. in 1992.
Following the acquisition, Silicon Graphics continued the MIPS processor
business through its MIPS Group (a division of Silicon Graphics), which focused
primarily on the development of high-performance processors for Silicon
Graphics' workstations and servers. Until the last few years, cost
considerations limited the use of MIPS RISC processors in high-volume digital
consumer products. However, as the cost to manufacture processors based on the
MIPS technology decreased, the MIPS Group sought to penetrate the consumer
market, both through supporting and coordinating the efforts of the MIPS
semiconductor licensees and, most notably, by partnering with Nintendo in its
design of the Nintendo 64 video game player and related cartridges. Revenues
related to sales of Nintendo 64 video game players and related cartridges
currently account for the substantial majority of the Company's revenue. In
order to increase the focus of the MIPS Group on the design and development of
processor applications dedicated to the embedded market, in December 1997,
Silicon Graphics initiated a plan to separate the business of the MIPS Group
from its other operations.
In April 1998, the Board of Directors of the Company approved a transaction
pursuant to which Silicon Graphics transferred to the Company the assets and
liabilities related to the design and development of processor intellectual
property for embedded market applications (the "Separation"). In connection with
the Separation, the Company and Silicon Graphics entered into a Corporate
Agreement that provides for certain pre-emptive rights of Silicon Graphics to
purchase shares of the Company's capital stock, registration rights related to
shares of the Company's capital stock owned by Silicon Graphics and covenants
against certain actions by the Company for as long as Silicon Graphics owns a
majority of the Company's outstanding common stock. Furthermore, the Company and
Silicon Graphics entered into a Management Services Agreement pursuant to which
Silicon Graphics currently provides certain services to the Company on an
interim or transitional basis.
Since the closing of the Company's initial public offering (the "Offering")
on July 6, 1998, the Company has been a majority owned subsidiary of Silicon
Graphics.
MIPS Technologies International A.G., a wholly owned subsidiary of the
Company, was incorporated in Switzerland on November 20, 1998. MIPS Denmark
Development Center located in Copenhagen, Denmark, a branch of the Swiss
subsidiary, was opened on December 1, 1998. The development center will work on
product development as well as provide support and design expertise for the
Company's European-based customers.
BASIS OF PRESENTATION. The accompanying financial statements for periods
prior to June 30, 1998 reflect the operations of the Company's predecessor, the
MIPS Group. The balance sheets as of June 30, 1997 and 1998 have been prepared
using the historical basis of accounting and include all of the assets and
liabilities specifically identifiable to the Company and, for certain
liabilities that are not specifically identifiable, estimates have been used to
allocate a portion of Silicon Graphics' liabilities to the Company. Until June
30, 1998, cash management for the Company was done by
F-7
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
Silicon Graphics on a centralized basis and all cash provided by Silicon
Graphics was recorded as interest-free financing from Silicon Graphics in these
financial statements.
The statements of operations include all revenue and costs attributable to
the Company, including a corporate allocation of the costs of facilities and
employee benefits. Additionally, incremental corporate administration, finance
and management costs are allocated to the Company based on certain methodologies
that management believes are reasonable under the circumstances (see Note 11).
Subsequent to June 30, 1998, the Company operated as a stand-alone company,
MIPS Technologies, Inc. The consolidated financial statements include the
accounts of the Company and its wholly owned Swiss subsidiary, MIPS Technologies
International A.G., after elimination of intercompany transactions and balances.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION. The financial information as of December 31,
1998, and for the six months ended December 31, 1997 and 1998 are unaudited but
include all adjustments (consisting only of normal recurring adjustments) which
the Company considers necessary for a fair presentation of the financial
position at such date and the operating results and cash flows for those
periods. Results for the six months ended December 31, 1998 are not necessarily
indicative of the results to be expected for the entire year.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results inevitably will differ from those
estimates, and such differences may be material to the financial statements.
REVENUE RECOGNITION. The Company derives revenue from fees for the transfer
of proven and reusable intellectual property components or the performance of
engineering services to customer specifications. The Company enters into
licensing agreements that provide licensees the right to incorporate the
Company's intellectual property components in their products with terms and
conditions that have historically varied by licensee. Generally these agreements
include one or more of the following elements: (1) royalty payments, which are
payable upon the sale of a licensee's products, (2) nonrefundable technology
license fees, which are payable upon the transfer of intellectual property and
(3) engineering service fees, which generally are payable upon the Company's
achievement of defined milestones. No upgrades or modifications to a licensed
product are provided.
The Company classifies all revenue that involves the future sale of a
licensee's products as royalty revenue. Royalty revenue generally is recognized
in the quarter in which a report is received from a licensee detailing the
shipments of products incorporating the Company's intellectual property
components (i.e., in the quarter following the sale of licensed product by the
licensee). The Company classifies all revenue that does not involve the future
sale of a licensee's products, primarily license fees and engineering service
fees, as contract revenue. License fees are recognized upon the execution of the
license agreement and transfer of intellectual property,
F-8
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
provided no further significant performance obligations exist. Engineering
services, which are performed on a best efforts basis, are recognized as revenue
when the defined milestones are completed and the milestone payment is probable
of collection. Milestones have historically been formulated to correlate with
the estimated level of effort and related costs.
COSTS OF CONTRACT REVENUE. Cost of contract revenue consists mainly of
sublicence fees which are recognized as the obligation is incurred. Prior to
fiscal 1998, such costs also included non recurring engineering service costs
directly related to a development agreement with a specific licensee which were
expensed as incurred over the period of services.
RESEARCH AND DEVELOPMENT EXPENSES. Costs incurred with respect to
internally developed technology and engineering services are included in the
research and development expense as they are not directly related to any
particular licensee, license agreement or license fees. Such costs are expensed
as incurred.
Certain license agreements provide for limited product support that consists
of an identified customer contact at the Company and telephonic or e-mail
product support. Such support arrangements have been insignificant to date.
EQUIPMENT AND FURNITURE. Equipment and furniture is stated at cost and
depreciation is computed using the straight-line method. Useful lives of three
to seven years are used for equipment and furniture and fixtures.
PREPAID EXPENSES AND OTHER CURRENT ASSETS. Prepaid expenses and other
current assets consist principally of amounts paid by the Company in advance for
maintenance contracts on its computer-aided software design tools. These
contracts typically cover a one-year period, over which the cost is amortized.
STOCK-BASED COMPENSATION. Certain employees of the Company were granted
options to purchase Silicon Graphics common stock and were awarded restricted
shares of Silicon Graphics common stock while employed by Silicon Graphics. In
addition, certain employees of the Company purchased Silicon Graphics common
stock through the Silicon Graphics stock purchase plan. In connection with their
acceptance of employment with the Company, all unvested options to purchase
Silicon Graphics common stock and unvested restricted shares of Silicon Graphics
common stock held by employees of the Company that were previously employed by
Silicon Graphics were forfeited. In addition, such individuals had 30 or 90 days
(depending on the terms of the option grant) to exercise any vested options to
purchase Silicon Graphics common stock, and any vested options that remained
unexercised after that date were forfeited.
The Company has adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-based Compensation
("SFAS 123"). As allowed by SFAS 123, the Company accounts for stock-based
employee compensation arrangements under the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. As a result, no expense was recognized for options to purchase common
stock of Silicon Graphics (prior to the Separation) or the Company (following
its initial public offering) that were granted with an exercise price equal to
fair market value at the date of grant, and no expense was recognized in
connection with purchases under the Silicon Graphics' employee stock purchase
plan prior to the Separation. For Silicon Graphics stock options that were
F-9
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
granted and for restricted Silicon Graphics and Company common stock issued at
discounted prices, the Company recognizes compensation expense over the vesting
period for the difference between the exercise or purchase price and the fair
market value on the measurement date.
EARNINGS PER SHARE. The Company follows the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 requires the presentation of basic and fully diluted earnings per share.
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares that were
outstanding during the period. Diluted earnings per share is computed giving
effect to all dilutive potential common shares that were outstanding for any
periods presented in these financial statements. The Company effected a
360,000-for-one split of its Common Stock on June 5, 1998 and the share and
earnings per share data in the financial statements give effect to that split.
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss)........................ $ (27,665) $ (40,835) $ 376 $ (15,746) $ 7,421
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted-average shares outstanding --
basic.................................. 36,000 36,000 36,000 36,000 37,225
Effect of dilutive securities employee
stock options.......................... -- -- 33 -- 1,014
--------- --------- --------- --------- ---------
Weighted-average shares outstanding --
diluted................................ 36,000 36,000 36,033 36,000 38,239
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share -- basic..... $ (0.77) $ (1.13) $ 0.01 $ (0.44) $ 0.20
Net income (loss) per share -- diluted... (0.77) (1.13) 0.01 (0.44) 0.19
</TABLE>
COMPREHENSIVE INCOME. During fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). There was no impact to the Company as a result of the adoption of SFAS
130, and there is no material difference between the Company's reported net
income (loss) and the comprehensive net income (loss) under SFAS 130 for the
periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). The Company is required
to adopt SFAS 131 in fiscal 1999. SFAS 131 requires disclosure of certain
information regarding operating segments, products and services, geographic
areas of operation and major customers. The adoption of SFAS 131 is expected to
have no impact on the Company's financial position, results of operations or
cash flows.
F-10
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
In March 1998, FASB issued Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits"
("SFAS 132"). SFAS 132 does not change the recognition or measurement of pension
or postretirement benefit plans, but revises and standardizes disclosure
requirements for pensions and other postretirement benefits. The adoption of
SFAS 132 in fiscal 1999 will have no impact on the Company's results of
operations or financial condition.
In June 1998, FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Financial Instruments and for Hedging Activities
("SFAS 133"), which provides comprehensive and consistent standards for the
recognition and measurement of derivatives and hedging activities. The Company
is required to adopt SFAS 133 in fiscal 2000. It is not anticipated to have an
impact on the Company's results of operations or financial condition when
adopted because the Company currently does not hold any derivative financial
instruments and does not expect to engage in hedging activities in the near
future.
NOTE 3. BUSINESS RISK AND CUSTOMER CONCENTRATION
The Company operates in the intensely competitive semiconductor industry
which has been characterized by price erosion, rapid technological change, short
product life cycles, cyclical market patterns and heightened foreign and
domestic competition. Significant technological changes in the industry could
affect operating results adversely. Due to the Company's focus on processor
designs dedicated to the embedded market, including digital consumer products,
the Company can be expected to experience seasonal fluctuations in its revenue
and operating results.
The Company markets and licenses its technology to a limited number of
customers and generally does not require collateral. At June 30, 1997 and 1998,
one customer accounted for 100% of accounts receivable. During the year ended
June 30, 1996, revenue from three customers represented an aggregate of 72% of
total revenue and during the years ended June 30, 1997 and 1998, revenue from
two customers represented an aggregate of 88% and 85% of total revenue,
respectively. The Company expects that a significant portion of its future
revenue will continue to be generated by a limited number of customers. The
nonrenewal or expiration of contracts between the Company and its current
customers could adversely affect near-term future operating results.
A substantial portion of the Company's revenue is derived from outside the
United States (see Note 13). The Company anticipates that revenue from
international customers will continue to represent a substantial portion of its
total revenue. To date, substantially all of the revenue from international
customers has been denominated in U.S. dollars. However, to the extent that
sales to digital consumer product manufacturers by the Company's manufacturing
partners are denominated in foreign currencies, royalties received by the
Company on such sales could be subject to fluctuations in currency exchange
rates. In addition, if the effective price of the technology sold by the Company
to its partners were to increase as a result of fluctuations in foreign currency
exchange rates, demand for the Company's technology could fall which would, in
turn, reduce the Company's royalties. The relative significance of the Company's
international operations exposes it to a number of additional risks including
political and economic instability, longer accounts receivable collection
periods and greater difficulty in collection of accounts receivable, reduced or
limited protection for intellectual property, export license requirements,
tariffs and other trade barriers and potentially adverse tax consequences. There
can be no assurance that
F-11
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
the Company will be able to sustain revenue derived from international customers
or that the foregoing factors will not have a material adverse effect on the
Company's business, operating results and financial condition.
NOTE 4. RESTRUCTURING CHARGE
The restructuring charge recorded in fiscal 1998 includes $500,000 in
severance and related costs (17 employees, a majority of which supported
research and development activities) and $2.1 million in fixed asset write-downs
related to the Company's shift in strategic direction. All severance and related
costs were paid and 16 employees were terminated as of September 30, 1998.
NOTE 5. EMPLOYEE NOTES RECEIVABLE
The Company has loans outstanding to employees and an officer. Such loans
are payable upon maturity, which ranges from three to five years from issuance.
Employee loans are included in other assets in the accompanying balance sheet
and approximated $1.3 million and $1.0 million at June 30, 1997 and 1998,
respectively. Approximately $776,000 and $432,000 of these loans at June 30,
1997 and 1998, respectively, relate to loans which are forgiven by the Company
on a periodic basis as the employee or officer remains employed by the Company.
Loan forgiveness charged to expense was $28,000, $99,000 and $240,000 in fiscal
1996, 1997 and 1998, respectively. Upon termination of employment, the
unamortized balance of the loan becomes due. Such forgivable loans bear no
interest. The balance of the loans bear interest at rates ranging from 7.19% to
7.25% and are due on dates ranging from September 1999 to March 2002.
NOTE 6. EQUIPMENT AND FURNITURE
The components of equipment and furniture are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Equipment............................................... $ 45,918 $ 7,990
Equipment under capital lease........................... 1,198 --
Furniture and fixtures.................................. 516 421
--------- ---------
47,632 8,411
Accumulated depreciation................................ (32,442) (5,624)
--------- ---------
Equipment and furniture, net............................ $ 15,190 $ 2,787
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
NOTE 7. ACCRUED LIABILITIES
The components of accrued liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Accrued compensation and employee-related expenses......... $ 4,163 $ 194
Development and marketing funds............................ 1,053 1,555
Other accrued liabilities.................................. 221 607
--------- ---------
$ 5,437 $ 2,356
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
NOTE 7. ACCRUED LIABILITIES (CONTINUED)
Accrued compensation and employee related expenses at June 30, 1997 include
approximately $1.6 million in accrued vacation and $1.2 million in accrued
employee relocation expenses. The development and marketing funds represent
amounts received from certain of the Company's licensees to be used in joint
development and marketing programs. In connection with the separation, all
accrued vacation amounts as of May 31, 1998 were paid to employees. The amount
accrued at June 30, 1998 represents accrued vacation costs from June 1, 1998 to
June 30, 1998.
NOTE 8. CAPITAL LEASE OBLIGATIONS
The Company leased equipment under capital lease obligations that matured in
fiscal 1998.
NOTE 9. INCOME TAXES
The net losses incurred for the fiscal years ended June 30, 1996, 1997 and
1998 are attributable to the operations of the Company as a division of Silicon
Graphics and were included in the income tax returns filed by Silicon Graphics.
In light of both historical losses incurred, as well as the fact that, by
operation of the tax sharing agreement, the Company will not receive any benefit
for losses incurred or have any tax liability for any income earned up to the
closing date of the initial public offering, no income tax provision or benefit
has been reflected for the years ended June 30 1996, 1997 and 1998.
As a member of Silicon Graphics' consolidated group for federal income tax
purposes, the Company is jointly and severally liable for the federal income tax
liability of each other member of the consolidated group. The Company is also
jointly and severally liable for pension and benefit funding termination
liabilities of other group members, as well as certain benefit plan taxes.
At June 30, 1997 and 1998, the Company's deferred tax assets and the related
valuation allowance were immaterial.
Subsequent to the initial public offering, the Company, while still a part
of Silicon Graphics' consolidated group for federal income tax purposes, is
responsible for its income taxes through a tax sharing agreement with Silicon
Graphics. Therefore, to the extent the Company produces taxable income, loss or
credits, it will make or receive payments as though it filed separate federal,
state and local income tax returns. The Company recorded a provision for income
taxes of $4.9 million for the first six months of fiscal 1999. This provision
was based on an estimated federal and state combined rate of 40% on income
before taxes.
In general, the Company will be included in Silicon Graphics' consolidated
group for federal income tax purposes for so long as Silicon Graphics
beneficially owns at least 80% of the total voting power and value of the
outstanding Common Stock.
NOTE 10. STOCKHOLDERS' EQUITY
In May 1998, the Board of Directors of the Company authorized and the
Company's stockholder later approved a 360,000-for-one stock split of the
Company's common stock and an amendment to the Company's Certificate of
Incorporation increasing the number of authorized
F-14
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
shares of common stock to 150,000,000 shares. All prior year financial
statements have been restated to effect the stock split.
PREFERRED STOCK. The Company has 50,000,000 shares of preferred stock, par
value $0.001 per share, authorized for issuance. No shares of preferred stock
have been issued.
1998 LONG-TERM INCENTIVE PLAN. The 1998 Long-Term Incentive Plan (the "1998
Plan") was adopted by the Board of Directors of the Company and approved by the
Company's stockholder in May 1998. The 1998 Plan authorized the issuance of
various forms of stock-based awards including incentive and non-qualified stock
options, stock appreciation rights, stock awards and performance unit awards to
officers and other key employees and consultants. Stock options and stock
appreciation rights are generally granted at an exercise price of not less than
the fair value on the date of grant; the prices of other stock awards are
determined by the Option Administration Committee of the Board of Directors. An
aggregate of 6,600,000 shares of common stock may be issued under the 1998 Plan
and are reserved for future issuance.
The stock option activity under the 1998 Plan is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------
SHARES AVAILABLE NUMBER OF WEIGHTED AVERAGE
FOR GRANT SHARES EXERCISE PRICE PER SHARE
----------------- ----------- -------------------------
<S> <C> <C> <C>
Balance at July 1, 1997........... -- -- $ --
Shares authorized for issuance.... 6,600,000 -- --
Options granted in fiscal 1998.... (2,996,900) 2,996,900 12.00
----------------- ----------- -------
Balance at June 30, 1998.......... 3,603,100 2,996,900 $ 12.00
----------------- ----------- -------
----------------- ----------- -------
</TABLE>
At June 30, 1998, the weighted average contractual life of the options
outstanding was 10 years. There were no options exercisable at June 30, 1998.
EMPLOYEE STOCK PURCHASE PLAN. The Employee Stock Purchase Plan (the
"Purchase Plan") was adopted by the Board of Directors of the Company and
approved by the Company's stockholder in May 1998. The purpose of the Purchase
Plan is to provide employees of the Company who participate in the Purchase Plan
with an opportunity to purchase common stock of the Company through payroll
deductions. Under the Purchase Plan, eligible employees may purchase stock at
85% of the lower of the fair market value of the Company's common stock (a) on
the date of commencement of the offering period or (b) the applicable exercise
date within such offering period. A 24-month offering period commences every six
months, generally on May 1 and November 1 of each year. The offering period is
divided into four six-month exercise periods. The exercise date is the last day
of the particular six-month exercise period within the offering period. If the
fair market value of the Company's common stock on the first day of any exercise
period is less than such value on the first day of that offering period, all
employees participating in the Purchase Plan on the first day of such exercise
period will be deemed to have withdrawn from the offering period on the first
day of such exercise period and to have enrolled in the new offering period
commencing on that date. Purchases are limited to 10% of each employee's
eligible compensation. As of June 30, 1998, no shares have been issued to
employees of the Company under the Purchase Plan. Presently 600,000 shares of
the Company's common stock are reserved for future
F-15
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
issuance under the Purchase Plan, and on July 1 of each year the amount reserved
for issuance will be increased by the lesser of one-half of one percent of the
outstanding shares of the Company's common stock on a fully diluted basis or
600,000 shares, or such lesser amount determined by the Board of Directors of
the Company.
DIRECTORS' STOCK OPTION PLAN. The Board of Directors of the Company adopted
and the Company's stockholder approved the Directors' Stock Option Plan (the
"Director Plan") on July 2, 1998. The plan authorizes 600,000 shares of the
Company's common stock for issuance plus an annual increase each July 1 equal to
the lesser of (1) 100,000 shares, (2) the number of shares subject to option
granted in the prior one year period, or (3) a lesser amount determined by the
Board of Directors of the Company. Upon a non-employee director's election or
appointment to the Board, he or she will automatically receive a non-statutory
stock option to purchase 40,000 shares of the Company's common stock. Each
director who has been a non-employee director for at least six months will
automatically receive a non-statutory stock option to purchase 10,000 shares of
the Company's common stock each year on the date of the annual meeting of
stockholders. All stock options are granted an exercise price equal to the fair
market value of the Company's common stock on the date of grant. Stock options
generally vest over a 50-month period from the date of the grant. As of June 30,
1998, no shares had been issued to directors of the Company under the Director
Plan.
NON-U.S. STOCK PURCHASE PLAN. The Non-U.S. Stock Purchase Plan (the
"Non-U.S. Purchase Plan") was adopted by the Board in July 1998. The purpose of
the Non-U.S. Purchase Plan is to provide employees and consultants of the
Company who do not provide services in the United States and who participate in
the Non-U.S. Purchase Plan with an opportunity to purchase the Company's common
stock at the same discount and subject to the same general rules as the Purchase
Plan. The Non-U.S. Purchase Plan has 24-month offering periods commencing every
six months and each offering period is divided into four six-month exercise
periods. Purchases are limited to ten percent of each employee's and
consultant's eligible compensation. As of June 30, 1998, no shares had been
issued to employees or consultants of the Company under the Non-U.S. Purchase
Plan and 60,000 shares of the Company's common stock were reserved for issuance.
SILICON GRAPHICS STOCK AWARD PLANS. Certain employees of the Company were
granted options to purchase Silicon Graphics common stock and were awarded
restricted shares of Silicon Graphics common stock while employed by Silicon
Graphics. In addition, certain employees of the Company purchased Silicon
Graphics common stock through the Silicon Graphics stock purchase plan. In
connection with their acceptance of employment with the Company, all unvested
options to purchase Silicon Graphics common stock and unvested restricted shares
of Silicon Graphics common stock held by employees of the Company previously
employed by Silicon Graphics were forfeited. In addition, such individuals had
30 or 90 days from May 29, 1998 (depending on the terms of the option grant) to
exercise any vested options to purchase Silicon Graphics common stock, and any
vested options that remained unexercised after that date were forfeited.
Silicon Graphics has various stock award plans, which provide for the grant
of incentive and nonstatutory stock options and the issuance of restricted stock
to employees. Incentive stock options are granted at not less than the fair
market value on the date of grant; the prices of nonstatutory stock option
grants and restricted stock were determined by the board of directors of
F-16
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
Silicon Graphics. Under the plans, options and restricted stock generally vest
over a fifty-month period from the date of grant.
Silicon Graphics stock option activity related to employees of the Company
is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------
NUMBER OF WEIGHTED AVG.
SHARES EXERCISE PRICE
----------- ---------------
<S> <C> <C>
Balance at June 30, 1995....................... 1,717,720 $ 17.94
Options granted................................ 772,440 26.98
Options exercised.............................. (52,039) 9.97
Options canceled............................... (649,967) 7.40
-----------
Balance at June 30, 1996....................... 1,788,154 22.26
Options granted................................ 1,641,064 21.00
Options exercised.............................. (148,748) 10.56
Options canceled............................... (1,705,085) 23.90
-----------
Balance at June 30, 1997....................... 1,575,385 18.17
Options granted................................ 161,861 12.85
Options exercised.............................. (113,427) 10.77
Options canceled............................... (1,493,260) 18.02
-----------
Balance at June 30, 1998....................... 130,559 19.62
-----------
-----------
</TABLE>
Additional information about outstanding options to purchase Silicon
Graphics common stock held by employees of the Company at June 30, 1998 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
-----------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER CONTRACTUAL AVERAGE
RANGE OF EXERCISE PRICE OF SHARES LIFE (IN YEARS) EXERCISE PRICE
- -------------------------------- ----------- ----------------- ---------------
<S> <C> <C> <C>
$8.06-$11.69.................... 11,577 6.94 $ 10.99
$12.63-$18.88................... 53,430 7.86 18.14
$20.00-$30.13................... 65,552 8.02 22.35
-----------
$8.06-$30.13.................... 130,559 7.86 19.62
-----------
-----------
</TABLE>
Shares of restricted Silicon Graphics common stock awarded to employees of
the Company in fiscal 1996, 1997 and 1998 were 40,000 shares, 83,500 shares and
27,000 shares, respectively.
At June 30, 1996, 1997 and 1998, options to purchase 856,711 shares, 480,629
shares and 130,559 shares, respectively, of Silicon Graphics common stock were
held by employees of the Company. At June 30, 1996, 1997 and 1998, there were
35,000 shares, 50,125 shares and no shares, respectively, of restricted Silicon
Graphics stock held by employees of the Company that were subject to repurchase.
F-17
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
SILICON GRAPHICS STOCK PURCHASE PLAN. Silicon Graphics has an employee
stock purchase plan under which eligible employees may purchase stock at 85% of
the lower of the closing price for the stock at the beginning of a twenty
four-month offering period or the end of each six-month purchase period. The
purchase periods generally begin in May and November. Purchases are limited to
10% of each employee's compensation. Shares issued to employees of the Company
under this plan in fiscal 1996, 1997 and 1998 were 76,084 shares, 135,808 shares
and 101,292 shares, respectively. Former employees of Silicon Graphics are not
eligible to participate in this plan.
GRANT DATE FAIR VALUES. The weighted average estimated fair value of
Silicon Graphics employee stock options granted at grant date market prices
during fiscal 1996, 1997 and 1998 was $11.32 per share, $8.08 per share and
$6.02 per share, respectively. The weighted average exercise price of Silicon
Graphics employee stock options granted at grant date market prices during
fiscal 1996, 1997 and 1998 was $29.66 per share, $20.70 per share and $14.89 per
share, respectively. The weighted average estimated fair value of Silicon
Graphics employee stock options granted at below grant date market prices during
fiscal 1996 and 1997 was $17.07 per share and $13.09 per share, respectively.
The weighted average exercise price of Silicon Graphics employee stock options
granted at below grant date market prices during 1996 and 1997 was $21.35 per
share and $15.65 per share, respectively. There were no Silicon Graphics options
granted at below grant date market price during fiscal 1998. The weighted
average estimated fair value of Silicon Graphics restricted stock granted during
fiscal 1996, 1997 and 1998 was $27.30 per share, $23.37 per share and $24.37 per
share, respectively. The weighted average estimated fair value of shares granted
under the Silicon Graphics stock purchase plan during fiscal 1996, 1997 and 1998
was $15.09 per share, $7.85 per share and $6.88 per share, respectively.
The weighted average estimated fair value of the Company's employee stock
options granted at grant date market prices during fiscal 1998 was $8.71 per
share.
The weighted average fair value of Silicon Graphics options granted has been
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
EMPLOYEE STOCK OPTIONS STOCK PURCHASE PLAN SHARES
------------------------------------- -------------------------------------
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
------------------------------------- -------------------------------------
1996 1997 1998 1996 1997 1998
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years)..................... 3.8 2.7 2.7 0.5 0.5 0.5
Risk-free interest rate...................... 5.18% 6.38% 5.74% 5.49% 5.45% 5.72%
Volatility................................... 0.45 0.50 0.61 0.45 0.57 0.79
Dividend yield............................... 0% 0% 0% 0% 0% 0%
</TABLE>
F-18
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
The weighted average fair value of Company options granted has been
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for the activity under the Company's
plans:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1998
-----------------
<S> <C>
Expected life (in years).................................................... 5.0
Risk-free interest rate..................................................... 5.66%
Volatility.................................................................. 0.70
Divided yield............................................................... 0%
</TABLE>
PRO FORMA INFORMATION. The Company has elected to follow APB 25 in
accounting for its employee stock options because the alternative fair value
accounting provided for under SFAS 123 requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, no compensation expense is recognized in the Company's financial
statements except in connection with the granting of restricted shares or unless
the exercise price of the Company's employee stock options is less than the
market price of the underlying stock on the date of grant. Total compensation
expense recognized in the Company's financial statements for stock-based awards
under APB 25 for fiscal 1996, 1997 and 1998 was $0.5 million, $1.7 million and
$1.0 million, respectively.
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options and
employee stock purchase plan under the fair value method prescribed by SFAS 123.
For purposes of pro forma disclosures, the estimated fair value of the stock
awards is amortized to expense over the vesting periods. The Company's pro forma
information is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net loss............................................. $ (30,041) $ (46,288) $ (738)
Pro forma basic and diluted net loss per share................. $ (0.83) $ (1.28) $ (0.02)
</TABLE>
The historical pro forma impact of applying the fair value method prescribed
by SFAS 123 is not representative of the impact that may be expected in the
future due to changes resulting from the Separation and the establishment of the
Company's plans during 1998.
NOTE 11. RELATED PARTY TRANSACTIONS
FUNDING. Prior to the separation, the Company utilized Silicon Graphics'
centralized cash management services and processes related to receivables,
payables, payroll and other activities and the Company's net cash requirements
were funded by Silicon Graphics. Net financing provided to the Company by
Silicon Graphics in fiscal 1996 and 1997 was approximately $35 million and $45
million, respectively. There was a net return of capital to Silicon Graphics by
the Company of approximately $9.2 million and zero in fiscal 1998. The average
balance due Silicon Graphics
F-19
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
during fiscal 1996, 1997 and 1998 was approximately $67 million, $107 million
and $125 million, respectively.
At December 31, 1998, accounts payable includes approximately $207,000
payable to Silicon Graphics related to certain administrative and corporate
support services provided by Silicon Graphics on behalf of the Company and
approximately $2.7 million taxes payable to Silicon Graphics under the tax
sharing agreement with Silicon Graphics. The tax sharing agreement provides that
the Company and Silicon Graphics will make payments to each other such that,
with respect to any period, the amount of taxes to be paid by the Company,
subject to certain adjustments, will be determined as though the Company were to
file separate federal, state and local income tax returns.
CORPORATE SERVICES. Silicon Graphics allocates a portion of its domestic
corporate expenses to its divisions, including the Company. In addition, in
accordance with Staff Accounting Bulletin No. 55, certain additional allocations
have been reflected in these financial statements. These expenses have included
corporate communications, management, compensation and benefits administration,
payroll, accounts payable, income tax compliance, treasury and other
administration and finance overhead. Allocations and charges were based on
either a direct cost pass-through or a percentage allocation for such services
provided based on factors such as net sales, headcount and relative expenditure
levels. Such allocations and corporate charges totaled $9.0 million, $11.0
million, $9.0 million, $6.2 million and zero for the years ended June 30, 1996,
1997 and 1998 and for the six-month periods ended December 31, 1997 and December
31, 1998, respectively.
In June 1998, the Company and Silicon Graphics entered into the Management
Services Agreement, pursuant to which Silicon Graphics will provide certain
administrative and corporate support services to the Company on an interim or
transitional basis, including accounting, treasury, tax, facilities and
information services. Specified charges for such services are generally intended
to allow Silicon Graphics to recover the fully allocated direct costs of
providing the services, plus all out-of-pocket costs and expenses, but without
any profit. The Management Services Agreement will have a three-year term and
will be subject to automatic termination at such time as Silicon Graphics'
beneficial ownership interest in the Company's outstanding common stock ceases
to exceed 50%. In addition, either Silicon Graphics or the Company may terminate
the Management Services Agreement with respect to one or more of the services
provided thereunder upon giving at least 30 days prior written notice to the
other party.
Management believes that the basis used for allocating corporate services is
reasonable. While the terms of these transactions may differ from those that
would result from transactions among unrelated parties, management does not
believe such differences would be material.
FACILITIES. The Company's executive, administrative and technical offices
currently occupy space in a building subleased from Silicon Graphics in Mountain
View, California. Payments by the Company to Silicon Graphics under this
sublease are expected to be $611,000, $743,000, $776,000 and $741,000 in fiscal
years 1999, 2000, 2001 and 2002, respectively. The sublease will terminate on
May 31, 2002, subject to earlier termination in certain circumstances.
F-20
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
NOTE 12. CONTINGENCIES
From time to time, the Company receives communications from third parties
asserting patent or other rights covering the Company's products and
technologies. Based upon the Company's evaluation, it may take no action or it
may seek to obtain a license. There can be no assurance in any given case that a
license will be available on terms the Company considers reasonable, or that
litigation will not ensue.
Management is not aware of any pending disputes that would be likely to have
a material adverse effect on the Company's business, results of operations or
financial condition.
NOTE 13. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
The Company operates in one industry segment. The Company's revenue by
geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
United States.................................................. $ 6,123 $ 5,066 $ 5,621
Export:
Japan........................................................ 22,620 35,241 50,939
Europe....................................................... 6,300 -- 250
Rest of World................................................ 2,000 -- --
--------- --------- ---------
Total revenue.............................................. $ 37,043 $ 40,307 $ 56,810
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 14. SUBSEQUENT EVENT (UNAUDITED)
On January 29, 1999, the Company filed a preliminary proxy statement with
the U.S. Securities and Exchange Commission relating to a special meeting of its
stockholders called for the purpose of approving a proposal to recapitalize the
authorized capital stock of the Company, including (i) the approval and adoption
of an amended and restated certificate of incorporation and by-laws of the
Company pursuant to which each issued and outstanding share of the Company's
common stock, par value $0.001 per share, will be redesignated as one share of
newly created and issued Class A common stock, par value $0.001 per share, of
the Company and (ii) the exchange by Silicon Graphics, Inc. of each share of
Class A Common Stock it will own for one share of newly created and issued Class
B common stock, par value $0.001 per share, of the Company. The recapitalization
was designed to permit an orderly, multi-step increase in the number of shares
of MIPS Technologies common stock that are publicly traded while preserving
Silicon Graphics' ability to divest of its interest in MIPS Technologies in a
transaction intended to qualify generally as a tax-free distribution under the
Internal Revenue Code.
F-21
<PAGE>
UNDERWRITING
Silicon Graphics and the underwriters for the offering (the "Underwriters")
named below have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each Underwriter has
severally agreed to purchase the number of shares indicated in the following
table. Goldman, Sachs & Co., Credit Suisse First Boston Corporation and
BancBoston Robertson Stephens Inc. are the representatives of the Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
- --------------------------------------------------------- -----------------
<S> <C>
Goldman, Sachs & Co......................................
Credit Suisse First Boston Corporation...................
BancBoston Robertson Stephens Inc........................
-----------------
Total.................................................. 6,000,000
-----------------
-----------------
</TABLE>
--------------
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 900,000
shares from Silicon Graphics to cover such sales. They may exercise that option
for 30 days. If any shares are purchased pursuant to this option, the
Underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the Underwriters by Silicon Graphics. Such amounts are
shown assuming both no exercise and full exercise of the Underwriters' option to
purchase 900,000 additional shares.
<TABLE>
<CAPTION>
Paid by Silicon Graphics
- -----------------------------------------------------------------------------
No Exercise Full Exercise
---------------- ----------------
<S> <C> <C>
Per Share............................... $ $
Total................................... $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
MIPS Technologies and Silicon Graphics have agreed with the Underwriters not
to dispose of or hedge any of their Class A or Class B Common Stock or
securities convertible into or exchangeable for shares of Class A or Class B
Common Stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives. This agreement does not apply to
existing employee benefit plans or to a distribution by Silicon Graphics of all
of the Class B Common Stock that it owns if, in order to avoid the application
of certain recently proposed tax legislation, such a distribution must be made
prior to the date that is 180 days after completion of this offering in order
for Silicon Graphics to effect a Tax-Free Distribution.
In addition, directors and certain officers of MIPS Technologies have agreed
with the Underwriters not to dispose of or hedge any of their Class A Common
Stock or securities
U-1
<PAGE>
convertible into or exchangeable for shares of Class A Common Stock during the
period from the date of this prospectus continuing through the date that is two
trading days after the date of MIPS Technologies' public announcement of its
1999 fourth quarter operating results (the date of such announcement is
currently expected to be July 20, 1999). As of February 26, 1999, such directors
and officers owned 11,054 shares of MIPS Technologies common stock that may be
sold, and held options to purchase approximately 465,000 shares of common stock
that will be exercisable, on July 23, 1999 or within 30 days thereafter.
In connection with this offering, the Underwriters may purchase and sell
shares of Class A Common Stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the Underwriters of a
greater number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Class A
Common Stock while the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Class A Common Stock. As a result, the price of
the Class A Common Stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the Underwriters at any time. These transactions may be effected on the
Nasdaq Stock Market, in the over-the-counter market or otherwise.
Silicon Graphics will pay all expenses incurred by MIPS Technologies in
connection with the offering. MIPS Technologies estimates that the total
expenses of the offering, excluding underwriting discounts and commissions, will
be approximately $ .
MIPS Technologies and Silicon Graphics have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on The Nasdaq National Market
may engage in passive market making transactions in the common stock on The
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended, during the business day prior to
the pricing of the offering before the commencement of offers or sales of the
common stock. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid of
such security; if all independent bids are lowered below the passive market
makers' bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
U-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 18
Price Range of Common Stock.................... 18
Dividend Policy................................ 18
Corporate Information.......................... 19
The Recapitalization........................... 20
Capitalization................................. 23
Selected Consolidated Financial Data........... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 25
Business....................................... 36
Management..................................... 48
Arrangements Between MIPS Technologies and
Silicon Graphics.............................. 55
Principal and Selling Stockholder.............. 63
Description of Capital Stock................... 65
Shares Available for Future Sale............... 73
Certain United States Federal Tax
Considerations for Non-United States
Holders....................................... 75
Legal Matters.................................. 78
Experts........................................ 78
Where You Can Find Additional Information...... 78
Index to Financial Statements.................. F-1
Underwriting................................... U-1
</TABLE>
6,000,000 Shares
[LOGO]
Class A Common Stock
-------------
PROSPECTUS
-------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
BANCBOSTON ROBERTSON STEPHENS
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Stock being registered. which will be paid by Silicon Graphics, Inc.
All of the amounts shown are estimates except for the SEC registration fee, the
NASD filing fee and the Nasdaq National Market Application Fee.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. 81,284
NASD Filing Fee................................................... 29,739
Blue Sky Qualification Fees and Expenses.......................... 5,000
Printing and Engraving Expenses................................... 130,000
Legal Fees and Expenses........................................... 450,000
Accounting Fees and Expenses...................................... 275,000
Miscellaneous..................................................... 16,000
---------
Total........................................................... 987,023
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was an officer or director of such corporation or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such officer or director acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, in the case of criminal proceedings, had
no reasonable cause to believe his or her conduct was illegal. A Delaware
corporation may indemnify officers and directors against expenses (including
attorneys' fees) in connection with the defense or settlement of an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against expenses
which such officer or director actually and reasonably incurred. The Amended and
Restated Certificate of Incorporation of the Registrant provides for
indemnification of the officers and directors of the Registrant to the full
extent permitted by applicable law.
In accordance with Delaware law, the Amended and Restated Certificate of
Incorporation of the Registrant contains a provision to limit the personal
liability of directors of the Registrant for violations of their fiduciary duty.
This provision eliminates each director's liability to the Registrant or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Registrant 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 DGCL, providing for liability
of directors for unlawful payment of dividends or unlawful stock purchases or
redemptions or (iv) for any transaction from which a director derived an
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence. In addition, the Registrant has agreed by
II-1
<PAGE>
contract to indemnify the directors and certain officers of the Registrant for
certain liabilities incurred by such person by reason of the fact that such is a
director or officer, provided such person was acting in good faith.
Pursuant to the underwriting agreement between the Registrant, Silicon
Graphics and the underwriters filed as an exhibit to this Registration
Statement, the underwriters a party thereto have agreed to indemnify each
officer and director of the Registrant and Silicon Graphics, Inc. and each
person, if any, who controls the Company and Silicon Graphics, Inc. within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"),
against certain liabilities, including liabilities under said Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Registrant has not issued or sold any
unregistered securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated By-Laws of the Registrant
4.1 Form of Class A Common Stock Certificate
5.1 Opinion of Shearman & Sterling
10.1 Separation Agreement
10.2 Corporate Agreement
10.3 Management Services Agreement
10.4 Tax Sharing Agreement
10.5 Technology Agreement
10.6 Trademark Agreement
10.7 Form of Exchange Agreement
10.8.1 Joint Development and License Agreement between Nintendo Co., Ltd. and Nintendo of
America Inc. on the one hand and Silicon Graphics, Inc. and MIPS Technologies,
Inc. on the other hand (the "Joint Development and License Agreement")+
10.8.2 First Addendum to the Joint Development and License Agreement+
10.8.3 Second Addendum to the Joint Development and License Agreement+
10.8.4 Fourth Addendum to the Joint Development and License Agreement+
10.9 MIPS Technologies, Inc. 1998 Long-Term Incentive Plan
10.10 Employee Stock Purchase Plan
10.11 Directors' Stock Option Plan*
10.12 Form of Change in Control Agreement*
10.13 Form of Indemnification Agreement*
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Shearman & Sterling (included in Exhibit 5.1)
24.1 Power of Attorney (included on Page II-4)
</TABLE>
- --------------
* To be filed by amendment.
+ Portions of this Exhibit have been omitted pursuant to an order granting
confidential treatment issued by the Securities and Exchange Commission on
June 29, 1998.
(b) Financial Statement Schedules
II-2
<PAGE>
Schedules have been omitted because the information required to be set forth
therein is not applicable or is shown in the Consolidated Financial Statements
or the Notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
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 Securities Act and will be governed by the
final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(i) 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
(ii) 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 the time shall
be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mountain View, State of California, on the 26th day
of February, 1999.
<TABLE>
<S> <C> <C>
MIPS TECHNOLOGIES, INC.
By: /s/ JOHN E. BOURGOIN
--------------------------------------
Name: John E. Bourgoin
Title: CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
We, the undersigned officers and directors of MIPS Technologies, Inc. do
hereby constitute and appoint John E. Bourgoin, William M. Kelly and Sandy
Creighton and each of them, our true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, in any and all
capacities, to sign any and all amendments to this Registration Statement, and
any and all registration statements on Form 462(b) filed by the Company, and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JOHN E. BOURGOIN Chief Executive Officer
- ------------------------------ and Director (Principal February 26, 1999
John E. Bourgoin Executive Officer)
/s/ KEVIN C. EICHLER
- ------------------------------ Principal Financial and February 26, 1999
Kevin C. Eichler Accounting Officer
/s/ FOREST BASKETT
- ------------------------------ Director February 26, 1999
Forest Baskett
/s/ KENNETH COLEMAN
- ------------------------------ Director February 26, 1999
Kenneth Coleman
/s/ FRED M. GIBBONS
- ------------------------------ Director February 26, 1999
Fred M. Gibbons
/s/ ANTHONY B. HOLBROOK
- ------------------------------ Director February 26, 1999
Anthony B. Holbrook
/s/ WILLIAM M. KELLY
- ------------------------------ Director February 26, 1999
William M. Kelly
/s/ TERUYASU SEKIMOTO
- ------------------------------ Director February 26, 1999
Teruyasu Sekimoto
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated By-Laws of the Registrant
4.1 Form of Class A Common Stock Certificate
5.1 Opinion of Shearman & Sterling
10.1 Separation Agreement
10.2 Corporate Agreement
10.3 Management Services Agreement
10.4 Tax Sharing Agreement
10.5 Technology Agreement
10.6 Trademark Agreement
10.7 Form of Exchange Agreement
10.8.1 Joint Development and License Agreement between Nintendo Co., Ltd. and Nintendo of America Inc. on the
one hand and Silicon Graphics, Inc. and MIPS Technologies, Inc. on the other hand (the "Joint
Development and License Agreement")+
10.8.2 First Addendum to the Joint Development and License Agreement+
10.8.3 Second Addendum to the Joint Development and License Agreement+
10.8.4 Fourth Addendum to the Joint Development and License Agreement+
10.9 MIPS Technologies, Inc. 1998 Long-Term Incentive Plan
10.10 Employee Stock Purchase Plan
10.11 Directors' Stock Option Plan*
10.12 Form of Change in Control Agreement*
10.13 Form of Indemnification Agreement*
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Shearman & Sterling (included in Exhibit 5.1)
24.1 Power of Attorney (included on Page II-4)
</TABLE>
- --------------
* To be filed by amendment.
+ Portions of this Exhibit have been omitted pursuant to an order granting
confidential treatment issued by the Securities and Exchange Commission on
June 29, 1998.
<PAGE>
EXHIBIT 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MIPS TECHNOLOGIES, INC.
MIPS TECHNOLOGIES, INC., a Delaware corporation, hereby certifies as
follows:
1. The name of the corporation is MIPS Technologies, Inc. (the
"Corporation"). The date of filing of its original Certificate of Incorporation
with the Secretary of State of the State of Delaware (the "Delaware Secretary of
State") was June 8, 1992, and the Restated Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on June 30, 1998. The
original name of the Corporation was MIPS Technologies, Inc.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware (the "DGCL"), this Amended and Restated Certificate of
Incorporation restates and integrates and further amends the provisions of the
Restated Certificate of Incorporation of this Corporation. Pursuant to and in
accordance with Sections 242 and 245 of the DGCL, this Amended and Restated
Certificate of Incorporation was proposed by the directors of the Corporation
and adopted by the holders of a majority of the outstanding shares of capital
stock of the Corporation entitled to vote at a special meeting of the
stockholders.
3. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
NAME
The name of the corporation is MIPS Technologies, Inc. (the "Corporation").
ARTICLE II
REGISTERED AGENT
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (the "DGCL") as the same exists or may hereafter be amended.
ARTICLE IV
CAPITAL STOCK
SECTION 1. (a) The total number of shares of all classes of capital stock
that the Corporation shall have the authority to issue is 300,000,000 shares, of
which (i) 150,000,000 shares shall be Class A Common Stock, par value $0.001 per
share (the "Class A Common Stock"), (ii) 100,000,000 shares shall be Class B
Common Stock, par value $0.001 per share (the "Class B Common Stock", and
together with the Class A Common Stock, the "Common Stock") and (iii) 50,000,000
shares shall be preferred stock, par value $0.001 per share (the "Preferred
Stock").
1
<PAGE>
(b) Any amendment to this Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") which shall increase or decrease the number
of authorized shares of any class or classes of stock may be adopted by the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of the Corporation, irrespective of the provisions of Section
242(b)(2) of the DGCL or any corresponding provision hereinafter enacted.
(c) Immediately upon the effectiveness of this Certificate of Incorporation,
each share of common stock of the Corporation, par value $0.001 per share,
issued and outstanding immediately prior to such effectiveness, shall be changed
into and reclassified as one share of Class A Common Stock.
SECTION 2. The following is a statement of the relative powers,
preferences, rights, qualifications, limitations and restrictions of the shares
of Class A Common Stock and Class B Common Stock:
(a) GENERAL. Except as otherwise expressly provided herein or as
provided by law, the relative powers, preferences, rights, and the relative
participating, optional and other special rights, and the qualifications,
limitations and restrictions of the shares of Class A Common Stock and Class
B Common Stock shall be identical in all respects.
(b) DIVIDENDS OR DISTRIBUTIONS OF CASH OR PROPERTY. Subject to the
rights of the holders of any series of Preferred Stock, and except as
otherwise provided for herein, the holders of Class A Common Stock and the
holders of Class B Common Stock shall be entitled to receive such dividends
and other distributions in cash, stock of any corporation (other than Common
Stock of the Corporation) or property of the Corporation as may be declared
thereon by the Board of Directors of the Corporation (the "Board of
Directors") from time to time out of assets of the Corporation legally
available therefor and shall share equally on a per share basis in all such
dividends and other distributions.
(c) DIVIDENDS OR DISTRIBUTIONS OF COMMON STOCK. In the case of
dividends or other distributions payable in, or reclassifications involving,
Common Stock, including distributions pursuant to stock splits or divisions
of Common Stock, only shares of Class A Common Stock shall be paid or
distributed with respect to shares of Class A Common Stock and only shares
of Class B Common Stock shall be paid or distributed with respect to shares
of Class B Common Stock. The number of shares of Class A Common Stock and
Class B Common Stock so paid or distributed shall be equal in number on a
per share basis.
(d) STOCK SUBDIVISIONS AND COMBINATIONS. The Corporation shall not
subdivide, reclassify or combine stock of either class of Common Stock
without at the same time making a proportionate subdivision,
reclassification or combination of the other class.
(e) VOTING. Voting power shall be divided between the classes and
series of stock as follows:
(i) Subject to Section (2)(e)(ii) of this Article IV, with respect
to the election of directors of the Corporation, holders of Class A
Common Stock, voting separately as a class, shall be entitled to elect
that number of directors (the "Class A Directors") which constitutes 20%
of the number of members of the Board of Directors determined as provided
in Section 2 of Article V (or, if such 20% is not a whole number, then
the next lower whole number of directors that is closest to 20% of such
membership). Each share of Class A Common Stock shall have one vote in
the election of such directors. Subject to Section (2)(e)(ii) of this
Article IV, holders of Class B Common Stock, voting separately as a
class, shall be entitled to elect the remaining directors (other than
directors elected by the holders of Preferred Stock). Each share of Class
B Common Stock shall have one vote in the election of such directors. For
purposes of this Section 2(e) and Section 2(f) of this Article IV,
references to the number of members of the Board of Directors shall not
include any directors whom the holders of any shares of Preferred Stock
may have the exclusive right to elect as granted in accordance with
Section 6(a) of this Article IV.
2
<PAGE>
(ii) At such time as all outstanding shares of Class B Common Stock
shall have been converted into or exchanged for shares of Class A Common
Stock in accordance with the provisions of this Article IV, then Section
2(e)(i) of this Article IV shall have no further force or effect, and
thereafter, subject to the rights of the holders of Preferred Stock, the
holders of the Class A Common Stock, voting as a class, shall be entitled
to elect all members of the Board of Directors.
(iii) Except as otherwise specified herein, the holders of Class A
Common Stock and holders of Class B Common Stock (A) shall in all matters
not otherwise specified in this Section (2)(e) or Section (2)(f) of this
Article IV vote together as a single class (including, without
limitation, with respect to increases or decreases in the authorized
number of shares of any class of Common Stock), with each share of Class
A Common Stock and Class B Common Stock having one vote, and (B) shall be
entitled to vote as separate classes only when required by law to do so
under mandatory statutory provisions that may not be excluded or
overridden by a provision of this Certificate of Incorporation.
(iv) Except as set forth in this Section (2)(e) or Section (2)(f) of
this Article IV, the holders of Class A Common Stock shall have exclusive
voting power (except for any voting powers of any series of Preferred
Stock) on all matters at any time when no Class B Common Stock is issued
and outstanding, and the holders of Class B Common Stock shall have
exclusive voting power (except for any voting powers of any series of
Preferred Stock) on all matters at any time when no Class A Common Stock
is issued and outstanding.
(v) Notwithstanding anything to the contrary contained in this
Section 2(e) of this Article IV, following a Tax-Free Spin-Off (as
defined in Section 2(i)(i) of this Article IV), for so long as any person
or entity or group of persons or entities acting in concert beneficially
own 10% or more of the outstanding shares of Class B Common Stock, such
person, entity or group shall not, with respect to any such shares of
Class B Common Stock, have any voting powers in any election of directors
or be entitled to exercise any voting rights in any election of directors
unless such person or entity is also the beneficial owner of at least an
equivalent percentage of the outstanding shares of Class A Common Stock.
For purposes of this Section (2)(e)(v), a "beneficial owner" of Common
Stock includes any person or entity or group of persons or entities who,
directly or indirectly, including through any contract, arrangement,
understanding, relationship or otherwise, written or oral, formal or
informal, control the voting power (which includes the power to vote or
to direct the voting) of such Common Stock.
(f) VACANCIES. Any vacancy in the office of a director created by the
death, resignation, disqualification or removal of a director may be filled
by the vote of the majority of the directors then in office (or the sole
remaining director) elected by (or appointed on behalf of) the same class of
stock that elected the director (or on behalf of which the director was
appointed) whose death, resignation, disqualification or removal created the
vacancy, unless there are no such directors or no outstanding shares of such
class of stock, in which case such vacancy may be filled by the vote of the
majority of all directors then in office, even if less than a quorum, or by
the sole remaining director. Notwithstanding anything in this Section (2)(f)
or Section (2)(e) of this Article IV to the contrary, any vacancy in the
office of a director created by the death, resignation, disqualification or
removal of a director elected by (or appointed on behalf of) the holders of
a class of stock may also be filled by a vote of holders of such class of
stock, unless there are no outstanding shares of such class of stock, in
which case any such vacancy may be filled by a vote of the holders of the
remaining class of stock. Any director elected to fill a vacancy created by
the death, resignation, disqualification or removal of a director shall hold
office for the remainder of the full term of the director whose vacancy is
being filled and until such director's successor shall have been elected and
qualified unless removed and replaced pursuant to Section 4(c) of Article V
and this Section 2(f).
3
<PAGE>
Subject to the rights, if any, of the holders of any series of Preferred
Stock then outstanding, any vacancy on the Board of Directors that results
from an increase in the number of directors shall be filled by the vote of
the majority of the directors then in office; PROVIDED that (unless all of
the outstanding shares of Class B Common Stock shall have been converted
into or exchanged for shares of Class A Common Stock) following such
appointment, 20% of the number of members of the Board of Directors as so
increased (or, if such 20% is not a whole number, then the next lower whole
number of directors that is closest to 20% of such membership) consist of
directors elected by (or appointed on behalf of) the holders of Class A
Common Stock and the remaining members of the Board of Directors consist of
directors elected by (or appointed on behalf of) the holders of the Class B
Common Stock. Any director elected (or appointed) in accordance with the
preceding sentence shall hold office for the remainder of the full term of
the class of directors in which the new directorship was created and until
such director's successor shall have been elected and qualified, unless such
director is removed and replaced pursuant to Section 4(c) of Article V and
this Section 2(f).
(g) MERGER OR REORGANIZATION. In the case of any reorganization or any
consolidation of the Corporation with one or more other entities or a merger
of the Corporation with another entity, each holder of a share of Class A
Common Stock shall be entitled to receive with respect to such share the
same kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reorganization, consolidation or
merger by a holder of a share of Class B Common Stock, and each holder of a
share of Class B Common Stock shall be entitled to receive with respect to
such share the same kind and amount of shares of stock and other securities
and property (including cash) receivable upon such reorganization,
consolidation or merger by a holder of a share of Class A Common Stock;
PROVIDED, HOWEVER, that, in the event that all of the outstanding shares of
Class B Common Stock have not been converted into or exchanged for shares of
Class A Common Stock, then (i) in any such reorganization, consolidation, or
merger, the holders of shares of Class A Common Stock and the holders of
shares of Class B Common Stock may receive different kinds of shares of
stock if the only difference in such shares is the inclusion of voting
rights which maintain the different voting rights of the holders of Class A
Common Stock and holders of Class B Common Stock with respect to the
election of the applicable percentage of the authorized number of members of
the Board of Directors as described in Section (2)(e)(i) of this Article IV
and (ii) if, pursuant to any such transaction all or substantially all of
the Common Stock is exchanged for stock of another entity and such
transaction is required to be accounted for as a pooling-of-interests under
U.S. generally accepted accounting principles, the holders of shares of
Class A Common Stock and the holders of shares of Class B Common Stock shall
receive shares of stock in the acquiring entity based on the relative fair
value of a share of Class A Common Stock and a share of Class B Common
Stock. For purposes of this Section (2)(g), fair value shall be measured as
of the announcement date for such transaction.
(h) LIQUIDATION. In the event of any liquidation, dissolution or
winding-up of the affairs of the Corporation, whether voluntary or
involuntary, after payment in full of the amounts required to be paid to the
holders of Preferred Stock, the remaining assets and funds of the
Corporation shall be distributed pro rata to the holders of the Class A
Common Stock and the holders of Class B Common Stock. For purposes of this
Section 2(h), the voluntary sale, conveyance, lease, exchange or transfer
(for cash, shares of stock, securities or other consideration) of all or
substantially all of the assets of the Corporation or a consolidation or
merger of the Corporation with one or more other entities (whether or not
the Corporation is the corporation surviving such consolidation or merger)
shall not be deemed to be a liquidation, dissolution or winding-up, whether
voluntary or involuntary.
(i) CONVERSION.
(i) Prior to the date on which shares of Class B Common Stock are
distributed to the stockholders of Silicon Graphics, Inc., a Delaware
corporation (Silicon Graphics, Inc., together with its successors,
"Silicon Graphics"), in a Tax-Free Spin-Off (as defined below), each
share of
4
<PAGE>
Class B Common Stock shall automatically convert into one share of Class
A Common Stock upon the transfer of such share if, after such transfer,
such share is not beneficially owned by Silicon Graphics or any
subsidiary of Silicon Graphics. Shares of Class B Common Stock shall not
convert into shares of Class A Common Stock (A) in any transfer effected
in connection with a distribution of Class B Common Stock to stockholders
of Silicon Graphics in a transaction (including any distribution in
exchange for shares of capital stock or other securities of Silicon
Graphics) intended generally to qualify under Section 355 of the Internal
Revenue Code of 1986, as amended from time to time (the "Code") (a
"Tax-Free Spin-Off") or (B) in any transfer after a Tax-Free Spin-Off.
Following a Tax-Free Spin-Off, shares of Class B Common Stock shall no
longer be convertible into shares of Class A Common Stock except as set
forth in Section (2)(i)(ii)-(v) of this Article IV.
For purposes of this Section (2)(i), a Tax-Free Spin-Off shall be
deemed to have occurred at the time shares are first transferred to
stockholders of Silicon Graphics following receipt of an affidavit
described in Section 2(i)(viii)(C) of this Article IV. For purposes of
this Section (2)(i), the term "beneficially owned" with respect to shares
of Class B Common Stock means ownership by a person or entity that,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, controls the voting power (which includes the
power to vote or to direct the voting) of such Class B Common Stock and
the term "subsidiary" means, as to any person or entity, all corporations
(other than the Corporation), partnerships, joint ventures, associations
or other entities in which such person or entity beneficially owns
(directly or indirectly) 50% or more of the outstanding voting stock,
voting power, partnership interests or similar voting interests.
(ii) In the event of a Tax-Free Spin-Off, each share of Class B
Common Stock shall automatically convert into one share of Class A Common
Stock on the fifth anniversary of the date on which shares of Class B
Common Stock are first transferred to stockholders of Silicon Graphics in
a Tax-Free Spin-Off unless, prior to such Tax-Free Spin-Off, Silicon
Graphics delivers to the Corporation an opinion of counsel, reasonably
satisfactory to the Corporation, to the effect that, based in part on
conversations with the Internal Revenue Service (the "IRS") disclosed to
the Corporation, such automatic conversion would have a material adverse
effect on the ability of Silicon Graphics to timely obtain a favorable
ruling from the IRS regarding the tax-free status of the Tax-Free
Spin-Off. If such an opinion is received, approval of such conversion
shall be submitted to a vote of the holders of the Common Stock at a
meeting of stockholders called for such purpose, as soon as practicable
after the fifth anniversary of the Tax-Free Spin-Off, unless, prior to
such Tax-Free Spin-Off, Silicon Graphics delivers to the Corporation an
opinion of counsel, reasonably satisfactory to the Corporation, to the
effect that, based in part on conversations with the IRS disclosed to the
Corporation, such vote would have a material adverse effect on the
ability of Silicon Graphics to timely obtain a favorable ruling from the
IRS regarding the tax-free status of the Tax-Free Spin-Off. At the
meeting of stockholders called for such purpose, every holder of Common
Stock shall be entitled to one vote in person or by proxy for each share
of Common Stock standing in his or her name on the transfer books of the
Corporation. Approval of such conversion shall require the approval of a
majority of the votes entitled to be cast by the holders of the Class A
Common Stock and the holders of the Class B Common Stock present and
voting, voting together as a single class, and the holders of the Class B
Common Stock shall not be entitled to a separate class vote. Such
conversion shall be effective on the date on which such approval is given
at a meeting of stockholders called for such purpose.
(iii) In the case of any merger or consolidation of the Corporation
pursuant to which all or substantially all of the capital stock of the
Corporation is exchanged for the stock of another entity and the
stockholders of the Corporation immediately prior to such merger or
consolidation own less than 50% of the outstanding shares of such other
entity immediately after such merger
5
<PAGE>
or consolidation, each share of Class B Common Stock shall automatically
convert into one share of Class A Common Stock immediately prior to the
effectiveness of such merger or consolidation, unless, prior to a
Tax-Free Spin-Off, Silicon Graphics delivers to the Corporation an
opinion of counsel, reasonably satisfactory to the Corporation, to the
effect that, based in part on conversations with the IRS disclosed to the
Corporation, such automatic conversion would have a material adverse
effect on the ability of Silicon Graphics to timely obtain a favorable
ruling from the IRS regarding the tax-free status of the Tax-Free
Spin-Off.
(iv) Prior to a Tax-Free Spin-Off, upon the closing of a merger or
consolidation involving Silicon Graphics or a tender offer for the
capital stock of Silicon Graphics, if the stockholders of Silicon
Graphics immediately prior to such merger, consolidation or tender offer
own less than 50% of the outstanding shares of capital stock of Silicon
Graphics (or, if the capital stock of Silicon Graphics is exchanged or
converted in any such transaction for capital stock of another
corporation, such corporation) immediately after such merger,
consolidation or tender offer, each share of Class B Common Stock held by
Silicon Graphics or its successor shall automatically convert into one
share of Class A Common Stock.
(v) Prior to a Tax-Free Spin-Off, each share of Class B Common Stock
shall automatically convert into one share of Class A Common Stock if at
any time prior to such Tax-Free Spin-Off the aggregate number of
outstanding shares of Class B Common Stock owned by Silicon Graphics
and/or any of its subsidiaries is less than 50% of the aggregate number
of shares of Common Stock then outstanding; PROVIDED, HOWEVER, that such
automatic conversion shall not occur if, prior to the closing of any
transaction or the occurrence of any event which would reduce the
aggregate number of outstanding shares of Class B Common Stock owned by
Silicon Graphics and/or any of its subsidiaries to less than 50% of the
aggregate number of shares of Common Stock then outstanding, the
independent directors of the Board of Directors and the Chief Executive
Officer of the Corporation unanimously determine that such automatic
conversion is not in the interests of the Corporation and its
stockholders, other than Silicon Graphics, which determination shall be
irrevocable and final. Upon the closing of any subsequent transaction or
the occurrence of any event which would further reduce the percentage of
the shares of Common Stock then outstanding held by Silicon Graphics,
each share of Class B Common Stock shall automatically convert into one
share of Class A Common Stock, unless, prior to the closing of any such
transaction or the occurrence of any such event, the independent
directors of the Board of Directors and the Chief Executive Officer of
the Corporation unanimously determine that such automatic conversion is
not in the interests of the Corporation and its stockholders, other than
Silicon Graphics, which determination shall be irrevocable and final.
Notwithstanding the foregoing, prior to a Tax-Free Spin-Off, each
share of Class B Common Stock shall automatically convert into one share
of Class A Common Stock if at any time prior to such Tax-Free Spin-Off
the aggregate number of outstanding shares of Class B Common Stock owned
by Silicon Graphics and/or any of its subsidiaries is less than 30% of
the aggregate number of shares of Common Stock then outstanding.
(vi) The Corporation will provide notice of any automatic conversion
of all outstanding shares of Class B Common Stock to holders of record of
the Common Stock as soon as practicable following such conversion;
PROVIDED, HOWEVER, that the Corporation may satisfy such notice
requirement by providing such notice prior to such conversion. Such
notice shall be provided by mailing notice of such conversion, first
class postage prepaid, to each holder of record of the Common Stock, at
such holder's address as it appears on the transfer books of the
Corporation; PROVIDED, HOWEVER, that neither the failure to give such
notice nor any defect therein
6
<PAGE>
shall affect the validity of the automatic conversion of any shares of
Class B Common Stock. Each such notice shall state, as appropriate, the
following:
(A) the automatic conversion date;
(B) that all outstanding shares of Class B Common Stock are
automatically converted;
(C) the place or places at which certificates for such shares
are to be surrendered for conversion; and
(D) that no dividends will be declared on the shares of Class B
Common Stock converted after such conversion date.
Immediately upon such conversion, the rights of the holders of shares
of Class B Common Stock as such shall cease and such holders shall be
treated for all purposes as having become the record owners of the shares
of Class A Common Stock issued upon such conversion; PROVIDED, HOWEVER,
that such persons shall be entitled to receive when paid any dividends
declared on the Class B Common Stock as of a record date preceding the
time of such conversion and unpaid as of the time of such conversion,
subject to Section (2)(i)(vii) of this Article IV.
(vii) Prior to a Tax-Free Spin-Off, no one other than those persons
in whose names shares of Class B Common Stock become originally
registered on the stock ledger of the Corporation by reason of their
record ownership of shares of Class A Common Stock which were exchanged
for shares of Class B Common Stock in accordance with the terms of the
Exchange Agreement, effective upon the effectiveness of this Certificate
of Incorporation, between the Corporation and Silicon Graphics or Section
2(k) of this Article IV, or transferees or successive transferees who
receive shares of Class B Common Stock in connection with a transfer
which meets the qualifications set forth in Section 2(i)(viii) of this
Article IV below, shall, by virtue of the acquisition of a certificate
representing shares of Class B Common Stock, have the status of an owner
or holder of shares of Class B Common Stock or be recognized as such by
the Corporation or be otherwise entitled to enjoy the benefit of the
special voting rights of a holder of shares of Class B Common Stock.
(viii) Prior to a Tax-Free Spin-Off, shares of Class B Common Stock
shall be transferred on the books of the Corporation and a new
certificate therefor issued, upon presentation at the office of the
Secretary of the Corporation (or at such additional place or places as
may from time to time be designated by the Secretary or any Assistant
Secretary of the Corporation) of the certificate representing such
shares, in proper form for transfer and accompanied by all requisite
stock transfer tax stamps, only if such certificate when so presented
shall also be accompanied by any one of the following:
(A) an affidavit from Silicon Graphics stating that such
certificate is being presented to effect a transfer by Silicon
Graphics of such shares to a subsidiary of Silicon Graphics; or
(B) an affidavit from Silicon Graphics stating that such
certificate is being presented to effect a transfer by any subsidiary
of Silicon Graphics of such shares to Silicon Graphics or another
subsidiary of Silicon Graphics; or
(C) an affidavit from Silicon Graphics stating that such
certificate is being presented to effect a transfer by Silicon
Graphics of such shares to the stockholders of Silicon Graphics in
connection with a Tax-Free Spin-Off.
Each affidavit of a record holder furnished pursuant to this Section
2(i)(viii) shall be verified as of a date not earlier than five days
prior to the date of delivery thereof, and, if such record holder is a
corporation or partnership, shall be verified by an officer of such
corporation or by a general partner of such partnership, as the case may
be.
7
<PAGE>
If a record holder of shares of Class B Common Stock shall deliver a
certificate representing such shares, endorsed by him or her for transfer
or accompanied by an instrument of transfer signed by him or her, to a
person who receives such shares in connection with a transfer which does
not meet the qualifications set forth in this Section 2(i)(viii), then
such person or any successive transferee of such certificate may treat
such endorsement or instrument as authorizing him or her on behalf of
such record holder to convert such shares into shares of Class A Common
Stock in the manner above provided, for the purpose of the transfer to
himself or herself of the shares of Class A Common Stock issuable upon
such conversion, and to give on behalf of such record holder the written
notice of conversion above required, and may convert such shares of Class
B Common Stock accordingly.
If such shares of Class B Common Stock shall have been improperly
registered in the name of such a person (or in the name of any successive
transferee of such certificate) and a new certificate therefor issued,
such person or transferee shall surrender such new certificate for
cancellation, accompanied by the written notice of conversion above
required, in which case (A) such person or transferee shall be deemed to
have elected to treat the endorsement on (or instrument of transfer
accompanying) the certificate so delivered by such former record holder
as authorizing such person or transferee on behalf of such former record
holder so to convert such shares and so to give such notice, (B) the
shares of Class B Common Stock registered in the name of such former
record holder shall be deemed to have been surrendered for conversion for
the purpose of the transfer to such person or transferee of the shares of
Class A Common Stock issuable upon conversion and (C) the appropriate
entries shall be made on the books of the Corporation to reflect such
action.
In the event that the Board of Directors (or any committee of the
Board of Directors, or any officer of the Corporation, designated for the
purpose by the Board of Directors) shall determine, upon the basis of
facts not disclosed in any affidavit or other document accompanying the
certificate representing shares of Class B Common Stock when presented
for transfer, that such shares of Class B Common Stock have been
registered in violation of the provisions of Section 2(i)(viii), or shall
determine that a person is enjoying for his or her own benefit the
special rights and powers of shares of Class B Common Stock in violation
of such provisions, then the Corporation shall take such action at law or
in equity as is appropriate under the circumstances. An unforeclosed
pledge made to secure a bona fide obligation shall not be deemed to
violate such provisions.
(ix) Prior to the occurrence of a Tax-Free Spin-Off, every
certificate representing shares of Class B Common Stock shall bear a
legend on the face thereof reading as follows:
"The shares of Class B Common Stock represented by this
certificate may not be transferred to any person in connection with a
transfer that does not meet the qualifications set forth in Section
2(i)(viii) of Article IV of the Amended and Restated Certificate of
Incorporation of this Corporation, as amended, and no person who
receives such shares in connection with a transfer which does not
meet the qualifications prescribed by Section 2(i)(viii) of said
Article IV is entitled to own or to be registered as the record
holder of such shares of Class B Common Stock. Each holder of this
certificate, by accepting the same, accepts and agrees to all of the
foregoing."
Upon and after the transfer of shares in a Tax-Free Spin-Off, shares
of Class B Common Stock shall no longer bear the legend set forth above
in this Section 2(i)(ix).
(x) Upon any conversion of shares of Class B Common Stock into
shares of Class A Common Stock pursuant to the provisions of this Section
(2)(i), any dividend for which the record date or payment date shall be
subsequent to such conversion which may have been declared on the shares
of Class B Common Stock so converted shall be deemed to have been
8
<PAGE>
declared, and shall be payable, with respect to the shares of Class A
Common Stock into or for which such shares of Class B Common Stock shall
have been so converted, and any such dividend which shall have been
declared on such shares payable in shares of Class B Stock shall be
deemed to have been declared, and shall be payable, in shares of Class A
Common Stock.
(xi) The Corporation shall at all times reserve and keep available,
out of its authorized but unissued Common Stock, such number of shares of
Class A Common Stock as would become issuable upon the conversion of all
shares of Class B Common Stock then outstanding.
(xii) The Corporation will not be required to pay any documentary,
stamp or similar issue or transfer taxes payable in respect of the issue
or delivery of shares of Class A Common Stock on the conversion of shares
of Class B Common Stock pursuant to Section (2)(i) of this Article IV,
and no such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of such tax
or has established, to the satisfaction of the Corporation, that such tax
has been paid.
(j) EXCHANGE. [In the event a Tax-Free Spin-Off has occurred, the
Corporation may exchange all (but not less than all) of the outstanding
shares of Class B Common Stock for shares of Class A Common Stock on a
one-for-one basis, PROVIDED, HOWEVER, this Section (2)(j) of this Article IV
shall have no further force or effect if, prior to a Tax-Free Spin-Off,
Silicon Graphics delivers to the Corporation an opinion of counsel,
reasonably satisfactory to the Corporation, to the effect that, based in
part on conversations with the IRS disclosed to the Corporation, the
inclusion of this Section (2)(j) of this Article IV would have a material
adverse effect on the ability of Silicon Graphics to timely obtain a
favorable ruling from the IRS regarding the tax-free status of the Tax-Free
Spin-Off.]
(k) COMMON STOCK OWNED BY SILICON GRAPHICS. Prior to the occurrence of
a Tax-Free Spin-Off and if all of the shares of Class B Common Stock held by
Silicon Graphics and any Subsidiary (as defined in Section 2(i)(i)) of
Silicon Graphics have not been previously converted into or exchanged for
shares of Class A Common Stock, each share of Class A Common Stock held by
Silicon Graphics and any Subsidiary (as defined in Section 2(i)(i)) of
Silicon Graphics, however acquired, shall, immediately upon such
acquisition, automatically convert into one share of Class B Common Stock.
Notwithstanding the foregoing, after the occurrence of a Tax-Free Spin-Off,
any shares of Class A Common Stock held by Silicon Graphics and any
Subsidiary (as defined in Section 2(i)(i)) of Silicon Graphics, however
acquired, shall remain shares of Class A Common Stock.
SECTION 3. The Corporation shall not reissue or resell any shares of Class
B Common Stock which shall have been converted into or exchanged for shares of
Class A Common Stock pursuant to or as permitted by the provisions of Section
(2)(i) or Section 2(j) of this Article IV, or any shares of Class B Common Stock
which shall have been acquired by the Corporation in any other manner. The
Corporation shall, from time to time, take such appropriate action as may be
necessary to retire such shares and to reduce the authorized number of shares of
Class B Common Stock accordingly.
SECTION 4. The holders of shares of Common Stock shall have no preemptive
or preferential rights of subscription to any shares of any class of capital
stock of the Corporation or any securities convertible into or exchangeable for
shares of any class of capital stock of the Corporation.
SECTION 5. No stockholder shall be entitled to exercise any right of
cumulative voting.
SECTION 6. The Preferred Stock may be issued, if so determined by the Board
of Directors, either as a class without series or from time to time in one or
more series and with such designation for such class or each issue of such class
or each such series as may be adopted by the Board of Directors. The Board of
9
<PAGE>
Directors in any such resolution or resolutions is expressly authorized to state
and express for such class or each such series:
(a) Voting rights, if any, including, without limitation, the authority
to confer multiple votes per share, voting rights as to specified matters or
issues or, subject to the provisions of this Certificate of Incorporation,
voting rights to be exercised either together with the holders of Common
Stock as a single class, or independently as a separate class;
(b) The rate per annum and the times at and conditions upon which the
holders of shares of such class or series shall be entitled to receive
dividends, the conditions and dates upon which such dividends shall be
payable and whether such dividends shall be cumulative or noncumulative,
and, if cumulative, the terms upon which such dividends shall be cumulative;
(c) Redemption, repurchase, retirement and sinking fund rights,
preferences and limitations, if any, the amount payable on shares of such
class or series in the event of such redemption, repurchase or retirement,
the terms and conditions of any sinking fund, the manner of creating such
fund or funds and whether any of the foregoing shall be cumulative or
noncumulative;
(d) The rights to which the holders of the shares of such class or
series shall be entitled upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation;
(e) The terms, if any, upon which the shares of such class or series
shall be convertible into or exchangeable for shares of stock of any other
class or classes or of any other series of the same or any other class or
classes, including the price or prices or the rate or rates of conversion or
exchange and the terms of adjustment, if any; and
(f) Any other designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions thereof so far as they are not inconsistent with the provisions
of this Certificate of Incorporation (as it may be amended from time to
time) and to the full extent now or hereafter permitted by the laws of the
State of Delaware.
SECTION 7. All shares of Preferred Stock, if issued as a class without
series, or all shares of the Preferred Stock of any one series, if issued in
series, shall be identical to each other in all respects and shall entitle the
holders thereof to the same rights and privileges, except that shares of any one
series issued at different times may differ as to the dates from which dividends
thereon, if cumulative, shall be cumulative.
SECTION 8. Except as otherwise provided by law, and subject to any rights
of the holders of Preferred Stock, the provisions of this Article IV (other than
Section 1 hereof) shall not be modified, revised, altered or amended, repealed
or rescinded in whole or in part, without the affirmative vote of the holders of
at least a majority of the then outstanding shares of Class A Common Stock and
the Class B Common Stock, voting together as a single class; PROVIDED, HOWEVER,
that with respect to any proposed amendment to this Certificate of Incorporation
which would alter or change the powers, preferences or special rights of the
shares of Class A Common Stock or Class B Common Stock so as to affect them
adversely, the affirmative vote of the holders of at least a majority of the
then outstanding shares of the class affected by the proposed amendment, voting
separately as a class, shall be obtained in addition to the affirmative vote of
the holders of at least a majority of the Class A Common Stock and the Class B
Common Stock, voting together as a single class as provided above.
ARTICLE V
BOARD OF DIRECTORS
SECTION 1. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors, which may exercise all the
powers of the Corporation and do all such lawful acts and things that are not
conferred upon or reserved to the stockholders by law, by this Certificate of
Incorporation or by the By-laws of the Corporation.
10
<PAGE>
SECTION 2. The Board of Directors shall consist of not less than five (5)
and not more than ten (10) directors, the exact number of directors to be
determined by resolution of the Board of Directors. The directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as possible, of one third of the total number of
directors constituting the entire Board of Directors, as determined by the Board
of Directors, and directors elected by a class of stock shall be divided as
evenly as possible, as determined by the Board of Directors, among Class I,
Class II and Class III; PROVIDED, HOWEVER, that, in the event that there shall
be only one Class A Director, such Class A Director shall be in Class I. The
term of the initial Class I directors shall terminate on the date of the 1999
annual meeting of stockholders of the Corporation; the term of the initial Class
II directors shall terminate on the date of the 2000 annual meeting of
stockholders of the Corporation; and the term of the initial Class III directors
shall terminate on the date of the 2001 annual meeting of stockholders of the
Corporation. Directors elected by a class of stock shall be divided as evenly as
possible, as determined by the Board of Directors, among Class I, Class II and
Class III. At each annual meeting of stockholders, beginning with the 1999
annual meeting of stockholders, successors to the class of directors whose terms
expire at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes of directors established pursuant to this Article V to
maintain the number of directors in each class as nearly equal as possible. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director. Notwithstanding the foregoing, each
director initially appointed on behalf of the Class A Common Stock shall hold
office initially for a term expiring at the 1999 annual meeting of stockholders.
Subject to the immediately preceding sentence, a director shall hold office
until the annual meeting for the year in which his or her term expires and until
his or her successor shall be elected and shall qualify, SUBJECT, HOWEVER, to
prior death, resignation, retirement, disqualification or removal from office.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation (as it may be amended from time to
time) or the resolution or resolutions adopted by the Board of Directors
pursuant to Section 4 of Article IV, and such directors so elected shall not be
divided into classes pursuant to this Section 2 of Article V unless expressly
provided by such terms.
SECTION 3. Election of directors need not be by written ballot unless the
By-laws of the Corporation so provide.
SECTION 4. The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of its directors and
stockholders:
(a) The By-laws of the Corporation may be altered, amended or repealed
and new By-laws may be adopted by the affirmative vote of directors
constituting not less than a majority of the total authorized number of
directors fixed from time to time by the Board of Directors pursuant to
Section 2 of this Article V.
(b) Advance notice of stockholder nominations for the election of
directors and of the proposal of business by stockholders shall be given in
the manner provided in the By-laws of the Corporation, as amended and in
effect from time to time.
(c) Subject to any preferential rights of any outstanding series of
Preferred Stock, any Class A Director may be removed from office, only with
cause, by the affirmative vote of the holders of at least a majority of the
outstanding Class A Common Stock and any director elected by the holders of
the Class B Common Stock may be removed, only with cause, by the affirmative
vote of the holders of at least a majority of the outstanding Class B Common
Stock; PROVIDED, HOWEVER, that prior to a Tax-Free Spin-Off, any director
elected by the holders of the Class B Common Stock may be removed, with or
11
<PAGE>
without cause, by the affirmative vote of the holders of at least a majority
of the outstanding Class B Common Stock.
(d) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at
least 80% of the Common Stock, voting as a single class, shall be required
to amend, repeal or adopt any provision inconsistent with this Article V.
ARTICLE VI
STOCKHOLDER ACTION
SECTION 1. Any corporate action required or permitted to be taken at any
annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation
(either by hand or by certified or registered mail, return receipt requested) at
its registered office in the State of Delaware or its principal place of
business, or to an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded; PROVIDED,
HOWEVER, that effective as of the date on which Silicon Graphics and its
affiliates cease to be the beneficial owner of an aggregate of at least a
majority of the then outstanding shares of Common Stock (the "Trigger Date"),
any corporate action required or permitted to be taken at any annual or special
meeting of stockholders may be taken only at a duly called annual or special
meeting of stockholders and may not be taken by written consent in lieu of such
a meeting.
SECTION 2. Effective as of the Trigger Date, unless otherwise prescribed by
law and subject to any preferential rights of any outstanding series of
Preferred Stock, special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Chairman of the Board of
Directors, the President or, at the request in writing of a majority of the
members of the Board of Directors, any officer of the Corporation, and effective
as of the Trigger Date, any power of the stockholders of the Corporation to call
a special meeting is specifically denied.
SECTION 3. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80% of the Common Stock, voting as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with this Article VI.
ARTICLE VII
INDEMNIFICATION
SECTION 1. Each person who was or is made a party to or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative, investigative or otherwise (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director or officer or in any other capacity while serving as a director or
officer, shall be indemnified to the fullest extent authorized by the DGCL, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, amounts paid or to be paid in settlement and excise
taxes or penalties imposed on fiduciaries with respect to (i) employee benefit
plans, (ii) charitable organizations or (iii) similar matters) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of
12
<PAGE>
such person's heirs, executors and administrators; PROVIDED, HOWEVER, that the
Corporation shall indemnify any such person seeking indemnity in connection with
a proceeding (or part thereof) initiated by such person (other than pursuant to
Section 2 of this Article VII) only if such proceeding (or part thereof) was
authorized by the Board of Directors. The right to indemnification conferred in
this Section 1 of Article VII shall be a contract right and shall include the
right to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; PROVIDED, HOWEVER, that, if the
DGCL requires, the payment of such expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section 1 of
Article VII or otherwise.
SECTION 2. If a claim the Corporation is obligated to pay under Section 1
of this Article VI is not paid in full by the Corporation within 60 days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim against the Corporation.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not yet established that
it meets the standards of conduct which make it permissible under the DGCL for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
SECTION 3. The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Article VII shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of this Certificate
of Incorporation, By-law of the Corporation, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
SECTION 4. The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, against any expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the DGCL.
SECTION 5. The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to be
paid by the Corporation the expenses incurred in defending any proceeding in
advance of its final disposition, to any employee or agent of the Corporation to
the fullest extent of the provisions in this Article VII with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
SECTION 6. If any part of this Article VII should be found to be invalid or
ineffective in any proceeding, the validity and effect of the remaining
provisions shall not be affected. Any repeal or modification of this Article VII
by the stockholders of the Corporation shall not adversely affect any rights
13
<PAGE>
to indemnification and to advancement of expenses that any person may have at
the time of such repeal or modification with respect to any acts or omissions
occurring prior to such repeal or modification.
ARTICLE VIII
BY-LAWS
SECTION 1. The By-laws of the Company may be altered, amended or repealed
and new By-laws may be adopted (i) at any annual or special meeting of
stockholders, by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock, voting together as a single class, entitled
to vote thereat, PROVIDED, HOWEVER, that any proposed alteration, amendment or
repeal of, or the adoption of any By-law inconsistent with, Sections 3, 5 or 10
of Article II of the By-laws or Sections 1 or 5 of Article III of the By-laws by
the stockholders shall require the affirmative vote of the holders of at least
80% of the Common Stock, voting as a single class, or (ii) by the affirmative
vote of directors constituting not less than a majority of the total number of
directors which the Corporation would have if there were no vacancies.
SECTION 2. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80% of the Common Stock, voting as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with this Article VIII.
ARTICLE IX
LIMITATION ON LIABILITY OF DIRECTORS
SECTION 1. A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
ARTICLE X
CORPORATE OPPORTUNITIES
SECTION 1. As the Corporation recently ceased to be a wholly owned
subsidiary of Silicon Graphics, but Silicon Graphics remains a substantial
stockholder of the Corporation, and in anticipation that the Corporation and
Silicon Graphics may engage in the same or similar activities or lines of
business and have an interest in the same areas of corporate opportunities, and
in recognition of the benefits to be derived by the Corporation through its
continued contractual, corporate and business relations with Silicon Graphics
(including possible service of officers and directors of Silicon Graphics as
officers and directors of the Corporation), the provisions of this Article are
set forth to regulate and define the conduct of certain affairs of the
Corporation as they may involve Silicon Graphics and its officers and directors,
and the powers, rights, duties and liabilities of the Corporation and its
officers, directors and stockholders in connection therewith.
SECTION 2. Silicon Graphics shall have no duty to refrain from engaging in
the same or similar activities or lines of business as the Corporation, and
neither Silicon Graphics nor any officer or director thereof (except as provided
in Section 3 below) shall be liable to the Corporation or its stockholders for
the breach of any fiduciary duty by reason of any such activities of Silicon
Graphics. In the event that Silicon Graphics acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both Silicon
Graphics and the Corporation, Silicon Graphics shall have no duty to communicate
or offer such corporate opportunity to the Corporation and shall not be liable
to the Corporation or its stockholders for breach of any fiduciary duty as a
stockholder of the Corporation by reason of the fact that
14
<PAGE>
Silicon Graphics pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another person, or does not communicate
information regarding such corporate opportunity to the Corporation.
SECTION 3. In the event that a director or officer of the Corporation who
is also a director or officer of Silicon Graphics acquires knowledge of a
potential transaction or matter which may be a corporate opportunity for both
the Corporation and Silicon Graphics, such director or officer of the
Corporation shall have fully satisfied and fulfilled the fiduciary duty of such
director or officer to the Corporation and its stockholders with respect to such
corporate opportunity, if such director or officer acts in a manner consistent
with the following policy: (i) a corporate opportunity offered to any person who
is an officer of the Corporation, and who is also a director but not an officer
of Silicon Graphics, shall belong to the Corporation; (ii) a corporate
opportunity offered to any person who is a director but not an officer of the
Corporation, and who is also a director or officer of Silicon Graphics shall
belong to the Corporation if such opportunity is expressly offered to such
person in writing solely in his or her capacity as a director of the
Corporation, and otherwise shall belong to Silicon Graphics; and (iii) a
corporate opportunity offered to any person who is an officer of both the
Corporation and Silicon Graphics shall belong to the Corporation if such
opportunity is expressly offered to such person in writing solely in his or her
capacity as an officer of the Corporation, and otherwise shall belong to Silicon
Graphics.
SECTION 4. Any person purchasing or otherwise acquiring any interest in
shares of the capital stock of the Corporation shall be deemed to have notice of
and to have consented to the provisions of this Article.
SECTION 5. For purposes of this Article only:
(a) A director of the Corporation who is Chairman of the Board of
Directors or of a committee thereof shall not be deemed to be an officer of
the Corporation by reason of holding such position (without regard to
whether such position is deemed an office of the Corporation under the
By-laws of the Corporation), unless such person is a full-time employee of
the Corporation; and
(b) (i) The term "Corporation" shall mean the Corporation and all
corporations, partnerships, joint ventures, associations and other entities
in which the Corporation beneficially owns (directly or indirectly) 50% or
more of the outstanding voting stock, voting power, partnership interests or
similar voting interests, and (ii) the term "Silicon Graphics," for the
purpose of this Article only, shall mean Silicon Graphics and all
corporations, partnerships, joint ventures, associations and other entities
(other than the Corporation, defined in accordance with clause (i) of this
Section 5(b)) in which Silicon Graphics beneficially owns (directly or
indirectly) 50% or more of the outstanding voting stock, voting power,
partnership interests or similar voting interests.
SECTION 6. Notwithstanding anything in this Certificate of Incorporation to
the contrary, (i) the foregoing provisions of this Article shall expire on the
date that Silicon Graphics ceases to beneficially own Common Stock representing
at least 20% of the outstanding shares of Common Stock and no person who is a
director or officer of the Corporation is also a director or officer of Silicon
Graphics; and (ii) in addition to any vote of the stockholders required by this
Certificate of Incorporation, until the time that Silicon Graphics ceases to
beneficially own Common Stock representing at least 20% of the outstanding
shares of Common Stock, the affirmative vote of the holders of more than 80% of
the outstanding shares of Common Stock, voting as a single class, shall be
required to alter, amend or repeal in a manner adverse to the interests of
Silicon Graphics, or adopt any provision adverse to the interests of Silicon
Graphics and inconsistent with, any provision of this Article. Neither the
alteration, amendment or repeal of this Article nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
shall eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such alteration, amendment, repeal or adoption.
15
<PAGE>
ARTICLE XI
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend, alter, restate, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by the laws of the State of Delaware, and all
rights of the stockholders herein are granted subject to this reservation.
This Amended and Restated Certificate of Incorporation shall become
effective at (Wilmington, Delaware time), , 1999.
IN WITNESS WHEREOF, MIPS TECHNOLOGIES, INC. has caused this certificate to
be signed by John E. Bourgoin, its President and Chief Executive Officer, and
attested by Kevin C. Eichler, its Vice President and Chief Financial Officer, on
this day of , 1999.
<TABLE>
<S> <C> <C>
MIPS TECHNOLOGIES, INC.
By:
-----------------------------------------
Name: John E. Bourgoin
Title: President and Chief Executive
Officer
ATTEST:
- ------------------------------
Name: Kevin C. Eichler
Title: Vice President and
Chief Financial Officer
</TABLE>
16
<PAGE>
EXHIBIT 3.2
FORM OF
AMENDED AND RESTATED BY-LAWS
OF
MIPS TECHNOLOGIES, INC.
ARTICLE I
OFFICES
The registered office of the Corporation shall be in the City of Wilmington,
County of New Castle, State of Delaware. The Corporation may also have one or
more offices at such other places, either inside or outside of the State of
Delaware, as the Board of Directors may from time to time determine or as the
business of the Corporation may require. The books and records of the
Corporation may be kept (subject to the provisions of the laws of the State of
Delaware) at any place, either inside or outside of the State of Delaware, as
from time to time may be determined by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders (whether annual or
special) shall be held at such place, either inside or outside of the State of
Delaware, as the Board of Directors shall from time to time determine.
Section 2. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation shall be held on such date and at such time as may be fixed by
resolution of the Board of Directors.
Section 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by the
Corporation's Amended and Restated Certificate of Incorporation, as amended from
time to time (the "Charter"), and subject to any preferential rights of any
outstanding series of Preferred Stock (as defined in the Charter), special
meetings of stockholders of the Corporation for any purpose or purposes may be
called only by the Chairman of the Board of Directors, the President, or, at the
request in writing of a majority of the Board of Directors, by any officer. Such
request shall state the purpose or purposes of the proposed meeting. In
addition, prior to the Trigger Date (as defined in the Charter), the Corporation
shall call a special meeting of stockholders of the Corporation promptly upon
request by Silicon Graphics, Inc., a Delaware corporation, or any of its
affiliates, in each case if such entity is a stockholder of the Corporation.
Section 4. NOTICE OF MEETINGS. Except as otherwise provided by law,
written or printed notice, stating the place, day and hour of the meeting and
the purpose or purposes for which the meeting is called shall be delivered by
the Corporation not less than ten (10) calendar days nor more than sixty (60)
calendar days before the date of the meeting, either personally or by mail, to
each stockholder of record entitled to vote at such meeting. Meetings may be
held without notice if all stockholders entitled to vote are present, or if
notice is waived by those not present in accordance with Section 2 of Article X
of these By-laws. Any previously scheduled meeting of the stockholders may be
postponed, and any special meeting of the stockholders may be canceled, by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting of stockholders.
Section 5. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders (A) pursuant to the Corporation's notice
of meeting delivered pursuant to Section 4 of this Article II, (B) by or at
1
<PAGE>
the direction of the Board of Directors, (C) by any stockholder of the
Corporation who was a stockholder of record at the time of the giving of the
notice provided for in this Section 5, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this
Section 5, or (D) prior to the Trigger Date, by Silicon Graphics, Inc., a
Delaware corporation ("Silicon Graphics"), or any of its affiliates that is
a stockholder of the Corporation.
(ii) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (C) of paragraph (a)(i)
of this Section 5, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation, and, if the stockholder is
proposing other business, such other business must be a proper subject for
stockholder action, and, if the stockholder is nominating a person or
persons for election to the Board of Directors, such nominating stockholder
must be entitled to vote for the election of the director to be nominated.
To be timely, a stockholder's notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not less than sixty (60)
days nor more than ninety (90) days prior to the first anniversary of the
preceding year's annual meeting; PROVIDED, HOWEVER, that, in the event that
the date of the annual meeting is advanced by more than thirty (30) days or
delayed by more than sixty (60) days from such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the sixtieth day prior to such annual meeting or
the tenth day following the day on which public announcement of the date of
such meeting is first made by the Corporation. For purposes of determining
whether a stockholder's notice shall have been delivered in a timely manner
for the annual meeting of stockholders in 1999, the first anniversary of the
previous year's meeting shall be deemed to be October 29, 1999. In no event
shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as
described above. Such stockholder's notice shall set forth (A) as to each
person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as
a director if elected) and the class of stock which such director will
represent; (B) as to any other business that the stockholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; and (C)
as to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made, (1) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (2) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this Section 5 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is
no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors made by
the Corporation at least seventy (70) days prior to the first anniversary of
the preceding year's annual meeting, a stockholders' notice required by this
Section 5 shall also be considered timely, but only with respect to nominees
for any new positions created by such increase, if it shall be delivered to
the Secretary at the principal executive offices of the Corporation not
later than the close of business on the tenth day following the day on which
such public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of
2
<PAGE>
meeting pursuant to Section 4 of this Article II. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (i) by or at the direction of the Board of Directors, (ii) by
any stockholder of the Corporation who was a stockholder of record at the time
of the giving of the notice provided for in this Section 5, who is entitled to
vote for the election of the director to be nominated at the special meeting,
and who complies with the notice procedures set forth in this Section 5, or
(iii) prior to the Trigger Date and with respect to the directors that the
holders of the Class B Common Stock (as defined in the Charter) are entitled to
elect, by Silicon Graphics, or any of its affiliates that is a stockholder of
the Corporation. In the event that the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any stockholder entitled to vote for the election of the director to
be nominated may nominate such person or persons (as the case may be), for
election to the Board of Directors, if the requirements of paragraph (a)(ii) of
this Section 5 shall be met and the stockholder's notice required thereby is
delivered to the Secretary of the Corporation at the principal executive offices
of the Corporation not earlier than the ninetieth day prior to such special
meeting and not later than the close of business on the later of the sixtieth
day prior to such special meeting or the tenth day following the day on which
public announcement by the Corporation is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting.
(c) General.
(i) Only persons who are nominated in accordance with the procedures set
forth in this Section 5 shall be eligible to serve as directors and only
such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Charter or these
By-laws, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before
the meeting was made in accordance with this Section 5 and, if any proposed
nomination or business is not in compliance with this Section 5, to declare
that such defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 5, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 5. Nothing in this Section 5 shall be
deemed to affect any rights (A) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under
the Exchange Act or (B) of the holders of any series or Preferred Stock to
elect directors.
Section 6. QUORUM. Except as otherwise provided by law or in the Charter,
at any meeting of stockholders, the holders of a majority of the aggregate
voting power of all outstanding shares of all classes of capital stock of the
Corporation entitled to vote at such meeting (the "Voting Stock"), represented
in person or by proxy, shall constitute a quorum at such meeting, except when
specified business is required to be voted on by a class or series of stock
voting as a class, the holders of a majority of the shares of such class or
series shall constitute a quorum of such class or series for the transaction of
such business. At any meeting of stockholders at which a quorum is not present,
the person serving as chairman of the meeting or the holders of a majority in
interest of the stockholders present in person or by proxy and who are entitled
to vote on every matter that is to be voted on without regard to class at such
meeting may adjourn the meeting. No notice of the time and place of adjourned
meetings need be given except as required by law.
3
<PAGE>
Section 7. ORGANIZATION AND CONDUCT OF BUSINESS. The Chairman of the Board
of Directors shall act as chairman of meetings of the stockholders. The Board of
Directors may designate any other officer or director of the Corporation to act
as chairman of any meeting in the absence of the Chairman of the Board of
Directors, and the Board of Directors may further provide for determining who
shall act as chairman of any stockholder's meeting in the absence of the
Chairman of the Board of Directors and such designee. The person serving as
chairman of any meeting of stockholders shall determine the order of business
and the procedure at the meeting, including such regulation of the manner of
voting and the conduct of discussion as seem to him or her in order.
The Secretary of the Corporation shall act as secretary of all meetings of
the stockholders, but in the absence of the Secretary the presiding officer may
appoint any other person to act as secretary of any meeting.
Section 8. PROXIES AND VOTING. At any meeting of stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument executed in writing (or in such manner prescribed by the General
Corporation Law of the State of Delaware) by the stockholder, or by such
person's duly authorized attorney in fact.
Election of directors at all meetings of the stockholders at which directors
are to be elected shall be by ballot, and, subject to the rights of the holders
of any series of Preferred Stock to elect directors, a plurality of the shares
present in person or represented by proxy at the meeting, entitled to vote in
the election and actually cast shall elect the directors. Except as otherwise
provided by law, the Charter and these By-laws and subject to the rights of the
holders of any series of Preferred Stock, in all matters other than the election
of directors, the affirmative vote of a majority of the voting power of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the matter shall be the act of the stockholders.
Section 9. INSPECTORS OF ELECTION. The Board of Directors may, and to the
extent required by law shall, in advance of any meeting of stockholders, appoint
one or more inspectors to act at the meeting, decide upon the qualification of
voters, count the votes, decide the results and make a written report thereof in
accordance with the General Corporation Law of the State of Delaware. The Board
of Directors may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of stockholders, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspector(s) shall have the
duties prescribed by law.
Section 10. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Effective as of the
Trigger Date, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of such holders and may not be effected by any consent in writing by such
holders.
ARTICLE III
BOARD OF DIRECTORS
Section 1. NUMBER AND TERM OF OFFICE. Subject to the rights, if any, of
holders of preferred stock of the Corporation, the number of directors of the
Corporation shall be fixed from time to time exclusively by resolution of the
Board of Directors adopted by the affirmative vote of directors constituting not
less than a majority of the Whole Board (as hereinafter defined), but shall
consist of not more than ten (10) nor less than five (5) directors. The
directors, other than those who may be elected by the holders of any class or
series of preferred stock of the Corporation, shall be classified, with respect
to the time they severally hold office, into three classes, as nearly equal in
number as possible, one class to be initially elected for a term expiring at the
annual meeting of stockholders to be held in 1999, another class to be initially
elected for a
4
<PAGE>
term expiring at the annual meeting of stockholders to be held in 2000, and
another class to be initially elected for a term expiring at the annual meeting
of stockholders to be held in 2001, with each director to serve until his or her
successor shall have been elected and shall have qualified, PROVIDED, HOWEVER,
that, in the event that there shall be only one Class A Director (as defined in
the Charter), such Class A Director shall be in the class of directors whose
initial term expires at the annual meeting of stockholders to be held in 1999.
Directors elected by a class of stock shall be divided as evenly as possible, as
determined by the Board of Directors, among the three classes of directors. At
each succeeding annual meeting of stockholders, directors elected to succeed
those directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to serve until his or her successor shall have been
elected and shall have qualified. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes of directors
established pursuant to Article V of the Charter to maintain the number of
directors in each class as nearly equal as possible. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director. Notwithstanding the foregoing, each director initially
appointed on behalf of the Class A Common Stock shall hold office initially for
a term expiring at the 1999 annual meeting of stockholders. Subject to the
immediately preceding sentence, a director shall hold office until the annual
meeting for the year in which his or her term expires and until his or her
successor shall be elected and shall qualify, SUBJECT, HOWEVER, to prior death,
resignation, retirement, disqualification or removal from office.
For purposes of these By-laws, the term "Whole Board" shall mean the total
number of directors fixed by resolution of the Board of Directors pursuant to
Section 1 of this Article III.
Section 2. MEETINGS. Regular meetings of the Board of Directors may be
held at such place, either inside or outside of the State of Delaware, and at
such time, as may from time to time be designated by the Chairman of the Board
of Directors or resolution of the Board of Directors or as may be specified in
the call of any meeting. An annual meeting of the Board of Directors shall be
held on the same day as, and as soon as practicable following, the annual
meeting of stockholders or at such other time or place as shall be determined by
the Board of Directors at its regular meeting next preceding said annual meeting
of stockholders.
Special meetings of the Board of Directors may be held at any time on the
call of the Chairman of the Board of Directors, the President or a majority of
the Board of Directors then in office. The person or persons authorized to call
special meetings of the Board of Directors may fix the time and place of the
meetings. Meetings may be held at any time or place without notice if all the
directors are present or if those not present waive notice of the meeting in
writing.
Section 3. NOTICE OF MEETINGS. Notice of the time and place of meetings of
the Board of Directors (excepting the annual meeting of directors) shall be
given to each director by the Secretary or an Assistant Secretary of the
Corporation by (i) mailing or sending via courier such notice not later than
during the second day preceding the day on which such meeting is to be held, or
(ii) by (a) sending a facsimile transmission or other form of electronic
communication containing such notice or (b) delivering such notice personally or
by telephone, in each case, not later than during the first day preceding the
day on which such meeting is to be held. Unless otherwise stated in the notice
thereof, any and all business may be transacted at any meeting.
Section 4. QUORUM AND ORGANIZATION OF MEETINGS. Subject to Section 5 of
this Article III, a number of directors equal to at least a majority of the
Whole Board shall constitute a quorum for the transaction of business, but if at
any meeting of the Board of Directors there shall be less than a quorum present,
a majority of the directors present may adjourn the meeting from time to time
without further notice. The act of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
The directors present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough directors
to leave less than a quorum.
5
<PAGE>
Meetings shall be presided over by the Chairman of the Board of Directors
or, in his or her absence, by such other person as the Board of Directors may
designate or the members present may select.
Section 5. VACANCIES. Any vacancy in the office of a director created by
the death, resignation, disqualification or removal of a director may be filled
by the vote of the majority of the directors then in office (or the sole
remaining director) elected by (or appointed on behalf of) the same class of
stock that elected that director (or on behalf of which that director was
appointed) whose death, resignation, disqualification or removal created the
vacancy, unless there are no such directors or no outstanding shares of such
class of stock, in which case such vacancy may be filled by the vote of the
majority of all directors then in office, even if less than a quorum, or by the
sole remaining director. Notwithstanding anything in Section (2)(f) or Section
(2)(e) of Article IV of the Charter to the contrary, any vacancy in the office
of a director created by the death, resignation, disqualification or removal of
a director elected by (or appointed on behalf of) the holders of a class of
stock may also be filled by a vote of holders of such class of stock, unless
there are no outstanding shares of such class of stock, in which case any such
vacancy may be filled by a vote of holders of the holders of the remaining class
of stock. Any director elected to fill a vacancy created by the death,
resignation, disqualification or removal of a director shall hold office for the
remainder of the full term of the director whose vacancy is being filled and
until such director's successor shall have been elected and qualified unless
removed and replaced pursuant to Section 4(c) of Article V of the Charter and
Section (2)(f) of Article IV of the Charter.
Subject to the rights, if any, of the holders of any series of Preferred
Stock then outstanding, any vacancy on the Board of Directors that results from
an increase in the number of directors shall be filled by the vote of the
majority of the directors then in office. In filling such vacancies, the Board
of Directors shall take all necessary actions to ensure that, following the
appointment to such vacancies (unless prior thereto all of the outstanding
shares of Class B Common Stock shall have been converted into or exchanged for
shares of Class A Common Stock), 20% of the number of members of the Board of
Directors as so increased (or, if such 20% is not a whole number, then the next
lower whole number of directors that is closest to 20% of such membership)
consists of directors elected by (or appointed on behalf of) the holders of
Class A Common Stock, and the remaining members of the Board of Directors as so
increased consists of directors elected by (or appointed on behalf of) the
holders of Class B Common Stock. Any director elected (or appointed) in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created and until such director's successor shall have been elected and
qualified, unless such director is removed and replaced pursuant to Section 4(c)
of Article V and Section (2)(f) of Article IV of the Charter.
Section 6. POWERS. In addition to the powers and authorities by these
By-laws expressly conferred upon them, the Board of Directors shall have and may
exercise all such powers of the Corporation and do all such lawful acts and
things that are not by statute, the Charter or these By-laws directed or
required to be exercised or done by the stockholders.
Section 7. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each
member of any committee designated by the Board of Directors and each officer,
in the performance of his or her duties, shall be fully protected in relying in
good faith upon such information, opinions, reports or statements presented to
the Corporation by any of its officers or employees, or by committees of the
Board of Directors, or by any other person, as to matters such director, member
or officer, as the case may be, reasonably believes are within such person's
professional or expert competence and who has been selected with reasonable care
by the Board of Directors or by any such committee, or in relying in good faith
upon other records of the Corporation.
Section 8. COMPENSATION OF DIRECTORS. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
services as members of committees of the Board of Directors; PROVIDED, HOWEVER,
that nothing
6
<PAGE>
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 9. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise
provided by the Charter or these By-laws, members of the Board of Directors, or
any committee designated by the Board of Directors, may participate in a meeting
of the Board of Directors or such committee by means of a conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting pursuant to
this Section 9 shall constitute presence in person at such meeting.
Section 10. ACTIONS BY WRITTEN CONSENT. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
Section 1. COMMITTEES OF THE BOARD OF DIRECTORS. There are hereby
established as committees of the Board of Directors an Audit Committee and a
Compensation Committee, each of which shall have the powers and functions set
forth in Sections 2 and 3 hereof, respectively, and such additional powers as
may be delegated to it by the Board of Directors. The Board of Directors may
from time to time establish additional standing committees or special committees
of the Board of Directors, each of which shall have such powers and functions as
may be delegated to it by the Board of Directors. The Board of Directors may
abolish any committee established by or pursuant to this Section 1 as it may
deem advisable. Each such committee shall consist of two or more directors, the
exact number being determined from time to time by the Board of Directors.
Designations of the chairman and members of each such committee, and, if
desired, a vice chairman and alternates for members, shall be made by the Board
of Directors. In the absence or disqualification of any member of any committee
and any alternate member in his or her place, the member or members of the
committee present at the meeting, and not disqualified from voting whether or
not he or she or they constitute a quorum, may by unanimous vote appoint another
member of the Board of Directors to act at the meeting in the place of the
absent or disqualified member. Each committee shall have a secretary who shall
be designated by its chairman. A vice chairman of a committee shall act as the
chairman of the committee in the absence or disability of the chairman. Nothing
herein shall be deemed to prevent the Board of Directors from appointing one or
more committees consisting in whole or in part of persons who are not directors
of the Corporation; PROVIDED, HOWEVER, that no such committee shall have or may
exercise any authority of the Board of Directors.
Section 2. AUDIT COMMITTEE. The Audit Committee shall select and engage,
on behalf of the Corporation, independent public accountants to (a) audit the
books of account and other corporate records of the Corporation and (b) perform
such other duties as the Audit Committee may from time to time prescribe. The
Audit Committee shall transmit financial statements certified by such
independent public accountants to the Board of Directors after the close of each
fiscal year. The selection of independent public accountants for each fiscal
year shall be made in advance of the annual meeting of stockholders in such
fiscal year and shall be submitted for ratification or rejection at such
meeting. The Audit Committee shall confer with such accountants and review and
approve the scope of the audit of the books of account and other corporate
records of the Corporation. The Audit Committee shall have the power to confer
with and direct the officers of the Corporation to the extent necessary to
review the internal controls, accounting practices, financial structure and
financial reporting of the Corporation. From time to time the Audit Committee
shall report to and advise the Board of Directors concerning the results of its
consultation and review and such other matters relating to the internal
controls, accounting practices, financial structure and financial reporting of
the Corporation as the Audit Committee believes merit
7
<PAGE>
review by the Board of Directors. The Audit Committee also shall perform such
other functions and exercise such other powers as may be delegated to it from
time to time by the Board of Directors.
Section 3. COMPENSATION COMMITTEE. The Compensation Committee shall fix
from time to time the salaries of members of the Board of Directors who are
officers or employees of the Corporation and of all Senior Vice Presidents,
Executive Vice Presidents and Vice Presidents of the Corporation. It also shall
perform such functions as may be delegated to it under the provisions of any
bonus, supplemental compensation, special compensation or stock option plan of
the Corporation.
Section 4. RULES AND PROCEDURES. Each committee may fix its own rules and
procedures and shall meet at such times and places as may be provided by such
rules, by resolution of the committee or by call of the chairman or vice
chairman of such committee. Notice of each meeting of each committee, other than
of regular meetings provided for by its rules or resolutions, shall be given to
committee members. The presence of a majority of its members, but not less than
two, shall constitute a quorum of any committee, and all questions shall be
decided by a majority vote of the members present at the meeting. All actions
taken at each committee meeting shall be recorded in minutes of the meeting.
Section 5. APPLICATION OF ARTICLE. Whenever any provision of any other
document relating to any committee of the Corporation named therein shall be in
conflict with any provision of this Article IV, the provisions of this Article
IV shall govern, except that if such other document shall have been approved by
the stockholders or by the Board of Directors, the provisions of such other
document shall govern.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Corporation shall include a
Chairman of the Board of Directors, who shall be chosen from among the
directors, a President, a Chief Financial Officer, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Treasurer, a General Counsel and a Secretary, each of whom shall be elected by
the Board of Directors to hold office until his or her successor shall have been
chosen and shall have qualified for office. The Board of Directors, the Chairman
of the Board of Directors and the Chief Executive Officer may elect or appoint
one or more Controllers, one or more Assistant Vice Presidents, one or more
Assistant Treasurers, one or more Assistant General Counsels and one or more
Assistant Secretaries, and the Board of Directors may elect or appoint such
other officers as it may deem necessary, or desirable, each of whom shall have
such authority, shall perform such duties and shall hold office for such term as
may be prescribed by the Board of Directors from time to time. Any person may
hold at one time more than one office, excepting that the duties of the
President and Secretary shall not be performed by one person.
Section 2. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors may be, but need not be, the Chief Executive Officer of the
Corporation. Subject to the provisions of these By-laws and to the direction of
the Board of Directors, he or she shall have ultimate authority for decisions
relating to the general management and control of the affairs and business of
the Corporation and shall perform all other duties and exercise all other powers
commonly incident to the position of chairman or which are or from time to time
may be delegated to him or her by the Board of Directors, or which are or may at
any time be authorized or required by law. He or she shall preside at all
meetings of the Board of Directors. He or she shall make reports to the Board of
Directors and stockholders, and shall see that all orders and resolutions of the
Board of Directors and any committee thereof are carried into effect. The
Chairman of the Board may also serve as President, if so elected by the Board of
Directors. The Board of Directors may also elect a Vice Chairman to act in the
place of the Chairman upon his or her absence or inability to act.
Section 3. PRESIDENT. Subject to the provisions of these By-laws and to
the direction of the Board of Directors and of the Chief Executive Officer, the
President shall have such powers and shall perform such duties as from time to
time may be delegated to him or her by the Board of Directors or by the Chief
Executive Officer, or which are or may at any time be authorized or required by
law.
8
<PAGE>
Section 4. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE
PRESIDENTS. Each of the Executive Vice Presidents, each of the Senior Vice
Presidents and each of the other Vice Presidents shall have such powers and
shall perform such duties as may be delegated to him or her by the Board of
Directors, the Chairman of the Board of Directors, the President or such other
officer or officers to whom he or she is directly responsible.
Section 5. TREASURER AND ASSISTANT TREASURER. The Treasurer, subject to
the direction of the Board of Directors, shall have the care and custody of all
funds and securities of the Corporation. When necessary or proper he or she
shall endorse on behalf of the Corporation for collection, checks, notes and
other obligations, and shall deposit all funds of the Corporation in such banks
or other depositaries as may be designated by the Board of Directors or by such
officers or employees as may be authorized by the Board of Directors so to
designate. He or she shall perform all acts incident to the office of Treasurer,
subject to the control of the Board of Directors and such other officer or
officers to whom he or she is directly responsible. He or she may be required to
give a bond for the faithful discharge of his or her duties, in such sum and
upon such conditions as the Board of Directors may require.
At the request and direction of the Treasurer or, in the case of his or her
absence or inability to act, any Assistant Treasurer may act in his or her
place. In the case of the death of the Treasurer, or in the case of his or her
absence or inability to act without having designated an Assistant Treasurer to
act temporarily in his or her place, the Assistant Treasurer or other person so
to perform the duties of the Treasurer shall be designated by the Chairman of
the Board of Directors, the President or an Executive Vice President.
Section 6. SECRETARY AND ASSISTANT SECRETARY. The Secretary shall keep
full and accurate minutes of the meetings of the stockholders and of the Board
of Directors in the proper record book of the Corporation provided therefor,
and, when required, the minutes of meetings of the committees, and shall be
responsible for the custody of all such minutes. Subject to the direction of the
Board of Directors, the Secretary shall have custody of the stock ledgers and
documents of the Corporation. He or she shall have custody of the corporate seal
of the Corporation and shall affix and attest such seal to any instrument whose
execution under seal shall have been duly authorized. He or she shall give due
notice of meetings and, subject to the direction of the Board of Directors,
shall perform all other duties commonly incident to his or her office or as
properly required of him or her by the Chairman of the Board of Directors and
such other officer or officers to whom he or she is directly responsible and
shall enjoy all other powers commonly incident to his or her office.
At the request and direction of the Secretary or, in the case of his or her
absence or inability to act, any Assistant Secretary may act in his or her
place. In the case of the death of the Secretary, or in the case of his or her
absence or inability to act without having designated an Assistant Secretary to
act temporarily in his or her place, the Assistant Secretary or other person so
to perform the duties of the Secretary shall be designated by the Chairman of
the Board of Directors, the President or an Executive Vice President.
Section 7. ASSISTANT VICE PRESIDENTS AND OTHER OFFICERS. Each Assistant
Vice President and other officers shall perform such duties commonly incident to
his or her office or as properly required of him or her by the Chairman of the
Board of Directors and such other officer or officers to whom he or she is
directly responsible.
Section 8. GENERAL COUNSEL. The General Counsel shall have general
supervision of all matters of a legal nature concerning the Corporation. He or
she shall perform all such duties commonly incident to his or her office or as
properly required of him or her by the Chairman of the Board of Directors and
such other officer or officers to whom he or she is directly responsible.
Section 9. SALARIES. Salaries of officers, agents or employees shall be
fixed from time to time by the Board of Directors or by such committee or
committees, or person or persons, if any, to whom such power shall have been
delegated by the Board of Directors. An employment contract, whether with an
officer, agent or employee, if expressly approved or specifically authorized by
the Board of Directors, may fix a
9
<PAGE>
term of employment thereunder; and such contract, if so approved or authorized,
shall be valid and binding upon the Corporation in accordance with the terms
thereof, PROVIDED that this provision shall not limit or restrict in any way the
right of the Corporation at any time to remove from office, discharge or
terminate the employment of any such officer, agent or employee prior to the
expiration of the term of employment under any such contract.
Section 10. VACANCIES. A vacancy in any office filled by election of the
Board of Directors may be filled by the Board of Directors by the election of a
new officer who shall hold office, subject to the provisions of this Article V,
until the regular meeting of the directors following the next annual meeting of
the stockholders and until his or her successor is elected.
Section 11. REMOVAL OR DISCHARGE. Any officer may be removed or discharged
by the Chairman of the Board of Directors at any time excepting an officer who
is also a director. Any officer who also is a director may be discharged at any
time by the Board of Directors.
ARTICLE VI
RESIGNATIONS
Any director or officer of the Corporation, whether elected or appointed,
may resign at any time by giving written notice of such resignation to the
Chairman of the Board of Directors, the President, or the Secretary, and such
resignation shall be deemed effective as of the close of business on the date
said notice is received by the Chairman of the Board of Directors, the
President, or the Secretary, or at such later time as is specified therein. No
formal action shall be required of the Board of Directors or the stockholders to
make any such resignation effective.
ARTICLE VII
CAPITAL STOCK; DIVIDENDS; SEAL
Section 1. STOCK CERTIFICATES AND TRANSFERS. The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares of
stock in such form as the appropriate officers of the Corporation may from time
to time prescribe. The shares of the stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person or
by such person's attorney upon surrender for cancellation of certificates for at
least the same number of shares, with an assignment and power of transfer
endorsed thereon or attached thereto, duly executed, and with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require. The certificates of stock shall be numbered and signed by the Chairman
of the Board of Directors, the President, an Executive Vice President, a Senior
Vice President or a Vice President, and also by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary. Any and all signatures
may be facsimiles. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
Section 2. LOST, DESTROYED OR STOLEN CERTIFICATES. Any person claiming a
stock certificate in lieu of one lost, destroyed or stolen, shall give the
Corporation an affidavit as to his, her or its ownership of the certificate and
of the facts which go to prove that it has been lost, destroyed or stolen. If
required by the Board of Directors or any financial officer of the Corporation,
he, she or it also shall give the Corporation a bond, in such form as may be
approved by the Board of Directors or such financial officer, sufficient to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss of the certificate or the issuance of a new
certificate. A new certificate shall be issued upon receipt of such an affidavit
and, if required, upon the giving of such a bond.
Section 3. RECORD OF HOLDER OF SHARES. The Corporation shall be entitled
to treat the holder of record of any share or shares as the holder in fact
thereof, and accordingly shall not be bound to recognize
10
<PAGE>
any equitable or other claims to or interest in such shares on the part of any
other person, whether or not it shall have express or other notice thereof, save
as expressly provided by the General Corporation Law of the State of Delaware.
The Corporation shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends and to vote
as such owner.
Section 4. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares of
capital stock in the manner and upon the terms and conditions provided by law
and the Charter.
Section 5. CORPORATE SEAL. The corporate seal shall be in such form as
shall from time to time be approved by the Board of Directors. If and when so
authorized by the Board of Directors, a duplicate of the seal may be kept and
used by the Secretary or Treasurer or by any Assistant Secretary or Assistant
Treasurer.
ARTICLE VIII
EXECUTION OF CONTRACTS AND OTHER DOCUMENTS
Section 1. CONTRACTS, ETC. Except as otherwise required by law, the
Charter or these By-laws, such officers, employees or agents of the Corporation
as shall be specified by the Board of Directors shall sign, in the name and on
behalf of the Corporation, all deeds, bonds, contracts, mortgages and other
instruments or documents, the execution of which shall be authorized by the
Board of Directors; and such authority may be general or confined to specific
instances. Except as so authorized by the Board of Directors, no officer, agent
or employee of the Corporation shall have the power or authority to bind the
Corporation by any contract or engagement or to pledge, mortgage, sell or
otherwise dispose of its credit or any of its property or to render it
pecuniarily liable for any purpose or in any amount.
Section 2. CHECKS, DRAFTS, ETC. Except as otherwise provided in these
By-laws, all checks, drafts, notes, bonds, bills of exchange or other orders,
instruments or obligations for the payment of money shall be signed by such
officer or officers, employee or employees, or agent or agents, as the Board of
Directors shall by resolution direct. The Board of Directors may, in its
discretion, also provide by resolution for the countersignature or registration
of any or all such orders, instruments or obligations for the payment of money.
Section 3. PROXIES. Unless otherwise prescribed by resolution adopted by
the Board of Directors, the Chairman of the Board of Directors, the President or
any Executive Vice President, Senior Vice President or Vice President may from
time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as the holder of stock or other
securities in any other corporation, any of whose stock or other securities may
be held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, or to consent in writing, in the name of
the Corporation as such holder, to any action by such other corporation, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed in the
name and on behalf of the Corporation and under its corporate seal or otherwise,
all such written proxies or other instruments as he or she may deem necessary or
proper in the premises.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall begin the first day of July in each
year.
11
<PAGE>
ARTICLE X
MISCELLANEOUS
Section 1. NOTICES AND WAIVERS THEREOF. Whenever any notice is required by
these By-laws, the Charter or any of the laws of the State of Delaware to be
given to any stockholder, director or officer, such notice, except as otherwise
provided by the laws of the State of Delaware, may be given personally or by
telephone or be given by facsimile transmission or other form of electronic
communication, addressed to such stockholder at such person's address as it
appears on the stock transfer books of the Corporation, or to such director or
officer at his or her Corporation location, if any, or at such address as
appears on the books of the Corporation, or the notice may be given in writing
by depositing the same in a post office, or in a regularly maintained letter
box, or by sending it via courier, postage prepaid, in a sealed wrapper
addressed to such stockholder at such person's address as it appears on the
stock transfer books of the Corporation, or to such director or officer at his
or her Corporation location, if any, or such address as appears on the books of
the Corporation.
Any notice given by facsimile transmission or other form of electronic
communication shall be deemed to have been given when it shall have been
transmitted. Any notice given by mail or courier shall be deemed to have been
given when it shall have been mailed or delivered to the courier.
A waiver of any such notice in writing, including by facsimile transmission,
signed or dispatched by the person entitled to such notice or by his or her duly
authorized attorney, whether before or after the time stated therein, shall be
deemed equivalent to the notice required to be given, and the presence at any
meeting of any person entitled to notice thereof shall be deemed a waiver of
such notice as to such person.
Section 2. AUDITS. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Audit Committee and approved by the
Board of Directors, and it shall be the duty of the Board of Directors to cause
such audit to be done annually.
ARTICLE XI
AMENDMENTS
These By-laws may be altered, amended or repealed, and new By-laws may be
adopted (a) at any annual or special meeting of stockholders by the affirmative
vote of the holders of a majority of the voting power of the stock issued and
outstanding and entitled to vote thereat, PROVIDED, HOWEVER, that any proposed
alteration, amendment or repeal of, or the adoption of any By-law inconsistent
with, Section 3, 5 or 10 of Article II or Section 1 or 5 of Article III of these
By-laws by the stockholders shall require the affirmative vote of the holders of
at least 80% of the voting power of all Voting Stock then outstanding, voting
together as a single class, and PROVIDED FURTHER, HOWEVER, that, in the case of
any such stockholder action at a special meeting of stockholders, notice of the
proposed alteration, amendment, repeal or adoption of the new By-law or By-laws
must be contained in the notice of such special meeting, or (b) by the
affirmative vote of a majority of the Whole Board.
12
<PAGE>
EXHIBIT 4.1
[FRONT SIDE OF STOCK CERTIFICATE]
CLASS A COMMON STOCK CLASS A COMMON STOCK
NUMBER SHARES
INCORPORATED UNDER THE LAWS THIS CERTIFICATE IS TRANSFERRABLE IN
OF THE STATE OF DELAWARE NEW YORK, NY
MIPS TECHNOLOGIES, INC.
THIS IS TO CERTIFY THAT CUSIP
SEE REVERSE FOR
CERTAIN DEFINITIONS
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK OF THE PAR VALUE
OF $0.001 EACH OF
MIPS Technologies, Inc., transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
Witness the seal of the Corporation and the signatures of its duly authorized
Officers.
Dated COUNTERSIGNED AND REGISTERED:
TRANSFER AGENT
AND REGISTRAR
By
CHAIRMAN AND CHIEF EXECUTIVE OFFICER Authorized Signature
SECRETARY
[CORPORATE SEAL]
-----------------------------
<PAGE>
[REVERSE SIDE OF STOCK CERTIFICATE]
MIPS Technologies, Inc.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the designations, powers, preferences and relative
participating, optional or other special rights of each class of stock or
series thereof of the Corporation and the qualifications, limitations or
restrictions of such preferences and/or rights. Such request may be made to
the Corporation or the Transfer Agent.
The following abbreviations when used in the inscription on the face of this
certificate shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
-----------------------
(Cust) (Minor)
under Uniform gifts to
Minors Act
-------------
(State)
TEN ENT - as tenants in the entireties
UT TEN- as joint tenants with the right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________________
____________________________________
____________________________________
_____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ______________ Attorney to transfer the said
stock on the books of the within named Corporation with full power of
substitution in the premises.
___________________
Dated
Notice: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 5.1
[Letterhead of Shearman & Sterling]
February 26, 1999
MIPS Technologies, Inc.
2011 North Shoreline Boulevard
Mountain View, California 94043
We have acted as special counsel to MIPS Technologies, Inc., a Delaware
corporation (the "Company"), in connection with the proposed offering (the
"offering") of shares of the Company's Class A common stock, par value $0.001
per share (the "Shares"), by the Company and Silicon Graphics, Inc., as
selling stockholder ("SGI"), as described in the Registration Statement on
Form S-1 (the "Registration Statement") filed by the Company with the
Securities and Exchange Commission under the Securities act of 1933, as
amended (the "Securities Act"). The Shares are to be sold to the public by
SGI (the "Offering") pursuant to the terms of an Underwriting Agreement among
the Company, SGI and the Underwriters named therein (the "Underwriting
Agreement"), the form of which will be filed as an exhibit to the
Registration Statement.
We have examined, and have relied upon as to maters of fact, such
documents, corporate records and other instruments as we have deemed
necessary for the purposes of this opinion. Our opinion expressed herein is
limited to the General Corporation Law of the State of Delaware.
Based upon the foregoing, we are of the opinion that the Shares to be
sold in the Offering by SGI (including Shares, if any, registered in a
registration statement relating to the Offering filed by the Company pursuant
to Rule 462(b) under the Securities Act), upon the approval and effectiveness
in accordance with the Delaware General Corporation Law of the amended and
restated Certificate of Incorporation of the Company reflecting the proposed
recapitalization of the Company as described in its Definitive Proxy
Statement filed with the Securities and Exchange Commission on February 26,
1999 and providing for, among other things, the redesignation of the
Company's currently outstanding common stock, par value $0.001 per share,
into the Company's Class A Common Stock, when issued and delivered in
accordance with the terms of the Underwriting Agreement, will be duly
authorized and will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Registration Statement. We hereby also consent to the
incorporation by reference of this opinion and consent to a registration
statement, if any, relating to the Offering filed by the Company pursuant to
the Rule 462(b) under the Securities Act. In giving this consent, we do not
thereby concede that we come within the category of persons whose consent is
required by the Securities Act or the General Rules and Regulations
promulgated thereunder.
Very truly yours,
SHEARMAN & STERLING
<PAGE>
EXHIBIT 10.1
SEPARATION AGREEMENT
dated as of June 1, 1998
between
SILICON GRAPHICS, INC.
and
MIPS TECHNOLOGIES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS
PAGE
<S> <C>
Section 1.1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II
TRANSFER OF ASSETS AND
ASSUMPTION OF LIABILITIES
Section 2.1. TRANSFER OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 2.2. ASSIGNMENT AND ASSUMPTION OF LIABILITIES. . . . . . . . . . . . . . . .8
Section 2.3. TRANSFERS NOT EFFECTED ON OR PRIOR TO THE CLOSING DATE. . . . . . . . 10
Section 2.4. NO REPRESENTATIONS OR WARRANTIES; CONSENTS. . . . . . . . . . . . . . 11
Section 2.5. DOCUMENTS RELATING TO TRANSFER OF ASSETS AND ASSIGNMENT
AND ASSUMPTION OF LIABILITIES.. . . . . . . . . . . . . . . . . . . 12
Section 2.6. TERMINATION OF AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III
THE SEPARATION AND THE INITIAL PUBLIC OFFERING
Section 3.1. COOPERATION PRIOR TO THE SEPARATION . . . . . . . . . . . . . . . . . 13
Section 3.2. CONDUCT OF COMPANY BUSINESS PENDING SEPARATION. . . . . . . . . . . . 14
Section 3.3. SILICON GRAPHICS BOARD ACTION; CONDITIONS PRECEDENT
TO THE SEPARATION . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV
INDEMNIFICATION
Section 4.1. RELEASE OF CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.2. INDEMNIFICATION BY THE COMPANY.. . . . . . . . . . . . . . . . . . . 18
Section 4.3. INDEMNIFICATION BY SILICON GRAPHICS. . . . . . . . . . . . . . . . . 18
Section 4.4. NOTICE AND PAYMENT OF CLAIMS.. . . . . . . . . . . . . . . . . . . . 19
Section 4.5. NOTICE AND DEFENSE OF THIRD-PARTY CLAIMS . . . . . . . . . . . . . . 19
Section 4.6. INSURANCE PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.7. CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.8. SUBROGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.9. NO THIRD-PARTY BENEFICIARIES.. . . . . . . . . . . . . . . . . . . . 21
Section 4.10. REMEDIES CUMULATIVE.. . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.11. SURVIVAL OF INDEMNITIES.. . . . . . . . . . . . . . . . . . . . . . 22
Section 4.12. AFTER-TAX INDEMNIFICATION PAYMENTS. . . . . . . . . . . . . . . . . 22
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE V
CERTAIN ADDITIONAL MATTERS
<S> <C>
Section 5.1. ANCILLARY AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.2. COMPANY OFFICERS AND BOARD OF DIRECTORS . . . . . . . . . . . . . . . 22
Section 5.3. THE COMPANY CERTIFICATE OF INCORPORATION AND BYLAWS . . . . . . . . . 22
Section 5.4 INSURANCE POLICIES AND CLAIMS ADMINISTRATION. . . . . . . . . . . . . 22
ARTICLE VI
ACCESS TO INFORMATION
Section 6.1. PROVISION OF CORPORATE RECORDS.. . . . . . . . . . . . . . . . . . . 24
Section 6.2. ACCESS TO INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.3. LITIGATION COOPERATION . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.4. REIMBURSEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.5. RETENTION OF RECORDS . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.6. CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.7. PROTECTIVE ARRANGEMENTS. . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.8. MAIL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VII
DISPUTE RESOLUTION
Section 7.1. AGREEMENT TO MEDIATE . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.2. ESCALATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.3. DEMAND FOR MEDIATION . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.4. CERTAIN ADDITIONAL MATTERS . . . . . . . . . . . . . . . . . . . . . 27
Section 7.5. CONTINUITY OF SERVICE AND PERFORMANCE. . . . . . . . . . . . . . . . 27
ARTICLE VIII
MISCELLANEOUS
Section 8.1. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.2. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.3. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.4. AMENDMENT AND WAIVER.. . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.5. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.6. GOVERNING LAW; JURISDICTION; FORUM . . . . . . . . . . . . . . . . . 29
Section 8.7. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.8. PARTIES IN INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.9. TAX SHARING AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.10. FURTHER ASSURANCES AND CONSENTS. . . . . . . . . . . . . . . . . . . 30
Section 8.11. EXHIBITS AND SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.12. LEGAL ENFORCEABILITY . . . . . . . . . . . . . . . . . . . . . . . . 30
ii
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 8.13. TITLES AND HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
iii
<PAGE>
SCHEDULES:
1.1(a) - Company Contracts
2.1(a)(i) - Tangible Personal Property
2.1(a)(ii) - Inventory
2.1(a)(iii) - Receivables
2.1(a)(ix) - Sales and Promotional Material
2.1(a)(x) - Governmental Permits and Approvals
2.1(b)(i) - Excluded Assets
2.2(a)(iv) - Liabilities
2.2(b)(i) - Excluded Liabilities
2.3(b) - Joint Contracts
2.6(b) - Agreements that will not Terminate
iv
<PAGE>
SEPARATION AGREEMENT
SEPARATION AGREEMENT ("Agreement") dated as of June 1, 1998 by and
between Silicon Graphics, Inc., a Delaware corporation ("Silicon Graphics"),
and MIPS Technologies, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Board of Directors of Silicon Graphics has determined that
it is in the best interests of Silicon Graphics and its shareholders to
separate the Company Business from Silicon Graphics' other operations;
WHEREAS, in furtherance of the foregoing, it is appropriate and
desirable to transfer the Company Assets to the Company and to cause the
Company to assume the Company Liabilities, all as more fully described in
this Agreement and the Ancillary Agreements (such transfer of assets and
assumption of liabilities are herein after referred to as the "Separation.");
WHEREAS, the Board of Directors of Silicon Graphics has further
determined that it is appropriate and desirable, on the terms and conditions
contemplated hereby, to cause the Company and Silicon Graphics to sell, in an
initial public offering (the "Initial Public Offering"), up to such number of
shares of the Common Stock which shall not exceed 20% of the Company's
outstanding capital stock on a fully-diluted basis;
WHEREAS, it is appropriate and desirable to set forth the principal
corporate transactions required to effect the Separation and the Initial
Public Offering and certain other agreements that will govern certain matters
relating to the Separation and the Initial Public Offering and the
relationship of Silicon Graphics and the Company and their respective
subsidiaries following the Initial Public Offering.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements, provisions and covenants contained in this Agreement, the
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. As used herein, the following terms have the
following meanings:
"ACTION" means any claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental, regulatory or
administrative authority, agency or commission, or any other tribunal or
arbitral body; or any other Governmental Authority.
"AFFILIATE" of any specified Person means any other Person that,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with such specified Person.
<PAGE>
"AGREEMENT" has the meaning specified in the Recitals.
"ANCILLARY AGREEMENTS" means the Corporate Agreement, the Management
Services Agreement, the Tax Sharing Agreement, the Technology Agreement,
the Trademark Agreement, the Interim Sublease Agreement and the Sublease
Agreement.
"ASSIGNED COMPANY INTELLECTUAL PROPERTY" means any Intellectual
Property owned by Silicon Graphics as of the Separation Date that is to be
assigned by Silicon Graphics to the Company pursuant to the Technology
Agreement.
"CLOSING DATE" means the first time at which any shares of Common
Stock are sold to the Underwriters pursuant to the Initial Public Offering
in accordance with the terms of the Underwriting Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $0.001 per share, of
the Company.
"COMPANY ASSETS" has the meaning set forth in Section 2.1(a).
"COMPANY BALANCE SHEET" means the audited balance sheet of the
Company, including the notes thereto, as of March 31, 1998.
"COMPANY BUSINESS" means the business and operations of the various
divisions and subsidiaries of Silicon Graphics engaged in the development
and licensing of processor designs for the embedded market based on
reduced-instruction-set-computing (RISC) architecture, consisting
principally of Silicon Graphics' MIPS Group.
"COMPANY BYLAWS" means the bylaws of the Company in the form filed as
an exhibit to the Registration Statement.
"COMPANY CERTIFICATE" means the restated certificate of incorporation
of the Company in the form filed as an exhibit to the Registration
Statement.
"COMPANY CONTRACTS" means the following contracts and agreements to
which Silicon Graphics or any of its Affiliates is a party or by which it
or any of its Affiliates or and of their respective assets is bound,
whether or not in writing, except for any such contract or agreement that
is contemplated to be retained by Silicon Graphics or any of its Affiliates
(other than the Company) pursuant to any provision of this Agreement or any
Ancillary Agreement:
<PAGE>
(a) all contracts or agreements listed or described on Schedule
1.1(a) (as such Schedule may be supplemented by mutual agreement of
the parties hereto after the date hereof and prior to the Closing
Date);
(b) any contracts or agreements entered into in the name of, or
expressly on behalf of, the Company;
(c) any contract or agreement that relates primarily to the
Company Business;
(d) any guarantee, indemnity, representation, warranty or other
Liability of the Company or Silicon Graphics in respect of any other
Company Contract, any Company Liability or the Company Business; and
(e) any contract or agreement that is otherwise expressly
contemplated pursuant to this Agreement or any of the Ancillary
Agreements to be assigned to the Company.
"COMPANY LIABILITIES" has the meaning set forth in Section 2.2.
"CONSENTS" means any consents, waivers or approvals from, or
notification requirements to, any third parties.
"EFFECTIVE INITIAL PUBLIC OFFERING DATE" means the date on which the
Registration Statement is declared effective by the Commission.
"ESCALATION NOTICE" has the meaning set forth in Section 7.2.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED ASSETS" has the meaning set forth in Section 2.1(b).
"EXCLUDED LIABILITIES" has the meaning set forth in Section 2.2(b).
"GOVERNMENTAL APPROVALS" means any notices, reports or other filings
to be made, or any consents, registrations, approvals, permits or
authorizations to be obtained from, any Governmental Authority.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, foreign or
international court, government, department, commission, board, bureau,
agency, official or other regulatory, administrative or governmental
authority.
"INTELLECTUAL PROPERTY" means (a) inventions, whether or not
patentable, whether or not reduced to practice or whether or not yet made
the subject of a pending patent application or applications, (b) ideas and
conceptions of potentially patentable subject matter, including, without
limitation, any patent disclosures, whether or not reduced to practice and
whether or
<PAGE>
not yet made the subject of a pending patent application or applications,
(c) national (including the United States) and multinational statutory
invention registrations, patents, patent registrations and patent
applications (including all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations) and all rights
therein provided by multinational treaties or conventions and all
improvements to the inventions disclosed in each such registration, patent
or application, (d) trademarks, service marks, trade dress, logos, trade
names and corporate names, whether or not registered, including all common
law rights, and registrations and applications for registration thereof,
including, but not limited to, all marks registered in the United States
Patent and Trademark Office, the Trademark Offices of the States and
Territories of the United States of America, and the Trademark offices of
other nations throughout the world, and all rights therein provided by
multinational treaties or conventions, (e) copyrights (registered or
otherwise) and registrations and applications for registration thereof, and
all rights therein provided by multinational treaties or conventions, (f)
moral rights (including, without limitation, rights of paternity and
integrity), and waivers of such rights by others, (g) computer software,
including, without limitation, source code, operating systems and
specifications, data, data bases, files, documentation and other materials
related thereto, data and documentation, (h) trade secrets and
confidential, technical or business information (including ideas, formulas,
compositions, inventions, and conceptions of inventions whether patentable
or unpatentable and whether or not reduced to practice), (i) whether or not
confidential, technology (including know-how and show-how), manufacturing
and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial, marketing and business data, pricing
and cost information, business and marketing plans and customer and
supplier lists and information, (j) copies and tangible embodiments of all
the foregoing, in whatever form or medium, (k) all rights to obtain and
rights to apply for patents, and to register trademarks and copyrights, and
(l) all rights to sue and recover and retain damages and costs and
attorneys' fees for present and past infringement of any of the
Intellectual Property rights hereinabove set out.
"INTERIM SUBLEASE AGREEMENT" means the sublease agreement to be
executed by Silicon Graphics and the Company on the Separation Date for the
sublease by the Company from Silicon Graphics of certain premises located
at 1600 Amphitheatre Parkway, Mountain View, California, consisting of
approximately _______ square feet of space.
"INVENTORY" means all inventory owned, used or held by Silicon
Graphics as of the Separation Date and related exclusively to the Company
Business.
"LIABILITIES" means any and all losses, claims, charges, debts,
demands, Actions, causes of Action, suits, damages, obligations, payments,
costs and expenses, accounts, bonds, indemnities and similar obligations,
covenants, contracts, agreements, promises, guarantees and other
liabilities, including all contractual obligations, whether absolute or
contingent, matured or not matured, liquidated or unliquidated, accrued or
not accrued, known or unknown, whenever arising, and including those
arising under any law, rule, regulation, Action, threatened or contemplated
Action (including the costs and expenses of demands, assessments,
judgments, settlements and compromises relating thereto and attorneys' fees
and
<PAGE>
any and all costs and expenses (including allocated costs of in-house
counsel and other personnel), whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or
threatened or contemplated Actions), order or consent decree of any
Governmental Authority or any award of any arbitrator or mediator of any
kind, and those arising under any contract, commitment or undertaking,
including those arising under this Agreement or any Ancillary Agreement, in
each case, whether or not recorded or reflected or required to be recorded
or reflected on the books and records or financial statements of any
Person.
"LICENSED COMPANY INTELLECTUAL PROPERTY" means all Intellectual
Property which is licensed or sublicensed from a third party by Silicon
Graphics as of the Separation Date that is to be licensed or sublicensed by
Silicon Graphics to the Company pursuant to the Technology Agreement.
"MANAGEMENT SERVICES AGREEMENT" means the Management Services
Agreement dated the date hereof between the Company and Silicon Graphics
regarding the provision of certain services by the Company from Silicon
Graphics, as such agreement may be amended from time to time.
"MEDIATION DEMAND DATE" has the meaning set forth in Section 7.3.
"MEDIATION DEMAND NOTICE" has the meaning set forth in Section 7.3.
"OWNED INTELLECTUAL PROPERTY" means all Intellectual Property in and
to which Silicon Graphics or the Company holds, or has a right to hold,
right, title and interest.
"PERSON" means an individual, a general or limited partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a
limited liability entity, any other entity and any Governmental Authority.
"POLICY" has the meaning specified in Section 5.4(a).
"PROSPECTUS" means each preliminary, final or supplemental prospectus
forming a part of the Registration Statement.
"RECEIVABLES" means any and all accounts receivable, notes and other
amounts receivable from third parties, including, without limitation,
customers and employees, arising exclusively from the conduct of the
Company Business before the Separation Date, whether or not in the ordinary
course, together with any unpaid financing charges accrued thereon.
"REGISTRATION STATEMENT" means the registration statement on Form S-1
filed by the Company with the Commission to effect the registration of the
Common Stock pursuant to the Securities Act, as such registration statement
may be amended from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
<PAGE>
"SEPARATION" has the meaning specified in the second recital of this
Agreement.
"SEPARATION DATE" means the date determined by the Board of Directors
of Silicon Graphics as the date on which the Separation shall be effected,
which is contemplated to occur on or about June 1, 1998.
"SGI GROUP" means Silicon Graphics and each Person (other than the
Company and its subsidiaries) that is an Affiliate of Silicon Graphics
immediately after the Separation Date.
"SUBLEASE AGREEMENT" means the sublease agreement to be executed by
Silicon Graphics and the Company on the Separation Date for the sublease by
the Company from Silicon Graphics of certain premises located at 1225
Charleston Road, Mountain View, California, consisting of approximately
_____ square feet of space.
"TANGIBLE PERSONAL PROPERTY" means all machinery, equipment, tools,
supplies, furniture, fixtures, personalty, vehicles and other tangible
personal property used or held for use by Silicon Graphics or any member of
the SGI Group in the conduct of the Company Business.
"TAX" or "TAXES" shall have the meaning given to such term in the Tax
Sharing Agreement.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement dated as of
the date hereof between Silicon Graphics and the Company providing for
certain tax related matters, as such agreement may be amended from time to
time.
"TECHNOLOGY AGREEMENT" means the Technology Agreement dated as of the
Separation Date between Silicon Graphics and the Company providing for
certain intellectual property matters, as such agreement may be amended
from time to time.
"TRADEMARK AGREEMENT" means the Trademark Agreement dated as of the
date hereof between Silicon Graphics and the Company providing for certain
trademark matters, as such agreement may be amended from time to time.
Unless otherwise specified, any reference to any "subsidiary" or
"subsidiaries" of Silicon Graphics shall not include the Company.
ARTICLE II
TRANSFER OF ASSETS AND
ASSUMPTION OF LIABILITIES
Section 2.1. TRANSFER OF ASSETS. (a) Silicon Graphics hereby assigns,
transfers, conveys and delivers to the Company as of the Closing Date, and
agrees to cause each of its subsidiaries to assign, transfer, convey and deliver
to the Company as of the Closing Date, and the Company
<PAGE>
hereby accepts from Silicon Graphics and such subsidiaries as of the Closing
Date, all of Silicon Graphics' and such subsidiaries' respective right, title
and interest in or under the following (the "COMPANY ASSETS"):
(i) all Tangible Personal Property, including, without limitation, the
Tangible Personal Property listed on Schedule 2.1(a)(i);
(ii) all Inventory, including, without limitation, the Inventory
listed on Schedule 2.1(a)(ii);
(iii) all Receivables, including, without limitation, all Receivables
listed on Schedule 2.1(a)(iii);
(iv) all books of account, general, financial and tax records,
invoices, shipping records, supplier lists, correspondence and other
documents, records and files exclusively relating to the Company Business,
and all personnel records of persons employed by Silicon Graphics that
become employees of the Company as of the Separation Date or thereafter;
(v) the goodwill of Silicon Graphics exclusively relating to the
Company Business;
(vi) all of the Assigned Company Intellectual Property and the
Licensed Company Intellectual Property that is to be transferred pursuant
to the Technology Agreement and the Trademark Agreement, in each case to
the extent and subject to the conditions provided therein;
(vii) all of the Company Contracts;
(viii) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind (including rights to insurance
proceeds and rights under and pursuant to all warranties, representations
and guarantees made by suppliers of products, materials or equipment, or
components thereof), pertaining to, arising out of, and enuring to the
benefit of Silicon Graphics which relate exclusively to the Company
Business;
(ix) all sales and promotional literature, customer lists and other
sales-related materials owned, used, associated with or employed by Silicon
Graphics relating exclusively to the Company Business, including, without
limitation, the materials listed on Schedule 2.1(a)(ix);
(x) all municipal, state and federal franchises, permits, licenses,
agreements, waivers, exemptions, approvals and authorizations held or used
by Silicon Graphics in connection with, or required for, the Company
Business, to the extent transferable, including, without limitation, the
permits listed on Schedule 2.1(a)(x);
<PAGE>
(xi) any assets reflected in the Company Balance Sheet as "Assets" of
the Company, subject to any dispositions of such assets subsequent to the
date of the Company Balance Sheet; and
(xii) any and all other assets, rights and claims of every kind and
nature held immediately prior to the Closing Date by Silicon Graphics and
used primarily in the Company Business. The intention of this clause (xii)
is only to rectify any inadvertent omission of transfer or conveyance of
any asset, right or claim that, had the parties hereto given specific
consideration to such asset, right or claim as of the date hereof, would
have otherwise been classified as a Company Asset. No asset, right or
claim shall be deemed a Company Asset solely as a result of this clause
(xii) if such asset, right or claim is within the category or type of
asset, right or claim expressly covered by the subject matter of an
Ancillary Agreement. In addition, no asset, right or claim shall be deemed
a Company Asset solely as a result of this clause (xii) unless a claim with
respect thereto is made by the Company on or prior to the [first]
anniversary of the Closing Date.
Notwithstanding the foregoing, the Company Assets shall not in any event
include the Excluded Assets referred to in Section 2.1(b) below.
(b) For the purposes of this Agreement, "EXCLUDED ASSETS" shall mean: (i)
the assets, rights and claims listed or described on Schedule 2.1(b)(i); and
(ii) any and all assets, rights and claims that are expressly contemplated by
this Agreement or any Ancillary Agreement (or the Exhibits and Schedules hereto
or thereto) as assets, rights or claim to be retained by Silicon Graphics.
Section 2.2. ASSIGNMENT AND ASSUMPTION OF LIABILITIES. (a) Except as set
forth in one or more of the Ancillary Agreements, from and after the Closing
Date, the Company hereby assumes and agrees faithfully to pay, perform and
fulfill all obligations under the following in accordance with their respective
terms (the "COMPANY LIABILITIES"):
(i) any and all Liabilities that are expressly contemplated by this
Agreement or any Ancillary Agreement (or the Schedules hereto or thereto)
as Liabilities to be assumed by the Company, and all agreements,
obligations and Liabilities of the Company under this Agreement or any of
the Ancillary Agreements;
(ii) all Liabilities (other than Taxes based on, or measured by
reference to, net income), including any employee-related Liabilities,
primarily relating to, arising out of or resulting from:
(A) the operation of the Company Business, as conducted at any
time prior to, on or after the Separation Date, including, without
limitation, (i) any Liability relating to, arising out of or resulting
from any act or failure to act by any director, officer, employee,
agent or representative (whether or not such act or failure to act is
or was within such Person's authority); (ii) any employee-related
Liability, including, without limitation, any Liability related to
accrued vacation, personal
<PAGE>
time-off, sales commissions, bonuses, severance, or employee-related
Actions relating to any past or present employee of the Company or
any past or present employee of Silicon Graphics who was engaged
primarily in the Company Business prior to the Separation Date; and
(iii) any Liability related to service, warranty, support and product
liability in connection with the Company Business, including products
and technologies;
(B) the operation of any business conducted by the Company or any
of its subsidiaries at any time after the Closing Date including,
without limitation, any Liability relating to, arising out of or
resulting from any act or failure to act by any director, officer,
employee, agent or representative (whether or not such act or failure
to act is or was within such Person's authority); and
(C) any Company Assets;
(iii) all Liabilities reflected as "Liabilities" or obligations of the
Company in the Company Balance Sheet, subject to any discharge of such
Liabilities subsequent to the date of the Company Balance Sheet; and
(iv) all Liabilities listed on Schedule 2.2(a)(iv).
Notwithstanding the foregoing, the Company Liabilities shall not in any
event include the Excluded Liabilities referred to in Section 2.2(b) below.
(b) For the purposes of this Agreement, "EXCLUDED LIABILITIES" shall mean
(i) the Liabilities listed or described on Schedule 2.2(b)(i); (ii) any and all
Liabilities that are expressly contemplated by this Agreement or any Ancillary
Agreement (or Schedules hereto or thereto) as Liabilities to be retained or
assumed by Silicon Graphics or any member of the SGI Group; and (iii) all
agreements and obligations of any member of the SGI Group under this Agreement
or any of the Ancillary Agreements.
(c) The Company shall be responsible for all Company Liabilities,
regardless of when or where such Liabilities arose or arise, or whether the
facts on which they are based occurred prior to or subsequent to the date
hereof, regardless of where or against whom such Liabilities are asserted or
determined (including any Company Liabilities arising out of claims made by
Silicon Graphics' or the Company's respective directors, officers, employees,
agents or Affiliates) or whether asserted or determined prior to the date
hereof, and regardless of whether arising from or alleged to arise from
negligence, recklessness, violation of law, fraud or misrepresentation by
Silicon Graphics or the Company or any of their respective directors, officers,
employees, agents or Affiliates.
Section 2.3. TRANSFERS NOT EFFECTED ON OR PRIOR TO THE CLOSING DATE. (a)
To the extent any transfers contemplated by this Article II shall not have been
fully effected on or prior to the Closing Date, Silicon Graphics and the Company
shall cooperate to effect such transfers as promptly as possible following the
Closing Date. Nothing herein shall be deemed to require the
<PAGE>
transfer of any assets or the assignment or assumption of any Liabilities
that by their terms or by operation of law cannot be so transferred, assigned
or assumed; PROVIDED, HOWEVER, that any such asset shall be deemed a Company
Asset for purposes of determining whether any Liability is a Company
Liability; and PROVIDED, FURTHER, that Silicon Graphics and the Company and
their respective Affiliates shall cooperate in seeking to obtain any
necessary Consents for the transfer of all assets and the assignment or
assumption of all Liabilities as contemplated by this Article II. In the
event that any transfer of assets or assignment or assumption of Liabilities
contemplated by this Article II has not been consummated effective as of the
Closing Date, (i) the party retaining such assets shall thereafter hold such
assets in trust for the use and benefit of the party entitled thereto (at the
expense of the party entitled thereto); and (ii) the party retaining such
Liabilities shall thereafter hold such Liabilities for the account of the
party assuming such Liability or to whom such Liability is to be assigned
pursuant hereto, and in each such case shall take such other actions as may
be reasonably required in order to place the parties, insofar as reasonably
possible, in the same position as would have existed had such asset been
transferred, or such Liability been assigned or assumed as contemplated
hereby. As and when any such asset or Liability becomes transferable,
assignable or assumable, as the case may be, such transfer, assignment or
assumption, as the case may be, shall be effected forthwith. Silicon
Graphics and the Company agree that, as of the Closing Date, each party
hereto shall be deemed to have acquired complete and sole beneficial
ownership over all of the assets, together with all of the rights, powers and
privileges incidental thereto, that such party is entitled to acquire
pursuant to the terms of this Agreement.
(b) Notwithstanding anything in this Agreement to the contrary, Silicon
Graphics and the Company acknowledge that there are contracts between the
Company and/or Silicon Graphics and third parties that relate to both the
Company Business and Silicon Graphics' business subsequent to the Separation
("Joint Contracts") including, without limitation, the Joint Contracts listed on
Schedule 2.3(b). Silicon Graphics and the Company agree, as promptly as
practicable after the Separation Date, to modify each Joint Contract (including,
if necessary or appropriate, the cancellation of a Joint Contract and the
creation of a new contract or contracts) so that (i) the Company retains or is
granted such rights thereunder as may be necessary for the Company to operate
the Company Business (including research and development projects), and (ii)
Silicon Graphics retains or is granted such rights thereunder as may be
necessary for Silicon Graphics to operate its business subsequent to the
Separation Date (including existing research and development projects). The
parties agree to negotiate in good faith any necessary or appropriate
modifications of such Joint Contracts including, without limitation, the fees or
other payments that may be payable by each party as a result of any such
modifications and the release (or partial release) of a party under any
continuing Joint Contract retained by the other party. On the effective date of
a modified Joint Contract or any new contract pursuant to this Section 2.3(b),
such Joint Contract as modified and any new contract shall, without further act,
be deemed for all purposes between Silicon Graphics and the Company to have been
assigned to the Company or Silicon Graphics, as the case may be.
Section 2.4. NO REPRESENTATIONS OR WARRANTIES; CONSENTS. (a) Each of the
parties hereto understands and agrees that no party hereto is, in this
Agreement, any Ancillary Agreement or any other agreement or document
contemplated by this Agreement, any Ancillary Agreement or
<PAGE>
otherwise, representing or warranting in any way as to the value or freedom
from encumbrance of, or any other matter concerning, any assets of such
party, or as to the legal sufficiency to convey title to an asset transferred
pursuant to this Agreement or any Ancillary Agreement, including, without
limitation, any conveyancing or assumption instruments. It is also agreed
and understood that there are no warranties whatsoever, express or implied,
given by either party to this Agreement, as to the condition, quality,
merchantability or fitness of any of the assets, businesses or other rights
transferred or retained by the parties, as the case may be, and all such
assets, businesses and other rights shall be "as is, where is" and "with all
faults" (provided that the absence of warranties given by the parties shall
not negate the allocation of Liabilities under this Agreement and shall have
no effect on any manufacturers, sellers, or other third party warranties that
are intended to be transferred with such assets), and the Company shall bear
the economic and legal risks that any conveyance shall prove to be
insufficient to vest in it good and marketable title, free and clear of any
security interest, pledge, lien, charge, claim, option, right to acquire,
covenant, condition, restriction on transfer or other encumbrance of any
nature whatsoever.
(b) Each party hereto understands and agrees that no party hereto is, in
this Agreement, any Ancillary Agreement or any other agreement or document
contemplated by this Agreement, any Ancillary Agreement or otherwise,
representing or warranting in any way that the obtaining of any Consents, the
execution and delivery of any amendatory agreements and the taking of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable laws or judgments or other instruments or
agreements relating to such assets.
Notwithstanding the foregoing and except as provided in any Ancillary
Agreement, the parties shall use their good faith efforts to obtain all Consents
(including such Consents as may be required by any Governmental Authority), to
enter into all reasonable amendatory agreements and to make all filings and
applications contemplated by this Agreement, and shall take all such further
actions as shall be deemed reasonably necessary to preserve for each of Silicon
Graphics and the Company, to the greatest extent reasonably feasible, consistent
with this Agreement, the economic and operational benefits of the allocation of
assets and liabilities provided for in this Agreement. In case at any time
after the Separation Date any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
party to this Agreement shall take all such necessary or desirable action;
PROVIDED that any financial cost shall be borne by the party receiving the
benefit of the action.
Section 2.5. DOCUMENTS RELATING TO TRANSFER OF ASSETS AND ASSIGNMENT AND
ASSUMPTION OF LIABILITIES. In connection with the transfer or the Company
Assets pursuant to Section 2.1 of this Agreement and the assignment and
assumption of the Company Liabilities pursuant to Section 2.2 of this Agreement,
simultaneously with the execution and delivery hereof or as promptly as
practicable thereafter, (i) Silicon Graphics shall execute and deliver such
bills of sale, deeds, stock powers, certificates of title, assignments of
contracts and other instruments or transfer, conveyance and assignment as and to
the extent necessary to evidence the transfer, conveyance and assignment of all
of Silicon Graphics' right, title and interest in and to the Company Assets to
the Company and (ii) the Company shall execute and deliver to Silicon Graphics
such bills of sale, certificates of title, assumptions of contracts and other
instruments or assumption as may be
<PAGE>
necessary to evidence the valid and effective assumption of the Company
Liabilities by the Company.
Section 2.6. TERMINATION OF AGREEMENTS. (a) Except as set forth in Section
2.6(b), in furtherance of the releases and other provisions of Section 4.1
hereof, the Company, on the one hand, and Silicon Graphics, on the other hand,
hereby terminate, effective as of the Closing Date, any and all agreements,
arrangements, commitments or understandings, whether or not in writing, between
the Company and Silicon Graphics; PROVIDED, HOWEVER, that to the extent any such
agreement, arrangement, commitment or understanding is inconsistent with any
Ancillary Agreement, such termination shall be effective as of the date of the
effectiveness of the applicable Ancillary Agreement. No such terminated
agreement, arrangement, commitment or understanding (including any provision
thereof which purports to survive termination) shall be of any further force or
effect after the Closing Date (or, to the extent contemplated by the proviso to
the immediately preceding sentence, after the effective date of the applicable
Ancillary Agreement). Each party shall, at the reasonable request of the other
party, take, or cause to be taken, such other actions as may be necessary to
effect the foregoing.
(b) The provisions of Section 2.6(a) shall not apply to any of the
following agreements, arrangements, commitments or understandings (or any of the
provisions thereof): (i) this Agreement and the Ancillary Agreements (and each
other agreement or instrument expressly contemplated by this Agreement or any
Ancillary Agreement), (ii) any agreements, arrangements, commitments or
understandings to which any Person other than the parties hereto or their
respective Affiliates is a party, (iii) any intercompany accounts payable or
accounts receivable accrued as of the Closing Date that are reflected in the
books and records of the parties or otherwise documented in writing in
accordance with past practices, and (iv) any other agreements, arrangements,
commitments or understandings that this Agreement or any Ancillary Agreement
expressly contemplates will survive the Closing Date including, without
limitation, those listed or described on Schedule 2.6(b).
ARTICLE III
THE SEPARATION AND THE INITIAL PUBLIC OFFERING
Section 3.1. COOPERATION PRIOR TO THE SEPARATION. (a) TRANSACTIONS PRIOR
TO THE INITIAL PUBLIC OFFERING. (i) Subject to the conditions specified in
Section 3.3, Silicon Graphics and the Company shall use their reasonable best
efforts to consummate the Initial Public Offering. Such actions shall include,
but not necessarily be limited to, those specified in this Section 3.1.
(ii) The Company shall file the Registration Statement, and such
amendments or supplements thereto, as may be necessary in order to cause
the same to become and remain effective as required by law or by the
Underwriters, including, but not limited to, filing such amendments to the
Registration Statement as may be required by the Underwriting Agreement,
the Commission or federal, state or foreign securities laws. Silicon
Graphics and the Company shall also cooperate in preparing, filing with the
Commission and causing to become effective a registration statement
registering the Common Stock under the Exchange Act, and any registration
statements or amendments
<PAGE>
thereof which are required to reflect the establishment of, or amendments
to, any employee benefit and other plans necessary or appropriate in
connection with the Initial Public Offering and the Separation or the
other transactions contemplated by this Agreement and the Ancillary
Agreements.
(iii) The Company shall enter into the Underwriting Agreement, in form
and substance reasonably satisfactory to the Company and shall comply with
its obligations thereunder.
(iv) Silicon Graphics and the Company shall consult with each other
and the Underwriters regarding the timing, pricing and other material
matters with respect to the Initial Public Offering.
(v) The Company shall use its reasonable best efforts to take all such
action as may be necessary or appropriate under state securities and blue
sky laws of the United States (and any comparable laws under any foreign
jurisdictions) in connection with the Initial Public Offering.
(vi) The Company shall prepare, file and use reasonable best
efforts to seek to make effective, a listing application for quotation
of the Common Stock issued in the Initial Public Offering in the Nasdaq
National Market, subject to official notice of issuance.
(vii) The Company shall participate in the preparation of materials
and presentations as the Underwriters shall deem necessary or desirable.
(viii) Silicon Graphics and the Company shall pay the costs and
expenses set forth in Section 8.2.
(b) PROCEEDS OF THE INITIAL PUBLIC OFFERING. The Initial Public Offering
will include both a primary offering of Common Stock by the Company and a
secondary offering of Common Stock by Silicon Graphics of its shares of Common
Stock. The Company will retain the net proceeds of the primary offering and
Silicon Graphics will retain the net proceeds of the secondary offering.
Section 3.2. CONDUCT OF COMPANY BUSINESS PENDING SEPARATION. Prior to
the Separation Date, the Company Business shall be operated by Silicon
Graphics and its subsidiaries and the Company for the sole benefit of Silicon
Graphics.
Section 3.3. SILICON GRAPHICS BOARD ACTION; CONDITIONS PRECEDENT TO THE
SEPARATION. Silicon Graphics' Board of Directors shall, in its discretion,
establish any appropriate procedures in connection with the Separation. In
no event shall the Separation occur unless the following conditions shall,
unless waived by Silicon Graphics in its sole discretion, have been satisfied:
(a) All necessary regulatory approvals and Consents shall have been
received;
<PAGE>
(b) The Registration Statement shall have been filed and declared effective
by the Commission, and there shall be no stop-order in effect with respect
thereto;
(c) The actions and filings with regard to state securities and blue sky
laws of the United States (and any comparable laws under any foreign
jurisdictions) described in Section 3.1 shall have been taken and, where
applicable, have become effective or been accepted;
(d) The Company's Board of Directors, as named in the Registration
Statement, shall have been elected by Silicon Graphics, as sole stockholder of
the Company, and the Company Certificate and Company Bylaws shall be in effect;
(e) The Company and Silicon Graphics shall have entered into the
Underwriting Agreement and all conditions to the obligations of the Company and
the Underwriters shall have been satisfied or waived;
(f) The Common Stock shall have been approved for quotation in the Nasdaq
National Market, subject to official notice of issuance;
(g) Silicon Graphics' Board of Directors shall have formally approved the
Separation and shall not have abandoned, deferred or modified the Separation at
any time prior to the Closing Date;
(h) The Company's Board of Directors shall have formally approved the
Separation, this Agreement and the Ancillary Agreements and the Initial Public
Offering, and all transactions contemplated hereby and thereby;
(i) The transactions contemplated by Sections 2.1 and 2.2 and Article V
shall have been consummated in all material respects and each of the Ancillary
Agreements, in form and substance satisfactory to Silicon Graphics, shall have
been executed by the parties thereto and each of the transactions contemplated
by the Ancillary Agreements to be consummated on or prior to the Separation Date
shall have been consummated;
(j) No preliminary or permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction or by a government, regulatory or
administrative agency or commission, and no statute, rule, regulation or
executive order promulgated or enacted by any Governmental Authority, shall be
in effect preventing the consummation of the Separation or the Initial Public
Offering or any of the other transactions contemplated by this Agreement or any
Ancillary Agreement shall be in effect;
(k) Silicon Graphics shall have been released from any liabilities,
guarantees or other obligations with respect to any indebtedness or otherwise of
the Company or its subsidiaries; PROVIDED, that the satisfaction of such
conditions shall not create any obligation on the part of Silicon Graphics to
effect the Separation or in any way limit Silicon Graphics' power of termination
set forth in Section 8.1 or alter the consequences of any such termination from
those specified in such Section;
<PAGE>
(l) Silicon Graphics shall be satisfied in its sole discretion that it will
own at least 80.1% of the outstanding Common Stock following the Initial Public
Offering on a fully diluted basis, after giving effect to the issuance of any
shares of restricted stock or employee stock options to any employees and
consultants of the Company, and all other conditions to permit any subsequent
distribution of the Common Stock to Silicon Graphics' shareholders to qualify as
a tax-free distribution to Silicon Graphics, the Company and Silicon Graphics'
shareholders shall, to the extent applicable as of the time of the Initial
Public Offering, be satisfied and there shall be no event or condition that is
likely to cause any of such conditions not to be satisfied as of the time of the
Separation or thereafter;
(m) Such other actions as the parties hereto may, based upon the advice of
counsel, reasonably request to be taken prior to the Separation and the Initial
Public Offering in order to assure the successful completion of the Separation
and the Initial Public Offering and the other transactions contemplated by this
Agreement shall have been taken; and
(n) This Agreement shall not have been terminated.
ARTICLE IV
INDEMNIFICATION
Section 4.1. RELEASE OF CLAIMS. (a) Except as provided in Section 4.1(c),
effective as of the Closing Date, the Company does hereby, for itself and its
Affiliates (other than any member of the SGI Group), successors and assigns, and
all Persons who at any time prior to the Closing Date have been shareholders,
directors, officers, agents or employees of the Company and its Affiliates
(other than any member of the SGI Group) (in each case, in their respective
capacities as such), remise, release and forever discharge Silicon Graphics and
each member of the SGI Group, their respective successors and assigns, and all
Persons who at any time prior to the Closing Date have been shareholders,
directors, officers, agents or employees of Silicon Graphics or any member of
the SGI Group (in each case, in their respective capacities as such), and their
respective heirs, executors, administrators, successors and assigns, from any
and all Liabilities whatsoever, whether at law or in equity (including any right
of contribution), whether arising under any contract or agreement, by operation
of law or otherwise, existing or arising from any facts or events occurring or
failing to occur or alleged to have occurred or to have failed to occur or any
conditions existing or alleged to have existed on or before the Closing Date,
including in connection with the transactions and all other activities to
implement the Separation and the Initial Public Offering.
(b) Except as provided in Section 4.1(c), effective as of the Closing Date,
Silicon Graphics does hereby, for itself and each member of the SGI Group,
successors and assigns, and all Persons who at any time prior to the Closing
Date have been shareholders, directors, officers, agents or employees of Silicon
Graphics or any member of the SGI Group (in each case, in their respective
capacities as such), remise, release and forever discharge the Company and its
subsidiaries, their respective successors and assigns, and all Persons who at
any time prior to the Closing Date have been shareholders, directors, officers,
agents or employees of the Company or any of its subsidiaries (in each case, in
their respective capacities as such), and their respective heirs,
<PAGE>
executors, administrators, successors and assigns, from any and all
Liabilities whatsoever, whether at law or in equity (including any right of
contribution), whether arising under any contract or agreement, by operation
of law or otherwise, existing or arising from any facts or events occurring
or failing to occur or alleged to have occurred or to have failed to occur or
any conditions existing or alleged to have existed on or before the Closing
Date, including in connection with the transactions and all other activities
to implement the Separation and the Initial Public Offering.
(c) Nothing contained in Section 4.1(a) or (b) shall impair any right of
any Person to enforce this Agreement, any Ancillary Agreement or any agreements,
arrangements, commitments or understandings that are specified in Section 2.6(b)
or the applicable Schedules thereto not to terminate as of the Closing Date, in
each case in accordance with its terms. Nothing contained in Section 4.1(a) and
(b) shall release any Person from:
(i) any Liability provided in or resulting from the Agreement, any
Ancillary Agreement and any other agreement between the Company and any
member of the SGI Group that is specified in Section 2.6(b) or the
applicable Schedules thereto as not to terminate as of the Closing Date, or
any other Liability specified in Schedule 2.6(b) as not to terminate as of
the Closing Date;
(ii) any Liability, contingent or otherwise, assumed, transferred or
assigned to such Person in accordance with, or any other Liability of any
Person under, this Agreement or any Ancillary Agreement;
(iii) any Liability for the sale, lease or receipt of goods, property
or services purchased, obtained or used in the ordinary course of business
by the Company from any member of the SGI Group or by any member of the SGI
Group from the Company;
(iv) any Liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement or any Ancillary
Agreement for claims brought against the parties by third Persons, which
Liability shall be governed by the provisions of this Article IV and, if
applicable, the appropriate provisions of the Ancillary Agreements; or
(v) any Liability the release of which would result in the release of
any Person other than a Person released pursuant to this Section 4.1;
PROVIDED that the parties agree not to bring suit or permit any of their
subsidiaries to bring suit against any Person with respect to any Liability
to the extent that such Person would be released with respect to such
Liability by this Section 4.1 but for the provision of this clause (v).
(d) The Company shall not make, and shall not permit any of its
subsidiaries to make, any claim or demand or commence any Action asserting any
claim or demand, including any claim of contribution or indemnification, against
Silicon Graphics or any member of the SGI Group or any other Person released
pursuant to Section 4.1(a), with respect to any Liabilities released pursuant to
Section 4.1(a). Silicon Graphics shall not make, and shall not permit any
member of the SGI
<PAGE>
Group to make, any claim or demand or commence any Action asserting any claim
or demand, including any claim of contribution or indemnification, against
the Company or any of its subsidiaries or any other Person released pursuant
to Section 4.1(b), with respect to any Liabilities released pursuant to
Section 4.1(b).
(e) It is the intention of each of Silicon Graphics and the Company by
virtue of the provisions of this Section 4.1 to provide for a full and complete
release and discharge of all Liabilities existing or arising from all acts and
events occurring or failing to occur or alleged to have occurred or failed to
occur and all conditions existing or alleged to have existed on or before the
Closing Date, between or among the Company or any of its subsidiaries, on the
one hand, and Silicon Graphics or any member of the SGI Group, on the other hand
(including any contractual agreements or arrangements existing or alleged to
exist between or among such Persons on or before the Closing Date), except as
expressly set forth in Section 4.1(c). At any time, at the request of any other
party, each party shall execute and deliver, or shall cause such other
appropriate Persons to execute and deliver, releases reflecting the provisions
hereof. The foregoing release is intended as a general release of all such
Liabilities, and each party hereby waive the provisions of California Civil Code
section 1542, which provides as follows: "A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have materially
affected the settlement with the debtor."
Section 4.2. INDEMNIFICATION BY THE COMPANY. Except as provided in
Section 4.5 and except as otherwise expressly provided in any of the
Ancillary Agreements, from and after the Closing Date, the Company shall
indemnify, defend and hold harmless Silicon Graphics, each member of the SGI
Group and each of their respective directors, officers and employees and each
of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "SGI INDEMNITEES") from and against any and all
Liabilities of the SGI Indemnitees relating to, arising out of or resulting
from any of the following items (without duplication):
(a) The failure of the Company or any other Person to pay, perform or
otherwise promptly discharge any Company Liability or Company Contract in
accordance with their respective terms, whether prior to or after the Closing
Date or the date hereof;
(b) The Company Business, any Company Asset or Company Liability or any
Company Contract;
(c) Any breach by the Company or any of its subsidiaries of this
Agreement or any of the Ancillary Agreements; and
(d) Any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
with respect to all information contained in the Registration Statement or
Prospectus.
<PAGE>
Section 4.3. INDEMNIFICATION BY SILICON GRAPHICS. Except as provided in
Section 4.5 and except as otherwise expressly provided in any of the Ancillary
Agreements, from and after the Closing Date, Silicon Graphics shall indemnify,
defend and hold harmless the Company and each of its subsidiaries and each of
their respective directors, officers and employees and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the
"COMPANY INDEMNITEES") from and against any and all Liabilities of the Company
Indemnitees relating to, arising out of or resulting from any of the following
items (without duplication):
(a) The failure of Silicon Graphics or any other member of the SGI Group or
any other Person to pay, perform or otherwise promptly discharge any Liability
of the SGI Group other than the Company Liabilities in accordance with its
terms, whether prior to or after the Closing Date or the date hereof;
(b) Any Liability of any member of the SGI Group other than the Company
Liabilities; and
(c) Any breach by Silicon Graphics or any member of the SGI Group of this
Agreement or any of the Ancillary Agreements.
Section 4.4. NOTICE AND PAYMENT OF CLAIMS. If any SGI Indemnitee or
Company Indemnitee (the "INDEMNIFIED PARTY") determines that it is or may be
entitled to indemnification under this Article IV (other than in connection with
any Action subject to Section 4.5), the Indemnified Party shall deliver to the
person from whom such indemnification is sought (the "INDEMNIFYING PARTY"), a
written notice specifying, to the extent reasonably practicable, the basis for
its claim for indemnification and the amount for which the Indemnified Party
reasonably believes it is entitled to be indemnified. After the Indemnifying
Party shall have been notified of the amount for which the Indemnified Party
seeks indemnification, the Indemnifying Party shall, within 30 days after
receipt of such notice, either (i) pay the Indemnified Party such amount in cash
or other immediately available funds (or reach agreement with the Indemnified
Party as to a mutually agreeable alternative payment schedule) or (ii) object to
the claim for indemnification or the amount thereof by giving the Indemnified
Party written notice setting forth the grounds therefor. Any objection shall be
resolved in accordance with Article VII. If the Indemnifying Party does not
give such notice within such 30 day period, the Indemnifying Party shall be
deemed to have acknowledged its liability for such claim and the Indemnified
Party may exercise any and all of its rights under applicable law to collect
such amount.
Section 4.5. NOTICE AND DEFENSE OF THIRD-PARTY CLAIMS. Promptly following
the earlier of (A) receipt of written notice of the commencement by a third
party of any Action against or otherwise involving any Indemnified Party or (B)
receipt of written information from a third party alleging the existence of a
claim against an Indemnified Party, in either case, with respect to which
indemnification may be sought pursuant to this Agreement (a "THIRD-PARTY
CLAIM"), the Indemnified Party shall give the Indemnifying Party prompt written
notice thereof. Failure of the Indemnified Party to give notice as provided in
this Section 4.5 shall not relieve the Indemnifying Party of its obligations
under this Agreement, except to the extent that the Indemnifying Party is
prejudiced by such failure to give notice. Such notice shall describe the
Third-Party Claim in reasonable detail.
<PAGE>
(a) Within 30 days after receipt of such notice, the Indemnifying Party may
by giving written notice thereof to the Indemnified Party, (i) elect to assume
the defense of such Third-Party Claim at its sole cost and expense or (ii)
object to the claim of indemnification for such Third-Party Claim setting forth
the grounds therefor. Any objection shall be resolved in accordance with
Article VII. If the Indemnifying Party does not within such 30 day period give
the Indemnified Party such notice, the Indemnifying Party shall be deemed to
have acknowledged its liability for such Third-Party Claim.
(b) Any defense of a Third-Party Claim as to which the Indemnifying Party
has elected to assume the defense shall be conducted by counsel employed by the
Indemnifying Party and reasonably satisfactory to Silicon Graphics in the case
of SGI Indemnitees and the Company in the case of Company Indemnitees. The
Indemnified Party shall have the right to participate in such proceedings and to
be represented by counsel of its own choosing at the Indemnified Party's sole
cost and expense; PROVIDED that if the defendants or parties against which
relief is sought in any such claim include both the Indemnifying Party and one
or more Indemnified Parties and, in the reasonable judgment of Silicon Graphics
in the case of SGI Indemnitees and the Company in the case of Company
Indemnitees, a conflict of interest between such Indemnified Parties and such
Indemnifying Party exists in respect of such claim, such Indemnified Parties
shall have the right to employ one firm of counsel selected by Silicon Graphics
for SGI Indemnitees or the Company for Company Indemnitees and in that event the
reasonable fees and expenses of such separate counsel (but not more than one
separate counsel reasonably satisfactory to the Indemnifying Party) shall be
paid by such Indemnifying Party.
(c) If the Indemnifying Party assumes the defense of a Third-Party Claim,
the Indemnifying Party may settle or compromise the claim without the prior
written consent of the Indemnified Party; PROVIDED that without the prior
written consent of Silicon Graphics in the case of SGI Indemnitees and the
Company in the case of Company Indemnitees, the Indemnifying Party may not agree
to any such settlement unless as a condition to such settlement the Indemnified
Party receives a written release from any and all liability relating to such
Third-Party Claim and such settlement or compromise does not include any remedy
or relief to be applied to or against the Indemnified Party, other than monetary
damages for which the Indemnifying Party shall be responsible hereunder.
(d) If the Indemnifying Party does not assume the defense of a
Third-Party Claim for which it has acknowledged liability for indemnification
under this Article IV, Silicon Graphics in the case of SGI Indemnitees and
the Company in the case of Company Indemnitees may pursue the defense of such
Third-Party Claim and choose one firm of counsel in connection therewith. The
Indemnifying Party is required to reimburse Silicon Graphics or the Company,
as the case may be, on a current basis for its reasonable expenses of
investigation, reasonable attorney's fees and reasonable out-of-pocket
expenses incurred by Silicon Graphics in the case of SGI Indemnitees and the
Company in the case of Company Indemnitees in defending against such
Third-Party Claim and the Indemnifying Party shall be bound by the result
obtained with respect thereto, PROVIDED that the Indemnifying Party shall not
be liable for any settlement effected without the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld.
<PAGE>
(e) The Indemnifying Party shall pay to the Indemnified Party in cash the
amount for which the Indemnified Party is entitled to be indemnified (if any) no
later than the later of (i) the date on which the Indemnified Party makes any
payment in satisfaction (partial or otherwise) of the Third-Party Claim or (ii)
the date on which such Indemnifying Party's objection, if any, to its
responsibility for indemnification under this Article IV has been resolved
pursuant to Article VII or by settlement or compromise or the final
nonappealable judgment of a court of competent jurisdiction.
Section 4.6. INSURANCE PROCEEDS. The amount that any Indemnifying
Party is or may be required to pay to any Indemnified Party pursuant to this
Article IV shall be reduced (including, without limitation, retroactively) by
any insurance proceeds or other amounts actually recovered by or on behalf of
such Indemnified Parties in reduction of the related Liability. If an
Indemnified Party shall have received the payment required by this Agreement
from an Indemnifying Party in respect of a Liability and shall subsequently
actually receive insurance proceeds, or other amounts in respect of such
Liability as specified above, then such Indemnified Party shall pay to such
Indemnifying Party a sum equal to the amount of such insurance proceeds or other
amounts actually received after deducting therefrom all of the Indemnifying
Party's costs and expenses associated with such Liability.
Section 4.7. CONTRIBUTION. If the indemnification provided for in this
Article IV is unavailable to an Indemnified Party in respect of any Liability
arising out of or related to information contained in or omitted from the
Registration Statement, then the Company Indemnitees, or SGI Indemnitees, as the
case may be, in lieu of indemnifying the SGI Indemnitees or Company Indemnitees,
as the case may be, shall contribute to the amount paid or payable by the SGI
Indemnitees or the Company Indemnitees, as the case may be, as a result of such
Liability in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand, and Silicon Graphics, on the other hand, in
connection with the statements or omissions which resulted in such Liability.
The relative fault of the Company Indemnitees on the one hand and of the SGI
Indemnitees on the other hand 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
concerning the Company on the one hand or Silicon Graphics on the other hand.
Section 4.8. SUBROGATION. In the event of payment by an Indemnifying
Party to any Indemnified Party in connection with any Third-Party Claim, such
Indemnifying Party shall be subrogated to and shall stand in the first place of
such Indemnified Party as to any events or circumstances in respect of which
such Indemnified Party may have any right or claim relating to such Third-Party
Claim. Such Indemnified Party shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right or claim.
Section 4.9. NO THIRD-PARTY BENEFICIARIES. This Article IV shall inure to
the benefit of, and be enforceable by Silicon Graphics, the SGI Indemnitees, the
Company and the Company Indemnitees and their respective successors and
permitted assigns. The indemnification provided for by this Article IV shall
not inure to the benefit of any other third party or parties and shall not
<PAGE>
relieve any insurer who would otherwise be obligated to pay any claim of the
responsibility with respect thereto or, solely by virtue of the indemnification
provisions hereof, provide any subrogation rights with respect thereto and each
party agrees to waive such rights against the other to the fullest extent
permitted.
Section 4.10. REMEDIES CUMULATIVE. The remedies provided in this Article
IV shall be cumulative and shall not preclude assertion by any Indemnified Party
of any other rights or the seeking of any and all other remedies against an
Indemnifying Party. The procedures set forth in this Article IV, however, shall
be the exclusive procedures governing any indemnity action brought under this
Article IV or otherwise relating to Liabilities.
Section 4.11. SURVIVAL OF INDEMNITIES. The rights and obligations of each
of Silicon Graphics and the Company and their respective Indemnitees under this
Article IV shall survive the sale or other transfer by it of any assets or
businesses or the assignment by it of any Liabilities.
Section 4.12. AFTER-TAX INDEMNIFICATION PAYMENTS. Except as otherwise
expressly provided herein or in an Ancillary Agreement, indemnification payments
made by either party under this Article shall give effect to, and be reduced by
the value of, any and all applicable deductions, losses, credits, offsets or
other items for Federal, state or other tax purposes attributable to the payment
of the indemnified liability by the Indemnified Party.
ARTICLE V
CERTAIN ADDITIONAL MATTERS
Section 5.1. ANCILLARY AGREEMENTS. On or prior to the Closing Date,
Silicon Graphics and the Company shall execute and deliver the Ancillary
Agreements.
Section 5.2. COMPANY OFFICERS AND BOARD OF DIRECTORS. On or prior to the
Closing Date, Silicon Graphics shall take and shall cause the Company to take
all actions necessary to appoint as officers and directors of the Company those
persons named in the Registration Statement to constitute the officers and
directors of the Company on the Closing Date.
Section 5.3. THE COMPANY CERTIFICATE OF INCORPORATION AND BYLAWS. Prior
to the Closing Date, Silicon Graphics shall take all action necessary to cause
the Company Certificate and Company Bylaws to be amended and restated
substantially in the form attached to the Registration Statement as exhibits
thereto.
Section 5.4 INSURANCE POLICIES AND CLAIMS ADMINISTRATION. (a)
MAINTENANCE OF INSURANCE COVERAGE FOLLOWING THE CLOSING DATE. Silicon Graphics
shall use reasonable efforts to maintain in full force and effect at all times
during the period in which Silicon Graphics owns in excess of fifty percent
(50%) of the outstanding voting stock of the Company, for the benefit of the
Company, (i) as "excess" coverage, general liability, workers' compensation,
property, and electronic errors and omissions policies of insurance, and (ii) as
"primary" coverage, directors and officer's liability policies of insurance
(collectively, the "POLICIES" and individually, a "POLICY"); PROVIDED, HOWEVER,
Silicon Graphics shall have the right, in its sole discretion, to modify any
such
<PAGE>
Policy or Policies (including, without limitation, with respect to coverage
limits, covered locations, co-insurance, deductibles and exclusions), cancel
or replace any such Policy or Policies at any time and from time to time; and
PROVIDED, FURTHER, HOWEVER, that nothing contained herein shall be construed
to require Silicon Graphics to pay any additional premium or other charges in
respect to, or waive or otherwise limit any of its rights, benefits or
privileges under, any such Policy or Policies.
(b) COMPANY RESPONSIBLE FOR ESTABLISHING INSURANCE COVERAGE. (i) If, as a
result of any modification, cancellation or replacement of any Policy or
Policies the Company's insurance coverage is insufficient in any respect, and
(ii) from and after such time as Silicon Graphics ceases to own in excess of
fifty percent (50%) of the outstanding voting stock of the Company, the Company
shall be responsible for establishing and maintaining its own separate insurance
policies (including, without limitation, primary and excess general liability,
automobile, workers, compensation, property, director and officer liability,
fire, crime, surety, electronics errors and omissions and other similar
insurance policies). Notwithstanding any other agreement or understanding to
the contrary, neither Silicon Graphics nor any of its subsidiaries shall have
any liability or obligation to the Company or its subsidiaries with regard to
matters now or hereafter covered under any Policy or Policies for any period,
whether arising prior to, on or after the Closing Date. [The Company shall name
Silicon Graphics as an additional insured on all primary and excess general
liability and automobile liability insurance policies and provide Silicon
Graphics with a certificate of insurance acceptable to Silicon Graphics for
purposes of evidencing such coverages and additional insured status.]
(c) ADMINISTRATION AND PROCEDURE. Silicon Graphics shall have the right to
administer any claims made under any Policy. The Company shall notify Silicon
Graphics of any claim relating to the Company or a subsidiary thereof under one
or more of the Policies, and the Company agrees to cooperate and coordinate with
Silicon Graphics concerning any strategy Silicon Graphics may elect to pursue to
secure coverage and payment for such claim by the appropriate insurance carrier.
Notwithstanding anything contained herein, in any other agreement or applicable
Policy or any understanding to the contrary, the Company assumes responsibility
for, and shall pay to the appropriate insurance carriers or otherwise, any
premiums, retrospectively-rated premiums, defense costs, indemnity payments,
deductibles, retentions or other charges, as appropriate (collectively,
"INSURANCE CHARGES"), whenever arising, which shall become due and payable under
the terms and conditions of any applicable Policy in respect of any liabilities,
losses, claims, actions or occurrences, whenever arising or becoming known,
involving or relating to any of the assets, businesses, operations or
liabilities of the Company or any of its subsidiaries. To the extent that the
terms of any applicable Policy provide that Silicon Graphics or a subsidiary
thereof, as appropriate, shall have an obligation to pay or guarantee the
payment of any Insurance Charges, Silicon Graphics or such subsidiary shall be
entitled to demand that the Company or a subsidiary thereof make such payment
directly to the person or entity entitled thereto. In connection with any such
demand, Silicon Graphics shall submit to the Company or a subsidiary thereof a
copy of any invoice received by Silicon Graphics or a subsidiary pertaining to
such Insurance Charges, together with appropriate supporting documentation, if
available. In the event that the Company or its subsidiary fails to pay any
Insurance Charges when due and payable, whether at the request of the party
entitled to payment or upon demand by Silicon Graphics or a
<PAGE>
subsidiary of Silicon Graphics, Silicon Graphics or a subsidiary of Silicon
Graphics may (but shall not be required to) pay such Insurance Charges for
and on behalf of the Company or its subsidiary and, thereafter, the Company
or its subsidiary shall forthwith reimburse Silicon Graphics or such
subsidiary of Silicon Graphics for such payment.
ARTICLE VI
ACCESS TO INFORMATION
Section 6.1. PROVISION OF CORPORATE RECORDS. Each of Silicon Graphics and
the Company shall arrange as soon as practicable following the Closing Date for
the provision to the other of existing corporate governance documents (e.g.
minute books, stock registers, stock certificates, documents of title, etc.) in
its possession relating to the other or to its business and affairs.
Section 6.2. ACCESS TO INFORMATION. From and after the Closing Date,
each of Silicon Graphics and the Company shall afford the other, including its
accountants, counsel and other designated representatives, reasonable access
(including using reasonable efforts to give access to persons or firms
possessing information) and duplicating rights during normal business hours to
all records, books, contracts, instruments, computer data and other data and
information in such party's possession relating to the business and affairs of
the other (other than data and information subject to an attorney/client or
other privilege), insofar as such access is reasonably required by the other
party including, without limitation, for audit, accounting and litigation
purposes, as well as for purposes of fulfilling disclosure and reporting
obligations.
Section 6.3. LITIGATION COOPERATION. Each of Silicon Graphics and the
Company shall use reasonable efforts to make available to the other, upon
written request, its officers, directors, employees and agents as witnesses to
the extent that such persons may reasonably be required in connection with any
legal, administrative or other proceedings arising out of the business of the
other prior to the Closing Date in which the requesting party may from time to
time be involved.
Section 6.4. REIMBURSEMENT. Each party providing witnesses under Section
6.3 to the other shall be entitled to receive from the party for whom the
witness is provided, upon the presentation of invoices therefor, payment for all
out-of-pocket costs and expenses as may be reasonably incurred in providing such
witnesses.
Section 6.5. RETENTION OF RECORDS. Except as otherwise required by law or
agreed to in writing, each party shall, and shall cause each of its respective
subsidiaries to, retain all information relating to the other party's business
in accordance with such party's written record retention policy or, if no such
policy exists, the past practice of such party. Notwithstanding the foregoing
and except as provided in any Ancillary Agreement, any party may destroy or
otherwise dispose of any such information at any time upon not less than ten
(10) days prior written notice to the other party, specifying the information
proposed to be destroyed or disposed of; PROVIDED, HOWEVER, that if the
recipient of such notice shall request in writing prior to the scheduled date
for such destruction or disposal that any of the information proposed to be
destroyed or disposed of be delivered to such requesting party, the party
proposing the destruction or disposal shall promptly arrange for the delivery of
such of the information as was requested at the expense of
<PAGE>
the requesting party. Except as provided in the Tax Sharing Agreement or
otherwise required by law or agreed to in writing, either party shall have
the right to destroy or otherwise dispose of any such information at any time
after the second anniversary of this Agreement.
Section 6.6. CONFIDENTIALITY. Subject to Section 6.7, each party and each
of its subsidiaries shall hold and shall cause its respective directors,
officers, employees, agents, consultants and advisors to hold, in strict
confidence, unless compelled to disclose by judicial or administrative process
or, in the opinion of its counsel, by other requirements of law, all
confidential, trade secret or proprietary information concerning the other
party, except to the extent that such information can be shown to have been (i)
in the public domain through no fault of such party, (ii) later lawfully
acquired on a non-confidential basis from other sources by the party to which it
was furnished, (iii) independently generated without reference to any
proprietary or confidential information of the other party, or (iv) information
that may be disclosed pursuant to any Ancillary Agreement. Neither party shall
release or disclose any such information to any other person, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors who shall be advised of and agree to comply with the provisions of this
Section 6.6.
Section 6.7. PROTECTIVE ARRANGEMENTS. In the event that any party hereto
(or any of its subsidiaries) either determines on the advice of its counsel that
it is required to disclose any information pursuant to applicable law or
receives any demand under lawful process or from any Governmental Authority to
disclose or provide information of any other party hereto (or any of its
subsidiaries) that is subject to the confidentiality provisions hereof, such
party shall notify the other party prior to disclosing or providing such
information and shall cooperate at the expense of the requesting party in
seeking any reasonable protective arrangements requested by such other party.
Subject to the foregoing, the Person that received such request may thereafter
disclose or provide information to the extent required by such law (as so
advised by counsel) or by lawful process or such Governmental Authority.
Section 6.8. MAIL. After the Closing Date, each of Silicon Graphics and
the Company may receive mail, telegrams, packages and other communications
property belonging to the other. Accordingly, at all times after the Closing
Date, each of Silicon Graphics and the Company authorizes the other to receive
and open all mail, telegrams, packages and other communications received by it
and not unambiguously intended for the other party or any of the other party's
officers or directors specifically in their capacities as such, and to retain
the same to the extent that they relate to the business of the receiving party
or, to the extent that they do not relate to the business of the receiving party
and do relate to the business of the other party, or to the extent that they
relate to both businesses, the receiving party shall promptly contact the other
party by telephone for delivery instructions and such mail, telegrams, packages
or other communications (or, in case the same relate to both businesses, copies
thereof) shall promptly be forwarded to the other party in accordance with its
delivery instructions. The foregoing provisions of this Section 6.8 shall
constitute full authorization to the postal authorities, all telegraph and
courier companies and all other persons to make deliveries to Silicon Graphics
or the Company, as the case may be, addressed to either of them or to any of
their officers or directors specifically in their capacities as such. The
provisions of this Section 6.8 are not intended to and shall not be deemed to
constitute an authorization by either Silicon Graphics or the Company to permit
the other to accept service
<PAGE>
of process on its behalf, and neither party is or shall be deemed to be the
agent of the other for service of process purposes or for any other purpose.
ARTICLE VII
DISPUTE RESOLUTION
Section 7.1. AGREEMENT TO MEDIATE. Except as otherwise specifically
provided in any Ancillary Agreement, the procedures for discussion, negotiation
and mediation set forth in this Article VII shall apply to all disputes,
controversies or claims (whether sounding in contract, tort or otherwise) that
may arise out of or relate to, or arise under or in connection with this
Agreement or any Ancillary Agreement, or the transactions contemplated hereby or
thereby (including all actions taken in furtherance of the transactions
contemplated hereby or thereby on or prior to the date hereof), or the
commercial or economic relationship of the parties relating hereto or thereto,
between Silicon Graphics and its subsidiaries and the Company and its
subsidiaries.
Section 7.2. ESCALATION. It is the intent of the parties to use their
respective reasonable best efforts to resolve expeditiously any dispute,
controversy or claim between or among them with respect to the matters covered
hereby that may arise from time to time on a mutually acceptable negotiated
basis. In furtherance of the foregoing, any party involved in a dispute,
controversy or claim may deliver a notice (an "ESCALATION NOTICE") demanding an
in person meeting involving representatives of the parties at a senior level of
management of the parties (or if the parties agree, of the appropriate strategic
business unit or division within such entity). A copy of any such Escalation
Notice shall be given to the General Counsel, or like officer or official, of
each party involved in the dispute, controversy or claim (which copy shall state
that it is an Escalation Notice pursuant to this Agreement). Any agenda,
location or procedures for such discussions or negotiations between the parties
may be established by the parties from time to time; PROVIDED, HOWEVER, that the
parties shall use their reasonable best efforts to meet within 30 days of the
Escalation Notice.
Section 7.3. DEMAND FOR MEDIATION. At any time after the first to occur
of (i) the date of the meeting actually held pursuant to the applicable
Escalation Notice or (ii) 90 days after the delivery of an Escalation Notice (as
applicable, the "MEDIATION DEMAND DATE"), any party involved in the dispute,
controversy or claim (regardless of whether such party delivered the Escalation
Notice) may make a written demand (the "MEDIATION DEMAND NOTICE") that the
dispute be submitted to mediation. Any opinion expressed by the mediator shall
not be binding on the parties, nor shall any opinion expressed by the mediator
be admissible in any subsequent proceedings. The mediator may be chosen from a
list of mediators previously selected by the parties or by other agreement of
the parties. Costs of the mediation shall be borne equally by the parties
involved in the matter, except that each party shall be responsible for its own
attorney's fees and other costs and expenses. The site of the mediation shall
be Mountain View, California, unless otherwise agreed by the parties. No party
may assert that the failure to resolve any matter during any discussions or
negotiations, the course of conduct during the discussions or negotiations or
the failure to agree on a mutually acceptable time, agenda, location or
procedures
<PAGE>
for the meeting, in each case, as contemplated by Section 7.2, is a
prerequisite to a demand for meditation under Section this 7.3.
Section 7.4. CERTAIN ADDITIONAL MATTERS. (a) Either party may apply to
any court having jurisdiction and seek injunctive relief so as to maintain the
status quo until such time as the mediation is concluded or the controversy is
otherwise resolved.
(b) Except as required by law, the parties shall hold, and shall cause
their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and result of mediation in
confidence in accordance with the provisions of Article VI. Each of the parties
shall request that any mediator comply with such confidentiality requirement.
(c) Notwithstanding anything herein to the contrary, in the event that any
party determines in good faith that the amount in controversy in any dispute,
controversy or claim (or any series of related disputes, controversies or
claims) under this Agreement or any Ancillary Agreement is, or is reasonably
likely to be, in excess of $30 million, the provisions of Section 7.3 shall not
apply and any party may elect, in lieu of mediation, to commence an Action with
respect to such dispute, controversy or claim (or such series of related
disputes, controversies or claims) in any court of competent jurisdiction.
Section 7.5. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise
agreed in writing, the parties will continue to provide service and honor all
other commitments under this Agreement and each Ancillary Agreement during the
course of dispute resolution pursuant to the provisions of this Article VII with
respect to all matters not subject to such dispute, controversy or claim.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. TERMINATION. This Agreement may be terminated and the
Separation and/or the Initial Public Offering may be deferred, modified or
abandoned at any time prior to the Closing Date by and in the sole discretion of
the Board of Directors of Silicon Graphics without the approval of the Company.
In the event of such termination, no party hereto (or any of its respective
directors or officers) shall have any liability to any other party pursuant to
this Agreement.
Section 8.2. EXPENSES. (a) Except as specifically provided in this
Agreement or in an Ancillary Agreement, all costs and expenses incurred in
connection with the interpretation, execution, delivery and implementation of
this Agreement and with the consummation of the transactions contemplated by
this Agreement shall be paid by the party incurring the expense. The
determination of who has incurred an expense shall be made by the Chief
Financial Officer of Silicon Graphics, which determination shall be binding and
final upon each of the parties hereto and not subject to further review.
<PAGE>
(b) Underwriting commissions and discounts attributable to the shares of
Common Stock sold by each of the parties hereto in the Initial Public Offering
shall be paid by the party selling such shares.
(c) It is understood and agreed that the Company and Silicon Graphics shall
pay the legal, filing, accounting, printing and other out-of-pocket expenditures
in connection with (i) the preparation, printing and filing of the Registration
Statement and (ii) sale of the shares of Common Stock in the Initial Public
Offering, including, without limitation, third-party costs, fees and expenses
relating to the Initial Public Offering, all of the reimbursable expenses of the
Underwriters pursuant to the Underwriting Agreement, and all of the costs of
producing, printing, mailing and otherwise distributing the Prospectus, in the
same proportion as the number of shares of Common Stock sold by each of them in
the Initial Public Offering bears to the total number of shares sold in the
Initial Public Offering (in each case exclusive of any over-allotment option of
the Underwriters under the Underwriting Agreement).
Section 8.3. NOTICES. All notices and communications under this Agreement
shall be in writing and any communication or delivery hereunder shall be deemed
to have been duly given when received addressed as follows:
If to Silicon Graphics, to:
2011 N. Shoreline Blvd.
Mountain View, California 94043
Attn: Director, Corporate Legal Services
Telecopy Number: (650) 932-0652
If to the Company, to:
Mountain View, California 94043
Attn: General Counsel
Telecopy Number:
Any party may, by written notice so delivered to the other party, change
the address to which delivery of any notice shall thereafter be made.
Section 8.4. AMENDMENT AND WAIVER. This Agreement may not be altered or
amended, nor may rights hereunder be waived, except by an instrument in writing
executed by the party or parties to be charged with such amendment or waiver.
No waiver of any terms, provision or condition of or failure to exercise or
delay in exercising any rights or remedies under this Agreement, in any one or
more instances shall be deemed to be, or construed as, a further or continuing
waiver of any such term, provision, condition, right or remedy or as a waiver of
any other term, provision or condition of this Agreement.
<PAGE>
Section 8.5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same Agreement.
Section 8.6. GOVERNING LAW; JURISDICTION; FORUM. This Agreement shall be
construed in accordance with, and governed by, the laws of the State of
California, without regard to the conflicts of law rules of such state. Each
party hereto expressly submits and consents in advance to the non-exclusive
jurisdiction of the State and Federal courts sitting in the City of San
Francisco, State of California, in any Action between the parties arising under
this Agreement or under any Ancillary Agreement, and hereby waives any claim
that any such state or federal court is an inconvenient or improper forum.
Section 8.7. ENTIRE AGREEMENT. This Agreement including the schedules
hereto, together with the Ancillary Agreements, constitute the entire
understanding of the parties hereto with respect to the subject matter hereof,
superseding all negotiations, prior discussions and prior agreements and
understandings relating to such subject matter. To the extent that the
provisions of this Agreement are inconsistent with the provisions of any
Ancillary Agreement, the provisions of such Ancillary Agreement shall prevail.
Section 8.8. PARTIES IN INTEREST. Neither of the parties hereto may
assign its rights or delegate any of its duties under this Agreement without the
prior written consent of each other party. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. Nothing contained in this Agreement, express
or implied, is intended to confer any benefits, rights or remedies upon any
person or entity other than Silicon Graphics and the Company, and Silicon
Graphics Indemnitees and Company Indemnitees under Article IV hereof.
Section 8.9. TAX SHARING AGREEMENT. Notwithstanding any other provision
of this Agreement to the contrary, any and all matters relating to Taxes shall
be exclusively governed by the Tax Sharing Agreement.
<PAGE>
Section 8.10. FURTHER ASSURANCES AND CONSENTS. In addition to the actions
specifically provided for elsewhere in this Agreement, each of the parties
hereto will use its reasonable efforts to (i) execute and deliver such further
instruments and documents and take such other actions as any other party may
reasonably request in order to effectuate the purposes of this Agreement and to
carry out the terms hereof and (ii) take, or cause to be taken, all actions, and
to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements or otherwise to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, using its reasonable efforts to obtain any
Consents and to make any filings and applications necessary or desirable in
order to consummate the transactions contemplated by this Agreement; PROVIDED
that no party hereto shall be obligated to pay any consideration therefor
(except for filing fees and other similar charges) to any third party from whom
such Consents and amendments are requested or to take any action or omit to take
any action if the taking of or the omission to take such action would be
unreasonably burdensome to the party or its business.
Section 8.11. EXHIBITS AND SCHEDULES. The Exhibits and Schedules shall be
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein.
Section 8.12. LEGAL ENFORCEABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable.
Section 8.13. TITLES AND HEADINGS. Titles and headings to Sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the day and year first above written.
SILICON GRAPHICS, INC.
By: /s/ William M. Kelly
---------------------------------
Name: William M. Kelly
Title: Senior Vice President-
Corporate Operations
MIPS TECHNOLOGIES, INC.
By: /s/ John E. Bourgoin
---------------------------------
Name: John E. Bourgoin
Title: Chief Executive Officer and President
<PAGE>
SCHEDULE 1.1(a)
COMPANY CONTRACTS
The detailed list of Company Contracts, including the appropriate contracts
with NEC Corporation, Toshiba Corporation, LSI Logic Corporation, Philips
Electronics N.V., Integrated Device Technology, NKK Corporation and Quantum
Effect Design, Inc., is included in this Schedule.
<PAGE>
SCHEDULE 2.1(a)(i)
TANGIBLE PERSONAL PROPERTY
The detailed list of Tangible Personal Property is included in this
Schedule.
<PAGE>
SCHEDULE 2.1(a)(ii)
INVENTORY
The detailed list of Inventory is included in this Schedule.
<PAGE>
SCHEDULE 2.1(a)(iii)
RECEIVABLES
The detailed list of Receivables is included in this Schedule.
<PAGE>
SCHEDULE 2.1(a)(ix)
SALES AND PROMOTIONAL MATERIAL
The detailed list of Sales and Promotional Material is included in this
Schedule.
<PAGE>
SCHEDULE 2.1(a)(x)
GOVERNMENTAL PERMITS AND APPROVALS
The detailed list of Governmental Permits and Approvals is included in
this Schedule.
<PAGE>
SCHEDULE 2.1(b)(i)
EXCLUDED ASSETS
The detailed list of Excluded Assets is included in this Schedule.
<PAGE>
SCHEDULE 2.2(a)(iv)
LIABILITIES
The detailed list of Liabilities is included in this Schedule.
<PAGE>
SCHEDULE 2.2(b)(i)
EXCLUDED LIABILITIES
The detailed list of Excluded Liabilities is included in this Schedule.
<PAGE>
SCHEDULE 2.6(b)
AGREEMENTS NOT TO TERMINATE
The detailed list of Agreements not to Terminate is included in this
Schedule.
<PAGE>
SCHEDULE 2.3(b)
JOINT CONTRACTS
The detailed list of Joint Contracts is included in this Schedule.
<PAGE>
EXHIBIT 10.2
CORPORATE AGREEMENT
THIS CORPORATE AGREEMENT ("Agreement") is entered into as of July 6, 1998
by and between SILICON GRAPHICS, INC., a Delaware corporation ("Silicon
Graphics"), and MIPS TECHNOLOGIES, INC., a Delaware corporation (the "Company").
RECITALS
WHEREAS, Silicon Graphics directly owns 36,000,000 shares of Common Stock,
par value $0.001 per share ("Common Stock"), of the Company, and the Company is
a member of Silicon Graphics' "affiliated group" of corporations (the "SGI
Group") for federal income tax purposes;
WHEREAS, the parties are contemplating the possibility that Silicon
Graphics will sell shares of Common Stock in an initial public offering (the
"Initial Public Offering") registered under the Securities Act of 1933, as
amended; and
WHEREAS, the parties desire to enter into this Agreement to set forth their
agreement regarding (i) Silicon Graphics' rights to purchase additional shares
of Capital Stock of the Company to permit Silicon Graphics to own at least the
Minimum Ownership Percentage of Capital Stock in the Company, (ii) certain
registration rights with respect to the Common Stock (and any other securities
issued in respect thereof or in exchange therefor) and (iii) certain
representations, warranties, covenants and agreements applicable so long as the
Company is a subsidiary of Silicon Graphics.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Silicon Graphics and the Company,
for themselves, their successors, and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. As used in this Agreement, the following terms
will have the following meanings, applicable both to the singular and the plural
forms of the terms described:
"Affiliate" means, with respect to a given Person, any Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to vote a majority of
the securities having voting power for the election of directors (or other
Persons acting in similar capacities) of such Person or otherwise to direct or
cause the direction of the management
<PAGE>
and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Agreement" has the meaning ascribed thereto in the preamble hereto, as
such agreement may be amended and supplemented from time to time in accordance
with its terms.
"Applicable Stock" means at any time the (i) shares of Common Stock owned
by the SGI Entities that were owned on the date hereof, plus (ii) shares of
Common Stock purchased by the SGI Entities pursuant to Article II of this
Agreement, plus (iii) shares of Common Stock that were issued to SGI Entities in
respect of shares described in either clause (i) or clause (ii) in any
reclassification, share combination, share subdivision, share dividend, share
exchange, merger, consolidation or similar transaction or event.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Company Securities" has the meaning ascribed thereto in Section 3.2(b).
"Disadvantageous Condition" has the meaning ascribed thereto in Section
3.1(a).
"MIPS Entities" means the Company and its Subsidiaries, and "MIPS Entity"
shall mean any of the MIPS Entities.
"Holder" means Silicon Graphics, the other SGI Entities and any Transferee.
"Holder Securities" has the meaning ascribed thereto in Section 3.2(b).
"Initial Public Offering" has the meaning ascribed thereto in the recitals
to this Agreement.
"Initial Public Offering Date" means the date of completion of the initial
sale of Common Stock in the Initial Public Offering.
"Issuance Event" has the meaning ascribed thereto in Section 2.2.
"Issuance Event Date" has the meaning ascribed thereto in Section 2.2.
"Market Price" of any shares of Common Stock (or other Capital Stock) on
any date means (i) the average of the last sale price of such shares on each of
the five trading days immediately preceding such date on the Nasdaq National
Market or, if such shares are not listed or quoted thereon, on the principal
national securities exchange or automated interdealer
<PAGE>
quotation system on which such shares are traded or (ii) if such sale prices
are unavailable or such shares are not so traded, the value of such shares on
such date determined in accordance with agreed-upon procedures reasonably
satisfactory to the Company and Silicon Graphics.
"Minimum Ownership Percentage" means the ownership of such number of (i)
shares of Capital Stock of the Company to the extent, and only to the extent,
necessary for Silicon Graphics to maintain all of the following: (a) control of
the Company (within the meaning of Section 368(a)(2)(H) and (c) of the Internal
Revenue Code of 1986, as amended (the "Code")), (b) the status of the Company as
a member of the affiliated group of corporations (within the meaning of Section
1504 of the Code) of which Silicon Graphics is the common parent, provided such
status has theretofore been maintained or (c) its then-existing percentage of
the total voting power and value of the Company, whichever percentage is
highest, and (ii) shares of non-voting capital stock to the extent, and only to
the extent, necessary to own 80% of each outstanding class of such stock.
"Option" has the meaning ascribed thereto in Section 2.1(a).
"Option Notice" has the meaning ascribed thereto in Section 2.2.
"Other Holders" has the meaning ascribed thereto in Section 3.2(c).
"Other Securities" has the meaning ascribed thereto in Section 3.2.
"Ownership Percentage" means, at any time, the fraction, expressed as a
percentage and rounded to the next highest thousandth of a percent, whose
numerator is the aggregate Value of the Applicable Stock and whose denominator
is the aggregate Value of outstanding shares of Common Stock of the Company;
PROVIDED, HOWEVER, that any shares of Common Stock issued by the Company in
violation of its obligations under Article II of this Agreement shall not be
deemed outstanding for the purpose of determining the Ownership Percentage. For
purposes of this definition, "Value" means, with respect to any share of stock,
the value of such share determined by Silicon Graphics under principles
applicable for purposes of Section 1504 of the Internal Revenue Code of 1986, as
amended.
"Person" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization, government (and
any department or agency thereof) or other entity.
"Registrable Securities" means shares of Common Stock and any stock or
other securities into which or for which such Common Stock may hereafter be
changed, converted or exchanged and any other shares or securities issued to the
Holders (or such shares or other securities into which or for which such shares
are so changed, converted or exchanged) upon any reclassification, share
combination, share subdivision, share dividend, share exchange, merger,
consolidation or similar transaction or event or pursuant to the Option. As to
any particular Registrable Securities, such Registrable Securities shall cease
to be Registrable Securities when (i)
<PAGE>
a registration statement with respect to the sale by the Holder thereof shall
have been declared effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration statement,
(ii) such Registrable Securities are sold by a person in a transaction in
which the rights under the provisions of this Agreement are not assigned or
(iii) such Registrable Securities may be sold pursuant to Rule 144(k) (or any
similar provision then in force) under the Securities Act without
registration under the Securities Act. (iv) such Registrable Securities shall
have been otherwise transferred, new certificates for them not bearing a
legend restricting further transfer shall have been delivered by the Company
and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any state securities or
blue sky law then in effect or (v) they shall have ceased to be outstanding.
"Registration Expenses" means any and all expenses incident to performance
of or compliance with any registration of securities pursuant to Article III,
including, without limitation, (i) the fees, disbursements and expenses of the
Company's counsel and accountants and the fees and expenses of counsel selected
by the Holders in accordance with this Agreement in connection with the
registration of the securities to be disposed of, such fees and expenses of such
counsel selected by the Holders to be reasonable in the reasonable discretion of
the Company; (ii) all expenses, including filing fees, in connection with the
preparation, printing and filing of the registration statement, any preliminary
prospectus or final prospectus, any other offering document and amendments and
supplements thereto and the mailing and delivering of copies thereof to any
underwriters and dealers; (iii) the cost of printing or producing any
underwriting agreements and blue sky or legal investment memoranda and any other
documents in connection with the offering, sale or delivery of the securities to
be disposed of; (iv) all expenses in connection with the qualification of the
securities to be disposed of for offering and sale under state securities laws,
including the fees and disbursements of counsel for the underwriters or the
Holders of securities in connection with such qualification and in connection
with any blue sky and legal investment surveys; (v) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the securities to be disposed of; (vi) transfer
agents' and registrars' fees and expenses and the fees and expenses of any other
agent or trustee appointed in connection with such offering; (vii) all security
engraving and security printing expenses; (viii) all fees and expenses payable
in connection with the listing of the securities on any securities exchange or
automated interdealer quotation system or the rating of such securities, (ix)
any other fees and disbursements of underwriters customarily paid by the sellers
of securities, but excluding underwriting discounts and commissions and transfer
taxes, if any, and (x) other reasonable out-of-pocket expenses of Holders other
than legal fees and expenses referred to in clause (i) above.
"Rule 144" means Rule 144 (or any successor rule to similar effect)
promulgated under the Securities Act.
"Rule 415 Offering" means an offering on a delayed or continuous basis
pursuant to Rule 415 (or any successor rule to similar effect) promulgated under
the Securities Act.
<PAGE>
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Selling Holder" has the meaning ascribed thereto in Section 3.4(e).
"SGI Entities" means Silicon Graphics and Subsidiaries of Silicon Graphics
(other than Subsidiaries that constitute MIPS Entities), and "SGI Entity" shall
mean any of the SGI Entities.
"SGI Group" has the meaning ascribed thereto in the recitals to this
Agreement.
"SGI Ownership Reduction" means any decrease at any time in the Ownership
Percentage to less than 50%.
"SGI Transferee" has the meaning ascribed thereto in Section 3.9.
"Subsidiary" means, as to any Person, any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting capital stock or other voting ownership interests is owned or
controlled, directly or indirectly, by such Person or by one or more of the
Subsidiaries of such Person or by a combination thereof. "Subsidiary," when
used with respect to Silicon Graphics or the Company, shall also include any
other entity affiliated with Silicon Graphics or the Company, as the case may
be, that Silicon Graphics and the Company may hereafter agree in writing shall
be treated as a "Subsidiary" for the purposes of this Agreement.
"Transferee" has the meaning ascribed thereto in Section 3.9.
Section 1.2. INTERNAL REFERENCES. Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the corresponding
articles, sections and paragraphs in this Agreement and references to the
parties shall mean the parties to this Agreement.
ARTICLE II
OPTIONS
Section 2.1. OPTIONS. (a) The Company hereby grants to Silicon Graphics,
on the terms and conditions set forth herein, a continuing right (the "Option")
to purchase from the Company such number of shares of the Capital Stock as is
necessary to allow the SGI Entities to maintain the Minimum Ownership Percentage
in the Capital Stock of the Company. The Option shall be assignable, in whole
or in part and from time to time, by Silicon Graphics to any SGI Entity. The
exercise price for the shares of Capital Stock purchased pursuant to the Option
shall be the Market Price of the Capital Stock as of the date of first delivery
of notice of exercise of the Option by Silicon Graphics (or its permitted
assignee hereunder) to the Company.
(b) The provisions of Section 2.1(a) hereof notwithstanding, the Option
granted pursuant to Section 2.1 shall not apply and shall not be exercisable in
connection with the issuance by the
<PAGE>
Company of any shares of Common Stock pursuant to any stock option or other
executive or employee benefit or compensation plan maintained by the Company,
so long as, from and after the date hereof and prior to the issuance of such
shares, the Company has repurchased from shareholders and not subsequently
reissued a number of shares equal or greater to the number of shares to be
issued in any such issuance.
Section 2.2. NOTICE. At least 20 business days prior to the issuance of
any shares of Capital Stock (other than in connection with the Initial Public
Offering, including the full exercise of all underwriters' over-allotment
options granted in connection therewith and other than issuances of Common Stock
to any SGI Entity) or the first date on which any event could occur that, in the
absence of a full or partial exercise of the Option, would result in a reduction
in Silicon Graphics' level of ownership in the Company to below the Minimum
Ownership Percentage, the Company will notify Silicon Graphics in writing (an
"Option Notice") of any plans it has to issue such shares or the date on which
such event could first occur. Each Option Notice must specify the date on which
the Company intends to issue such additional shares or on which such event could
first occur (such issuance or event being referred to herein as an "Issuance
Event" and the date of such issuance or event as an "Issuance Event Date"), the
number of shares the Company intends to issue or may issue and the other terms
and conditions of such Issuance Event.
Section 2.3. OPTION EXERCISE AND PAYMENT. The Option may be exercised by
Silicon Graphics (or any SGI Entity to which all or any part of the Option has
been assigned) for a number of shares equal to or less than the number of shares
that are necessary for the SGI Entities to maintain, in the aggregate, the
Minimum Ownership Percentage. Each Option may be exercised at any time by the
delivery to the Company of a written notice (the "Exercise Notice") to such
effect specifying (i) the number of shares of Capital Stock to be purchased by
Silicon Graphics, or any of the SGI Entities and (ii) a calculation of the
exercise price for such shares. Upon any such exercise of the Option, the
Company will deliver to Silicon Graphics (or any SGI Entity designated by
Silicon Graphics), against payment therefor, certificates (issued in the name of
Silicon Graphics or its permitted assignee hereunder or as directed by Silicon
Graphics) representing the shares of Capital Stock being purchased upon such
exercise. If after the receipt of an Option Notice and prior to the
corresponding Issuance Event Date, Silicon Graphics delivers to the Company an
Exercise Notice, the Company shall deliver the certificates for the shares of
Capital Stock being purchased prior to the applicable Issuance Event Date.
Payment for such shares shall be made by wire transfer or intrabank transfer of
immediately-available funds to such account as shall be specified by the
Company, for the full purchase price for such shares.
Section 2.4. EFFECT OF FAILURE TO EXERCISE. Except as provided in Section
2.6, any failure by Silicon Graphics to exercise the Option in full shall not
affect Silicon Graphics' right to exercise the Option at any time in the future.
Section 2.5. INITIAL PUBLIC OFFERING. Notwithstanding the foregoing,
Silicon Graphics shall not be entitled to exercise the Option in connection
with the Initial Public Offering of the Common Stock if, upon the completion
of the Initial Public Offering, including the full exercise of all
underwriters' over-allotment options granted in connection therewith, Silicon
Graphics owns at
<PAGE>
least the Minimum Ownership Percentage (other than (i)(c) of the definition
of the Minimum Ownership Percentage).
Section 2.6. TERMINATION OF OPTIONS. The Option shall terminate upon the
occurrence of any Issuance Event that, after considering Silicon Graphics'
response thereto and to any other Issuance Events, results in a SGI Ownership
Reduction, other than any Issuance Event in violation of this Agreement. Each
Option, or any portion thereof assigned to any SGI Entity other than Silicon
Graphics, also shall terminate in the event that the Person to whom such Option,
or such portion thereof has been transferred, ceases to be a SGI Entity for any
reason whatsoever.
ARTICLE III
REGISTRATION RIGHTS
Section 3.1. DEMAND REGISTRATION - REGISTRABLE SECURITIES. (a) Upon
written notice provided at any time after the Initial Public Offering Date from
any Holder of Registrable Securities requesting that the Company effect the
registration under the Securities Act of any or all of the Registrable
Securities held by such Holder, which notice shall specify the intended method
or methods of disposition of such Registrable Securities, the Company shall use
its best efforts to effect the registration under the Securities Act and
applicable state securities laws of such Registrable Securities for disposition
in accordance with the intended method or methods of disposition stated in such
request (including in a Rule 415 Offering, if the Company is then eligible to
register such Registrable Securities on Form S-3 (or a successor form) for such
offering); PROVIDED that:
(i) with respect to any registration statement filed, or to be filed,
pursuant to this Section 3.1, if the Company shall furnish to the Holders
of Registrable Securities that have made such request a certified
resolution of the Board of Directors of the Company (adopted by the
affirmative vote of a majority of the directors not designated by the SGI
Entities that are also directors or officers of any SGI Entity) stating
that in the Board of Directors' good faith judgment it would (because of
the existence of, or in anticipation of, any acquisition or financing
activity, or the unavailability for reasons beyond the Company's reasonable
control of any required financial statements, or any other event or
condition of similar significance to the Company) be significantly
disadvantageous (a "Disadvantageous Condition") to the Company for such a
registration statement to be maintained effective, or to be filed and
become effective, and setting forth the general reasons for such judgment,
the Company shall be entitled to cause such registration statement to be
withdrawn and the effectiveness of such registration statement terminated,
or, in the event no registration statement has yet been filed, shall be
entitled not to file any such registration statement, until such
Disadvantageous Condition no longer exists (notice of which the Company
shall promptly deliver to such Holders). Upon receipt of any such notice
of a Disadvantageous Condition, such Holders shall forthwith discontinue
use of the prospectus contained in such registration statement and, if so
directed by the Company, each such Holder will deliver to the Company all
copies, other than permanent
<PAGE>
file copies then in such Holder's possession, of the prospectus then
covering such Registrable Securities current at the time of receipt of
such notice; PROVIDED, that the filing of any such registration statement
may not be delayed for a period in excess of 90 days due to the occurrence
of any particular Disadvantageous Condition and no more than three
resolutions regarding Disadvantageous Conditions may be made by the Board
of Directors in any two-year period;
(ii) after any SGI Ownership Reduction, the Holders of Registrable
Securities may collectively exercise their rights under this Section 3.1
(through notice delivered by Holders owning in the aggregate a majority in
economic interest of the Registrable Securities then held by Holders) on
not more than four occasions (it being acknowledged that prior to any SGI
Ownership Reduction, there shall be no limit to the number of occasions on
which such Holders (other than any SGI Transferees and their Affiliates
(other than SGI Entities)) may exercise such rights);
(iii) Except as otherwise provided herein, the Holders of
Registrable Securities shall not have the right to exercise registration
rights pursuant to this Section 3.1 within the 180-day period following the
registration and sale of Registrable Securities effected pursuant to a
prior exercise of the registration rights provided in this Section 3.1; and
(iv) the Holders of Registrable Securities shall not have the right
to exercise registration rights pursuant to this Section 3.1 within the
180-day period following the effective date of the Registration Statement
in connection with the Initial Public Offering.
(b) Notwithstanding any other provision of this Agreement to the contrary,
a registration requested by a Holder of Registrable Securities pursuant to this
Section 3.1 shall not be deemed to have been effected (and, therefore, not
requested for purposes of paragraph (a) above), (i) unless it has become
effective, (ii) if after it has become effective such registration is interfered
with by any stop order, injunction or other order or requirement of the SEC or
other governmental agency or court for any reason other than a misrepresentation
or an omission by such Holder and, as a result thereof, the Registrable
Securities requested to be registered cannot be completely distributed in
accordance with the plan of distribution set forth in the related registration
statement or (iii) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied or waived other than by reason of some act or
omission by such Holder of Registrable Securities.
(c) In the event that any registration pursuant to this Section 3.1 shall
involve, in whole or in part, an underwritten offering, the Holders of a
majority of the Registrable Securities to be registered shall have the right to
designate an underwriter or underwriters reasonably acceptable to the Company as
the lead or managing underwriters of such underwritten offering and, in
connection with each registration pursuant to this Section 3.1, such Holders may
select one counsel reasonably acceptable to the Company to represent all such
Holders.
<PAGE>
(d) The Company shall have the right to cause the registration of
additional equity securities for sale for its account, the account of any MIPS
Entity or any existing or former directors, officers or employees of the MIPS
Entities in any registration of Registrable Securities requested by the Holders
pursuant to paragraph (a) above; PROVIDED, HOWEVER, that if the registration and
sale of such additional equity securities would require Silicon Graphics or any
SGI Entity to exercise the Option to maintain the then-current Ownership
Percentage or ownership of 80% of each class of outstanding Nonvoting Stock,
then the number of such additional equity securities shall be reduced so that
exercise of the Option would not be necessary for Silicon Graphics or any SGI
Entity to maintain such ownership levels and, PROVIDED, FURTHER, that if such
Holders are advised in writing (with a copy to the Company) by a nationally
recognized investment banking or commercial banking firm selected by such
Holders reasonably acceptable to the Company (which shall be the lead
underwriter or a managing underwriter in the case of an underwritten offering)
that, in such firm's good faith view, all or a part of such additional equity
securities cannot be sold and the inclusion of such additional equity securities
in such registration would be likely to have an adverse effect on the price,
timing or distribution of the offering and sale of the Registrable Securities
then contemplated by any Holder, the registration of such additional equity
securities or part thereof shall not be permitted. The Holders of the
Registrable Securities to be offered may require that any such additional equity
securities be included in the offering proposed by such Holders on the same
conditions as the Registrable Securities that are included therein. In the event
that the number of Registrable Securities requested to be included in a
registration statement by the Holders thereof exceeds the number which, in the
good faith view of such investment banking firm, can be sold without adversely
affecting the price, timing, distribution or sale of securities in the offering,
the number shall be allocated pro rata among the requesting Holders on the basis
of the relative number of Registrable Securities then held by each such Holder
(provided that any number in excess of a Holder's request may be reallocated
among the remaining requesting Holders in a like manner).
Section 3.2. PIGGYBACK REGISTRATION. In the event that the Company at any
time after the Initial Public Offering Date proposes to register any of its
Common Stock, any other of its equity securities or securities convertible into
or exchangeable for its equity securities (collectively, including Common Stock,
"Other Securities") under the Securities Act, whether or not for sale for its
own account, in a manner that would permit registration of Registerable
Securities for sale for cash to the public under the Securities Act, it shall at
each such time give prompt written notice to each Holder of Registrable
Securities of its intention to do so and of the rights of such Holder under this
Section 3.2. Subject to the terms and conditions hereof, such notice shall offer
each such Holder the opportunity to include in such registration statement such
number of Registrable Securities as such Holder may request. Upon the written
request of any such Holder made within 15 days after the receipt of the
Company's notice (which request shall specify the number of Registrable
Securities intended to be disposed of and the intended method of disposition
thereof), the Company shall use its best efforts to effect, in connection with
the registration of the Other Securities, the registration under the Securities
Act of all Registrable Securities which the Company has been so requested to
register, to the extent required to permit the disposition (in accordance with
such intended method of disposition thereof) of the Registrable Securities so
requested to be registered; PROVIDED, that:
<PAGE>
(a) if, at any time after giving such written notice of its intention to
register any Other Securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register the Other Securities, the Company
may, at its election, give written notice of such determination to such Holders
and thereupon the Company shall be relieved of its obligation to register such
Registrable Securities in connection with the registration of such Other
Securities, without prejudice, however, to the rights of the Holders of
Registrable Securities immediately to request that such registration be effected
as a registration under Section 3.1 to the extent permitted thereunder;
(b) if the registration referred to in the first sentence of this Section
3.2 is to be an underwritten registration on behalf of the Company, and a
nationally recognized investment banking or commercial banking firm selected by
the Company advises the Company in writing that, in such firm's good faith view,
all or a part of such Registrable Securities cannot be sold and the inclusion of
all or a part of such Registrable Securities in such registration would be
likely to have an adverse effect upon the price, timing or distribution of the
offering and sale of the Other Securities then contemplated, the Company shall
include in such registration:
(i) first, all Other Securities the Company proposes to sell for its
own account ("Company Securities"),
(ii) second, up to the full number of Registrable Securities held by
Holders constituting SGI Entities that are requested to be included in such
registration (Registrable Securities that are so held being sometimes
referred to herein as "Holder Securities") in excess of the number of
Company Securities to be sold in such offering which, in the good faith
view of such investment banking or commercial banking firm, can be sold
without adversely affecting such offering (and (x) if such number is less
than the full number of such Holder Securities, such number shall be
allocated by Silicon Graphics among such SGI Entities and (y) in the event
that such investment banking or commercial banking firm advises that less
than all of such Holder Securities may be included in such offering, such
SGI Entities may withdraw their request for registration of their
Registrable Securities under this Section 3.2 and 90 days subsequent to the
effective date of the registration statement for the registration of such
Other Securities request that such registration be effected as a
registration under Section 3.1 to the extent permitted thereunder,
(iii) third, up to the full number of Registrable Securities held by
Holders (other than SGI Entities) of Registrable Securities that are
requested to be included in such registration in excess of the number of
Company Securities and Holder Securities to be sold in such offering which,
in the good faith view of such investment banking or commercial banking
firm, can be so sold without so adversely affecting such offering (and (x)
if such number is less than the full number of such Registrable Securities,
such number shall be allocated pro rata among such Holders on the basis of
the number of Registrable Securities requested to be included therein by
each such Holder and (y) in the event that such investment banking firm
advises that less than all of such Registrable Securities may be included
in such offering, such Holders may withdraw their request for registration
of
<PAGE>
their Registrable Securities under this Section 3.2 and 90 days
subsequent to the effective date of the registration statement for the
registration of such Other Securities request that such registration be
effected as a registration under Section 3.1 to the extent permitted
thereunder) and
(iv) fourth, up to the full number of the Other Securities (other than
Company Securities), if any, in excess of the number of Company Securities
and Registrable Securities to be sold in such offering which, in the good
faith view of such investment banking firm, can be so sold without so
adversely affecting such offering (and, if such number is less than the
full number of such Other Securities, such number shall be allocated pro
rata among the holders of such Other Securities (other than Company
Securities) on the basis of the number of securities requested to be
included therein by each such Holder);
(c) if the registration referred to in the first sentence of this Section
3.2 is to be an underwritten secondary registration on behalf of holders of
Other Securities (the "Other Holders"), and the lead underwriter or managing
underwriter advises the Company in writing that in their good faith view, all or
a part of such additional securities cannot be sold and the inclusion of such
additional securities in such registration would be likely to have an adverse
effect on the price, timing or distribution of the offering and sale of the
Other Securities then contemplated, the Company shall include in such
registration the number of securities (including Registrable Securities) that
such underwriters advise can be so sold without adversely affecting such
offering, allocated pro rata among the Other Holders and the Holders of
Registrable Securities on the basis of the number of securities (including
Registrable Securities) requested to be included therein by each Other Holder
and each Holder of Registrable Securities; PROVIDED, that if such registration
statement is to be filed at any time after a SGI Ownership Reduction, if such
Other Holders have requested that such registration statement be filed pursuant
to demand registration rights granted to them by the Company, the Company shall
include in such registration (i) first, Other Securities sought to be included
therein by the Other Holders pursuant to the exercise of such demand
registration rights, (ii) second, the number of Holder Securities sought to be
included in such registration in excess of the number of Other Securities sought
to be included in such registration by the Other Holders which in the good faith
view of such investment banking or commercial banking firm, can be so sold
without so adversely affecting such offering (and (x) if such number is less
than the full number of such Holder Securities, such number shall be allocated
by Silicon Graphics among such SGI Entities and (y) in the event that such
investment banking or commercial banking firm advises that less than all of such
Holder Securities may be included in such offering, such SGI Entities may
withdraw their request for registration of their Registrable Securities under
this Section 3.2 and 90 days subsequent to the effective date of the
registration statement for the registration of such Other Securities request
that such registration be effected as a registration under Section 3.1 to the
extent permitted thereunder) and (iii) third, the number of Registrable
Securities sought to be included in such registration by Holders (other than SGI
Entities) of Registrable Securities in excess of the number of Other Securities
and the number of Holder Securities sought to be included in such registration
which, in the good faith view of such investment banking or commercial banking
firm, can be so sold without so adversely affecting
<PAGE>
such offering (and (x) if such number is less than the full number of such
Registrable Securities, such number shall be allocated pro rata among such
Holders on the basis of the number of Registrable Securities requested to be
included therein by each such Holder and (y) in the event that such
investment banking or commercial banking firm advises that less than all of
such Registrable Securities may be included in such offering, such Holders
may withdraw their request for registration of their Registrable Securities
under this Section 3.2 and 90 days subsequent to the effective date of the
registration statement for the registration of such Other Securities request
that such registration be effected as a registration under Section 3.1 to the
extent permitted thereunder);
(d) The Company shall not be required to effect any registration of
Registrable Securities under this Section 3.2 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
subscription offers, dividend reinvestment plans or stock option or other
executive or employee benefit or compensation plans; and
(e) no registration of Registrable Securities effected under this Section
3.2 shall relieve the Company of its obligation to effect a registration of
Registrable Securities pursuant to Section 3.1.
Section 3.3. EXPENSES. Except as provided herein and except for
underwriting discounts and commissions attributable to the Registrable
Securities sold by the Holders, the Company shall pay all Registration Expenses
with respect to a particular offering (or proposed offering). Notwithstanding
the foregoing, each Holder and the Company shall be responsible for its own
internal administrative and similar costs, which shall not constitute
Registration Expenses.
Section 3.4. REGISTRATION AND QUALIFICATION. If and whenever the Company
is required to effect the registration of any Registrable Securities under the
Securities Act as provided in Sections 3.1 or 3.2, the Company shall as promptly
as practicable:
(a) prepare, file and use its reasonable best efforts to cause to become
effective a registration statement under the Securities Act relating to the
Registrable Securities to be offered;
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities until the earlier of (A) such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition set forth in such registration statement and (B) the
expiration of six months after such registration statement becomes effective;
PROVIDED, that such six-month period shall be extended for such number of days
that equals the number of days elapsing from (x) the date the written notice
contemplated by paragraph (f) below is given by the Company to (y) the date on
which the Company delivers to the Holders of Registrable Securities the
supplement or amendment contemplated by paragraph (f) below;
<PAGE>
(c) furnish to the Holders of Registrable Securities and to any
underwriter of such Registrable Securities such number of conformed copies of
such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such registration
statement or prospectus, and such other documents, as the Holders of Registrable
Securities or such underwriter may reasonably request, and upon request a copy
of any and all transmittal letters or other correspondence to or received from,
the SEC or any other governmental agency or self-regulatory body or other body
having jurisdiction (including any domestic or foreign securities exchange)
relating to such offering;
(d) use its reasonable best efforts to register or qualify all Registrable
Securities covered by such registration statement under the securities or blue
sky laws of such U.S. jurisdictions as the Holders of such Registrable
Securities or any underwriter to such Registrable Securities shall request, and
use its reasonable best efforts to obtain all appropriate registrations, permits
and consents in connection therewith, and do any and all other acts and things
which may be necessary or advisable to enable the Holders of Registrable
Securities or any such underwriter to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such registration
statement; PROVIDED, that the Company shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any such
jurisdiction wherein it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) (i) use its best efforts to furnish to each Holder of Registrable
Securities included in such registration (each, a "Selling Holder") and to any
underwriter of such Registrable Securities an opinion of independent counsel for
the Company addressed to each Selling Holder and dated the date of the closing
under the underwriting agreement (if any) (or if such offering is not
underwritten, dated the effective date of the registration statement) and (ii)
use its best efforts to furnish to each Selling Holder a "cold comfort" letter
addressed to each Selling Holder and signed by the independent public
accountants who have audited the financial statements of the Company included in
such registration statement, in each such case covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public offerings
of securities and such other matters as the Selling Holders may reasonably
request and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements;
(f) as promptly as practicable, notify the Selling Holders in writing (i)
at any time when a prospectus relating to a registration pursuant to Sections
3.1 or 3.2 is required to be delivered under the Securities Act of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (ii) of any request by the SEC or any other regulatory
body or other body having jurisdiction
<PAGE>
for any amendment of or supplement to any registration statement or other
document relating to such offering, and in either such case, at the request
of the Selling Holders prepare and furnish to the Selling Holders a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading;
(g) enter into customary agreements (including if the method of
distribution is by means of an underwriting, an underwriting agreement in
customary form) and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Securities to be so
included in the registration statement;
(h) otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders to the
extent not already provided, as soon as reasonably practicable, but not later
than eighteen (18) months after the effective date of the registration
statement, an earnings statement covering the period of at least twelve (12)
months beginning with the first full month after the effective date of such
registration statement, which earnings statements shall satisfy the provisions
of Section 11(a) of the Securities Act;
(i) use its best efforts to list all such Registrable Securities covered
by such registration on each securities exchange and automated inter-dealer
quotation system on which a class of common equity securities of the Company is
then listed;
(j) to the extent reasonably requested by the lead or managing
underwriters, send appropriate officers of the Company to attend any "road
shows" scheduled in connection with any such registration, with all
out-of-pocket costs and expense incurred by the Company or such officers in
connection with such attendance to be paid by the Company; and
(k) furnish for delivery in connection with the closing of any offering of
Registrable Securities pursuant to a registration effected pursuant to Sections
3.1 or 3.2 unlegended certificates representing ownership of the Registrable
Securities being sold in such denominations as shall be requested by the Selling
Holders or the underwriters.
Section 3.5. CONVERSION OF OTHER SECURITIES, ETC. In the event that any
Holder offers any options, rights, warrants or other securities issued by it or
any other Person that are offered with, convertible into or exercisable or
exchangeable for any Registrable Securities, the Registrable Securities
underlying such options, rights, warrants or other securities shall continue to
be eligible for registration pursuant to Sections 3.1 and 3.2.
Section 3.6. UNDERWRITING; DUE DILIGENCE. (a) If requested by the
underwriters for any underwritten offering of Registrable Securities pursuant to
a registration requested under this Article III, the Company shall enter into an
underwriting agreement with such underwriters for such offering, which agreement
will contain such representations and warranties by the Company
<PAGE>
and such other terms and provisions as are customarily contained in
underwriting agreements of the Company to the extent relevant and as are
customarily contained in underwriting agreements generally with respect to
secondary distributions to the extent relevant, including, without
limitation, indemnification and contribution provisions substantially to the
effect and to the extent provided in Section 3.7, and agreements as to the
provision of opinions of counsel and accountants' letters to the effect and
to the extent provided in Section 3.4(e). The Selling Holders on whose behalf
the Registrable Securities are to be distributed by such underwriters shall
be parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of, the Company to and
for the benefit of such underwriters, shall also be made to and for the
benefit of such Selling Holders. Such underwriting agreement shall also
contain such representations and warranties by such Selling Holders and such
other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, when relevant, including,
without limitation, indemnification and contribution provisions substantially
to the effect and to the extent provided in Section 3.7.
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act pursuant
to this Article III, the Company shall give the Holders of such Registrable
Securities and the underwriters, if any, and their respective counsel and
accountants, such reasonable and customary access to its books and records and
such opportunities to discuss the business of the Company with its officers and
the independent public accountants who have certified the financial statements
of the Company as shall be necessary, in the opinion of such Holders and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
Section 3.7. INDEMNIFICATION AND CONTRIBUTION. (a) In the case of each
offering of Registrable Securities made pursuant to this Article III, the
Company agrees to indemnify and hold harmless, to the extent permitted by law,
each Selling Holder, each underwriter of Registrable Securities so offered and
each Person, if any, who controls any of the foregoing Persons within the
meaning of the Securities Act and the officers, directors, affiliates, employees
and agents of each of the foregoing, against any and all losses, liabilities,
costs (including reasonable attorney's fees and disbursements), claims and
damages, joint or several, to which they or any of them may become subject,
under the Securities Act or otherwise, including any amount paid in settlement
of any litigation commenced or threatened, insofar as such losses, liabilities,
costs, claims and damages (or actions or proceedings in respect thereof, whether
or not such indemnified Person is a party thereto) arise out of or are based
upon any untrue statement by the Company or alleged untrue statement by the
Company of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein) or in any offering memorandum
or other offering document relating to the offering and sale of such Registrable
Securities prepared by the Company or at its direction, or any amendment thereof
or supplement thereto, or in any document incorporated by reference therein, or
any omission by the Company or alleged omission by the Company to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however that the Company shall not
be liable to any Person in any such case to the extent that any such loss,
liability, cost, claim or damage arises out of or relates to any untrue
statement or alleged untrue
<PAGE>
statement, or any omission, if such statement or omission shall have been
made in reliance upon and in conformity with information relating to a
Selling Holder, another holder of securities included in such registration
statement or underwriter furnished in writing to the Company by or on behalf
of such Selling Holder, other holder or underwriter specifically for use in
the registration statement (or in any preliminary or final prospectus
included therein), offering memorandum or other offering document, or any
amendment thereof or supplement thereto. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of any
Selling Holder, any other holder or any underwriter and shall survive the
transfer of such securities. The foregoing indemnity agreement is in addition
to any liability that the Company may otherwise have to each Selling Holder,
other holder or underwriter of the Registrable Securities or any controlling
person of the foregoing and the officers, directors, affiliates, employees
and agents of each of the foregoing; PROVIDED, FURTHER, that, in the case of
an offering with respect to which a Selling Holder has designated the lead or
managing underwriters (or a Selling Holder is offering Registrable Securities
directly, without an underwriter), this indemnity does not apply to any loss,
liability, cost, claim or damage arising out of or relating to any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary prospectus or offering memorandum if a copy of a final prospectus
or offering memorandum was not sent or given by or on behalf of any
underwriter (or such Selling Holder or other holder, as the case may be) to
such Person asserting such loss, liability, cost, claim or damage at or prior
to the written confirmation of the sale of the Registrable Securities as
required by the Securities Act and such untrue statement or omission had been
corrected in such final prospectus or offering memorandum.
(b) In the case of each offering made pursuant to this Agreement, each
Selling Holder, by exercising its registration rights hereunder, agrees to
indemnify and hold harmless, and to cause each underwriter of Registrable
Securities included in such offering (in the same manner and to the same extent
as set forth in Section 3.7(a)) to agree to indemnify and hold harmless, the
Company, each other underwriter who participates in such offering, each other
Selling Holder or other holder with securities included in such offering and in
the case of an underwriter, such Selling Holder or other holder, and each
Person, if any, who controls any of the foregoing within the meaning of the
Securities Act and the officers, directors, affiliates, employees and agents of
each of the foregoing, against any and all losses, liabilities, costs (including
reasonable attorney's fees and disbursements), claims and damages to which they
or any of them may become subject, under the Securities Act or otherwise,
including any amount paid in settlement of any litigation commenced or
threatened, insofar as such losses, liabilities, costs, claims and damages (or
actions or proceedings in respect thereof, whether or not such indemnified
Person is a party thereto) arise out of or are based upon any untrue statement
or alleged untrue statement by such Selling Holder or underwriter, as the case
may be, of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein) or in any offering memorandum
or other offering document relating to the offering and sale of such Registrable
Securities prepared by the Company or at its direction, or any amendment thereof
or supplement thereto, or any omission by such Selling Holder or underwriter, as
the case may be, or alleged omission by such Selling Holder or underwriter, as
the case may be, of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but in each case only to the
extent that such untrue statement of a material fact is contained in, or such
material fact is omitted from
<PAGE>
information relating to such Selling Holder or underwriter, as the case may
be, furnished to the Company in writing by or on behalf of such Selling
Holder or underwriter, as the case may be, specifically for use in such
registration statement (or in any preliminary or final prospectus included
therein), offering memorandum or other offering document, or any amendment
thereof or supplement thereto. The foregoing indemnity is in addition to any
liability which such Selling Holder or underwriter, as the case may be, may
otherwise have to the Company, or controlling persons and the officers,
directors, affiliates, employees, and agents of each of the foregoing;
PROVIDED, HOWEVER, that, in the case of an offering made pursuant to this
Agreement with respect to which the Company has designated the lead or
managing underwriters (or the Company is offering securities directly,
without an underwriter), this indemnity does not apply to any loss,
liability, cost, claim, or damage arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary prospectus or offering memorandum if a copy of a final prospectus
or offering memorandum was not sent or given by or on behalf of any
underwriter (or the Company, as the case may be) to such Person asserting
such loss, liability, cost, claim or damage at or prior to the written
confirmation of the sale of the Registrable Securities as required by the
Securities Act and such untrue statement or omission had been corrected in
such final prospectus or offering memorandum.
(c) Each party indemnified under paragraph (a) or (b) above shall,
promptly after receipt of notice of a claim or action against such indemnified
party in respect of which indemnity may be sought hereunder, notify the
indemnifying party in writing of the claim or action; PROVIDED, that the failure
to notify the indemnifying party shall not relieve it from any liability that it
may have to an indemnified party under this Section 3.7 (except that the failure
to notify an indemnifying party promptly of the commencement of any such action
to the extent prejudicial to the indemnifying party's ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party to the extent the indemnifying party is prejudiced under this
Section 3.7, but the omission so to notify the indemnifying party well not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 3.7). If any such claim or action shall be brought
against an indemnified party, and it shall have notified the indemnifying party
thereof, unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified party and indemnifying parties may exist in
respect of such claim, the indemnifying party shall be entitled to participate
therein, and, to the extent that it wishes, jointly with any other similarly
notified indemnifying party, to assume the defense thereof with counsel
satisfactory to the indemnified party (who shall not, except with the consent of
the indemnified party, be counsel to the indemnifying party). After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 3.7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation. If the indemnifying party
does not assume the defense of such claim or action, it is understood that the
indemnifying party shall not, in connection with any one such claim or action or
separate but substantially similar or related claims or actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to one separate firm of local attorneys in each such jurisdiction) at
any time for all such indemnified parties. Any indemnifying party against whom
<PAGE>
indemnity may be sought under this Section 3.7 shall not be liable to indemnify
an indemnified party if such indemnified party settles such claim or action
without the consent of the indemnifying party, which consent shall not be
unreasonably withheld.
(d) If the indemnification provided for in this Section 3.7 shall for any
reason be unavailable (other than in accordance with its terms) to an
indemnified party in respect of any loss, liability, cost, claim or damage
referred to therein, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, cost, claim or damage in
such proportion as shall be appropriate to reflect (i) the relative benefits
received by the indemnifying party on the one hand and the indemnified party on
the other hand or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or if the indemnified party failed to give the
notice required under paragraph (c) above, the relative benefits and the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other with respect to the statements or omissions which resulted in
such loss, liability, cost, claim or damage as well as any other relevant
equitable considerations. The relative benefits received by the indemnifying
party and the indemnified party shall be deemed to be in the same respective
proportion as the net proceeds (before deducting expenses) of the offering
received by such party (or, in the case of an underwriter, such underwriter's
discounts and commissions) bear to the aggregate offering price of the
Registrable Securities or Other Securities. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the indemnifying party on the one hand or the
indemnified party on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission, but not by reference to any indemnified party's stock
ownership in the Company. The amount paid or payable by an indemnified party as
a result of the loss, cost, claim, damage or liability, or action in respect
thereof, referred to above in this paragraph (d) shall be deemed to include, for
purposes of this paragraph (d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 3.7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediate preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(e) Indemnification and contribution similar to that specified in the
preceding paragraphs of this Section 3.7 (with appropriate modifications) shall
be given by the Company, the Selling Holders and underwriters with respect to
any required registration or other qualification of securities under any state
law or regulation or governmental authority.
<PAGE>
(f) In no event shall Silicon Graphics be liable pursuant to this Section
3.7 for any amounts in excess of the net proceeds received by Silicon Graphics
pursuant to its sales of securities in the offering in connection with which its
liability hereunder arises.
(g) The obligations of the parties under this Section 3.7 shall be in
addition to any liability which any party may otherwise have to any other party.
Section 3.8. RULE 144 AND FORM S-3. Commencing 90 days after the Initial
Public Offering Date, the Company shall use its best efforts to ensure that the
conditions to the availability of Rule 144 set forth in paragraph (c) thereof
shall be satisfied. Upon the request of any Holder of Registrable Securities,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements. The Company further agrees to use its
reasonable efforts to cause all conditions to the availability of Form S-3 (or
any successor form) under the Securities Act of the filing of registration
statements under this Agreement to be met as soon as practicable after the
Initial Public Offering Date. Notwithstanding anything contained in this Section
3.8, the Company may deregister under Section 12 of the Securities Exchange Act
of 1934, as amended, if it then is permitted to do so pursuant to said Act and
the rules and regulations thereunder.
Section 3.9. TRANSFER OF REGISTRATION RIGHTS. Any Holder may transfer all
or any portion of its rights under Article III to any transferee of a number of
Registrable Securities owned by such Holder exceeding five percent (5%) of the
outstanding class or series of such securities at the time of transfer (each
transferee that receives such minimum number of Registrable Securities, a
"Transferee"); PROVIDED, that each Transferee of Registrable Securities (other
than SGI Entities) to which Registrable Securities are transferred, sold or
assigned directly by a SGI Entity (such Transferee, a "SGI Transferee"),
together with any Affiliate of such SGI Transferee (and any subsequent direct or
indirect Transferees of Registrable Securities from such SGI Transferee and any
Affiliates thereof) shall be entitled to request the registration of Registrable
Securities pursuant to this Section 3.9 only once prior to a SGI Ownership
Reduction and thereafter shall only be entitled to request the registration of
Registrable Securities pursuant to Section 3.1(a)(ii) and, provided, further,
that no Transferee shall be entitled to request registration pursuant to this
Section 3.9 for an amount of Registrable Securities equal to less than
$1,000,000. Any transfer of registration rights pursuant to this Section 3.9
shall be effective upon receipt by the Company of (i) written notice from such
Holder stating the name and address of any Transferee and identifying the number
of Registrable Securities with respect to which the rights under this Agreement
are being transferred and the nature of the rights so transferred and (ii) a
written agreement from such Transferee to be bound by the terms of this Article
III and Sections 5.3, 5.4, 5.9, 5.10, and 5.12 of this Agreement. The Holders
may exercise their rights hereunder in such priority as they shall agree upon
among themselves.
Section 3.10. HOLDBACK AGREEMENT. If any registration pursuant to this
Article III shall be in connection with an underwritten public offering of
Registrable Securities, each Selling Holder agrees not to effect any public sale
or distribution, including any sale under Rule 144, of any equity security of
the Company or any security convertible into or exchangeable or exercisable for
<PAGE>
any equity security of the Company, in the case of Registrable Securities
(otherwise than through the registered public offering then being made), within
7 days prior to or 90 days (or such lesser period as the lead or managing
underwriters may permit) after the effective date of the registration statement
(or the commencement of the offering to the public of such Registrable
Securities in the case of Rule 415 offerings). The Company hereby also so
agrees and agrees to cause each other holder of equity securities or securities
convertible into or exchangeable or exercisable for such securities purchased
from the Company otherwise than in a public offering to so agree; PROVIDED that,
subject to Section 3.6(a) hereof, the Company shall not be so restricted from
effecting any public sale or distribution of any security in connection with any
merger, acquisition, exchange offer, subscription offer, dividend reinvestment
plan or stock option or other executive or employee benefit or compensation
plan.
Section 3.11. REGISTRATION OF PREFERRED STOCK. The Company agrees that it
shall from time to time enter into one or more agreements with Silicon Graphics
and/or any Transferee, if any, in form and substance reasonably satisfactory to
the parties thereto, granting to Silicon Graphics or the Transferee, as the case
may be, registration rights for the registration of any shares of preferred
stock of the Company that may hereafter be owned, directly or indirectly, by
Silicon Graphics or the Transferee, as the case may be, substantially upon the
same terms and conditions as those contained in Article III for the benefit of
Silicon Graphics.
ARTICLE IV
CERTAIN COVENANTS AND AGREEMENTS
Section 4.1. NO VIOLATIONS. (a) For so long as the Ownership Percentage
is equal to or greater than 50%, Silicon Graphics covenants and agrees that it
will not take any action or enter into any commitment or agreement which may
reasonably be anticipated to result, with or without notice and with or without
lapse of time or otherwise, in a contravention or event of default by any SGI
Entity of (i) any provision of applicable law or regulation, including but not
limited to provisions pertaining to the Internal Revenue Code of 1986, as
amended, or the Employee Retirement Income Security Act of 1974, as amended,
(ii) any provision of Silicon Graphics' certificate of incorporation or bylaws,
(iii) any credit agreement or other material instrument binding upon Silicon
Graphics, or (iv) any judgment, order or decree of any governmental body, agency
or court having jurisdiction over Silicon Graphics or any of their respective
assets.
(b) The Company and Silicon Graphics agree to provide to the other any
information and documentation requested by the other for the purpose of
evaluating and ensuring compliance with Section 4.1(a) hereof.
(c) Notwithstanding the foregoing Sections 4.1(a) and 4.1(b), nothing in
this Agreement is intended to limit or restrict in any way Silicon Graphics'
rights as a shareholder of the Company.
Section 4.2. CONFIDENTIALITY. Except as required by law, regulation or
legal or judicial process, Silicon Graphics agrees that neither it nor any SGI
Entity nor any of their respective directors, officers or employees will without
the prior written consent of the Company disclose to any
<PAGE>
Person any material, non-public information concerning the business or
affairs of the Company acquired from any director, officer or employee of the
Company (including any director, officer or employee of the Company who is
also a director, officer or employee of Silicon Graphics).
ARTICLE V
MISCELLANEOUS
Section 5.1. LIMITATION OF LIABILITY. Neither Silicon Graphics nor the
Company shall be liable to the other for any special, indirect, incidental or
consequential damages of the other arising in connection with this Agreement.
Section 5.2. SUBSIDIARIES. Silicon Graphics agrees and acknowledges that
Silicon Graphics shall be responsible for the performance by each SGI Entity of
the obligations hereunder applicable to such SGI Entity.
Section 5.3. AMENDMENTS. This Agreement may not be amended or terminated
orally, but only by a writing duly executed by or on behalf of the parties
hereto. Any such amendment shall be validly and sufficiently authorized for
purposes of this Agreement if it is signed on behalf of Silicon Graphics and the
Company by any of their respective presidents or vice presidents.
Section 5.4. TERM. This Agreement shall remain in effect until all
Registrable Securities held by Holders have been transferred by them to Persons
other than Transferees; PROVIDED that the provisions of Section 3.7 shall
survive any such expiration.
Section 5.5. SEVERABILITY. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement or such provision
of the application of such provision to such party or circumstances, other than
those to which it is so determined to be invalid, illegal or unenforceable,
shall remain in full force and effect to the fullest extent permitted by law and
shall not be affected thereby, unless such a construction would be unreasonable.
Section 5.6. NOTICES. All notices and other communications required or
permitted hereunder shall be in writing, shall be deemed duly given upon actual
receipt, and shall be delivered (a) in person, (b) by registered or certified
mail, postage prepaid, return receipt requested or (c) by facsimile or other
generally accepted means of electronic transmission (provided that a copy of any
notice delivered pursuant to this clause (c) shall also be sent pursuant to
clause (b)), addressed as follows:
(a) If to the Company, to:
Mountain View, California 94043
Attention: General Counsel
Telecopy No.:
<PAGE>
(b) If to Silicon Graphics, to:
Silicon Graphics, Inc.
2011 North Shoreline Blvd.
Mountain View, CA 94043
Attention: Director, Corporate Legal Services
Telecopy No.: (650) 932-0652
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
Section 5.7. FURTHER ASSURANCES. Silicon Graphics and the Company shall
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, such instruments and take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
exhibit, document or other instrument delivered pursuant hereto.
Section 5.8. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original instrument, but all
of which together shall constitute but one and the same agreement.
Section 5.9. GOVERNING LAW. This Agreement and the transactions
contemplated hereby shall be construed in accordance with, and governed by, the
laws of the State of California.
Section 5.10. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
Section 5.11. SUCCESSORS. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
assigns. Nothing contained in this Agreement, express or implied, is intended
to confer upon any other person or entity any benefits, rights or remedies.
Section 5.12. SPECIFIC PERFORMANCE. The parties hereto acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, it is agreed that they
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or
any state thereof, in addition to any other remedy to which they may be entitled
at law or equity.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
SILICON GRAPHICS, INC.
By: /s/ William M. Kelly
-------------------------
Name: William M. Kelly
Title: Senior Vice President-
Corporate Operations
MIPS TECHNOLOGIES, INC.
By: /s/ John E. Bourgoin
-------------------------
Name: John E. Bourgoin
Title: Chief Executive Officer and President
<PAGE>
EXHIBIT 10.3
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (this "Agreement") is entered into as of
July 6, 1998 by and between MIPS Technologies, Inc., a Delaware corporation
(the "Company"), and Silicon Graphics, Inc., a Delaware corporation ("Silicon
Graphics").
RECITALS
WHEREAS, the Company is issuing shares of Common Stock, $0.001 par value
per share ("Common Stock"), to the public in an offering registered under the
Securities Act of 1933, as amended;
WHEREAS, Silicon Graphics has heretofore directly or indirectly provided
certain administrative, financial, management and other services to the Company;
WHEREAS, on the terms and subject to the conditions set forth herein, the
Company desires to retain Silicon Graphics as an independent contractor to
provide, directly or indirectly, certain of those services to the Company after
the Separation Date (as defined below); and
WHEREAS, on the terms and subject to the conditions set forth herein,
Silicon Graphics desires to provide, directly or indirectly, such services to
the Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Silicon Graphics and the Company,
for themselves, their successors and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. As used in this Agreement, the following terms
will have the following meanings, applicable both to the singular and the plural
forms of the terms described:
"Agreement" has the meaning ascribed thereto in the preamble hereto, as
such agreement may be amended and supplemented from time to time in accordance
with its terms.
"Outsourced Service" has the meaning ascribed thereto in Section 2.03.
"Person" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization, government (and
any department or agency thereof) or other entity.
"Separation Agreement" means the Agreement between Silicon Graphics and the
Company pursuant to which, among other things, the Company's business and
operations will be separated from
<PAGE>
those of Silicon Graphics.
"Separation Date" shall have the meaning ascribed thereto in the Separation
Agreement.
"Service Charges" has the meaning ascribed thereto in Section 3.01(c).
"Services" has the meaning ascribed thereto in Section 2.01.
"Subsidiary" means, as to any Person, any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting capital stock or other voting ownership interests is owned or
controlled directly or indirectly by such Person or by one or more of the
Subsidiaries of such Person or by a combination thereof; PROVIDED, HOWEVER, that
any reference in this Agreement to a Subsidiary or Subsidiaries of Silicon
Graphics shall not include the Company or its Subsidiaries.
"SGI Entities" means Silicon Graphics and its Subsidiaries and "SGI Entity"
shall mean any of the SGI Entities.
"SGI Indemnified Person" has the meaning ascribed thereto in Section 4.01.
Section 1.02. INTERNAL REFERENCES. Unless the context indicates
otherwise, references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement and references
to the parties shall mean the parties to this Agreement.
ARTICLE II
PURCHASE AND SALE OF SERVICES
Section 2.01. PURCHASE AND SALE OF SERVICES. On the terms and subject to
the conditions of this Agreement and in consideration of the Service Charges
described below, Silicon Graphics agrees to provide to the Company, and the
Company agrees to purchase from Silicon Graphics, the services described, for
the periods set forth, in Schedule I (the "Services"). At its option, Silicon
Graphics may cause any Service it is required to provide hereunder to be
provided by any SGI Entity. Unless otherwise specifically agreed by Silicon
Graphics and the Company, the Services to be provided by Silicon Graphics
hereunder shall be substantially similar in scope, quality and nature to those
provided to the Company prior to the Closing Date and shall be performed by the
same or similarly qualified personnel; PROVIDED, HOWEVER, that the selection of
personnel to perform the Services shall be at the sole discretion of Silicon
Graphics; and PROVIDED, FURTHER, that, except as expressly provided in this
Agreement, Silicon Graphics shall not be required to increase the volume, scope
or quality of the Services provided to the Company beyond that which has been
provided to the Company prior to the Closing Date.
Section 2.02. ADDITIONAL SERVICES. In addition to the Services to be
provided by Silicon Graphics pursuant to Section 2.01, if requested by the
Company, and to the extent that Silicon Graphics and the Company may mutually
agree in writing, Silicon Graphics shall provide additional services (including
services not provided by Silicon Graphics to the Company prior to the Closing
<PAGE>
Date) to the Company. The scope of any such services, as well as the term,
costs and other terms and conditions applicable to such services, shall be as
mutually agreed by Silicon Graphics and the Company. Nothing herein shall
create any obligation on the part of Silicon Graphics to provide any additional
services.
Section 2.03. SERVICES PERFORMED BY THIRD PARTIES. At its option, Silicon
Graphics may cause any Service it is required to provide hereunder to be
provided by any third party that is providing, or may from time to time provide,
the same or similar services for Silicon Graphics (an "Outsourced Service").
Silicon Graphics shall remain responsible, in accordance with the terms of this
Agreement, for performance of any Service it causes to be so provided.
Section 2.04. IMPRACTICABILITY AND FORCE MAJEURE. Silicon Graphics shall
not be required to provide any Service to the extent the performance of such
Service becomes impracticable as a result of a cause or causes outside the
reasonable control of Silicon Graphics or to the extent the provision of such
Service would require Silicon Graphics to violate any applicable laws, rules or
regulations or would result in the breach of any applicable contract or
contracts. Silicon Graphics shall have no obligation to perform or cause the
Services to be performed if its failure to do so is caused by or results from
any act of God, governmental action, natural disaster, strike, failure of
essential equipment or any other cause or circumstance beyond the control of
Silicon Graphics or, if applicable, third party providers of services to Silicon
Graphics (an "Event of Force Majeure"). Silicon Graphics will notify the
Company of any Event of Force Majeure affecting its Services to the Company.
Silicon Graphics agrees that following any Event of Force Majeure, the Company
shall have no obligation to pay for the Services affected thereby and Silicon
Graphics will use its reasonable best efforts to restore such Services.
ARTICLE III
SERVICE CHARGES
Section 3.01. SERVICE CHARGES. (a) The charge for each Service provided
to the Company hereunder directly by Silicon Graphics or any SGI Entity shall be
equal to the amount indicated, or determined as set forth, in Schedule I hereto
for such Service, as adjusted from time to time in accordance with Section
3.01(c).
(b) The charge for each Outsourced Service provided to the Company
hereunder shall be equal to all direct costs incurred by Silicon Graphics or any
SGI Entity in providing such Outsourced Service, including, without limitation,
any third-party costs and expenses incurred by Silicon Graphics or any SGI
Entity on behalf of the Company. If Silicon Graphics incurs third-party costs
or expenses on behalf of the Company as well as any SGI Entity, Silicon Graphics
will allocate any such costs or expenses in good faith between the Company and
the various SGI Entities on behalf of which such costs or expenses were incurred
as Silicon Graphics shall determine in the exercise of its reasonable judgment.
Silicon Graphics shall apply usual and accepted accounting conventions in making
such allocations and Silicon Graphics or its agents shall keep and maintain such
books and records as may be reasonably necessary to make such allocations.
Silicon Graphics shall make copies of such books and records available to the
Company upon request and with reasonable notice.
<PAGE>
(c) The parties intend for the Service charges pursuant to paragraphs (a)
and (b) above (collectively, the "Service Charges") to allow Silicon Graphics
and any SGI Entity to recover the fully allocated direct costs of providing the
Services hereunder plus all out-of-pocket, third-party costs, charges and
expenses, but without any profit to Silicon Graphics or any SGI Entity. The
parties also intend for charges to be easy to administer and justify and,
therefore, the parties acknowledge that it may be counterproductive to try to
recover every cost, charge or expense, particularly those that are insignificant
or DE MINIMIS. The parties shall use good faith efforts to discuss any
situation in which any charge, or the methodology for determining any charge,
set forth in Schedule I is insufficient to cover or exceeds, or is reasonably
expected to be insufficient to cover or exceed, the actual costs incurred by
Silicon Graphics or any SGI Entity in providing any Service hereunder, and on
the basis of such discussions the parties may from time to time, upon mutual
agreement, adjust the charges or methodologies set forth in Schedule I;
PROVIDED, HOWEVER, that the incurrence of costs by Silicon Graphics or any SGI
Entity in excess of the amounts set forth or determined in accordance with
Schedule I shall not justify the provision of, or payment for, Services under
this Agreement.
Section 3.02. INVOICING AND SETTLEMENT OF COSTS. (a) Silicon Graphics
shall invoice the Company for all Service charges for each calendar month within
thirty (30) days following the end of such month, provided that any failure by
Silicon Graphics to provide an invoice within such time period shall not relieve
the Company of its obligation to pay an invoice received after such date. All
invoices shall reflect in reasonable detail a description of the Service
performed.
(b) The Company shall pay within thirty (30) days following its receipt of
any invoice from Silicon Graphics pursuant to paragraph (a), by wire transfer of
immediately available funds payable to the order of Silicon Graphics and without
set-off, all amounts invoiced by Silicon Graphics during the preceding calendar
month. If the Company fails to pay any monthly payment within 30 days following
its receipt of any invoice from Silicon Graphics pursuant to paragraph (a), the
Company shall pay, in addition to the amount indicated in such invoice, interest
on such amount at the prime interest rate announced by Bank of America National
Trust and Savings Association (or any successor thereto) plus 2% per annum
compounded monthly for the period such amount remains unpaid.
(c) In the event of a dispute as to the propriety of the amount invoiced,
the Company shall pay all undisputed amounts, but shall be entitled to withhold
payment of any amount in dispute (and shall not be obligated to pay interest on
the amount so withheld) and shall notify Silicon Graphics within ten (10)
business days from receipt of any disputed invoice of the disputed amount and
the reasons each such charge is disputed by the Company. Silicon Graphics shall
provide to the Company, or shall cause its Subsidiaries to so provide, records
relating to the disputed amount so as to enable the parties to resolve the
dispute. The parties shall use reasonable efforts to resolve any such dispute
promptly.
(d) Any invoice or payment not disputed in writing by either party within
180 days of such invoice or payment, as the case may be, shall be considered
final and no longer subject to adjustment.
ARTICLE IV
LIMITATION OF LIABILITY; INDEMNIFICATION
<PAGE>
Section 4.01. LIMITATION OF LIABILITY. The Company agrees that none of
Silicon Graphics and any of its Subsidiaries and their respective directors,
officers, agents and employees (each, an "SGI Indemnified Person") shall have
any liability, whether direct or indirect, in contract or tort or otherwise, to
the Company for or in connection with the Services rendered or to be rendered by
any SGI Indemnified Person pursuant to this Agreement, the transactions
contemplated hereby or any SGI Indemnified Person's actions or inactions in
connection with any such Services or transactions.
Section 4.02. INDEMNIFICATION OF SILICON GRAPHICS BY THE COMPANY. The
Company agrees to indemnify and hold harmless each SGI Indemnified Person from
and against any claims, damages, losses, obligations, liabilities, costs and
expenses (including, without limitation, reasonable attorneys' fees) arising out
of or in connection with Services rendered or to be rendered by any SGI
Indemnified Person pursuant to this Agreement, the transactions contemplated
hereby or any SGI Indemnified Person's actions or inactions in connection with
any such Services or transactions.
Section 4.03. DISCLAIMER OF WARRANTIES. Silicon Graphics disclaims all
warranties, express or implied, including, but not limited to, the implied
warranties of merchantability and fitness for a particular purpose, with respect
to the Services. Silicon Graphics makes no representations or warranties as to
the quality, suitability or adequacy of the Services for any purpose or use.
ARTICLE V
TERM AND TERMINATION
Section 5.01. TERM. Except as otherwise provided in this Article V or as
otherwise agreed in writing by the parties, this Agreement shall have an initial
term of three (3) years from the Closing Date (the "Initial Term").
Section 5.02. TERMINATION. (a) Notwithstanding the Initial Term of this
Agreement, either party hereto may at any time terminate this Agreement with
respect to one or more of the Services, in whole or in part, upon giving at
least 30 days prior written notice to the other party.
(b) This Agreement shall automatically terminate on the date that Silicon
Graphics ceases to own shares of Common Stock representing more than 50% of the
outstanding shares of Common Stock.
(c) Silicon Graphics may terminate this Agreement with respect to any one
or more of the Services if the Company shall have failed to perform any of its
material obligations under this Agreement relating to any such Service or
Services, Silicon Graphics has notified the Company in writing of such failure,
and such failure shall have continued for a period of 10 days after receipt by
the Company of notice of such failure.
Section 5.03. EFFECT OF TERMINATION. Other than as required by law, upon
termination of any Service pursuant to Section 5.01 or Section 5.02, Silicon
Graphics will have no further obligation to provide the terminated Service (or
any Service, in the case of termination of this Agreement) and the Company will
have no obligation to pay any fees relating to such Service or make any other
payments hereunder; PROVIDED that notwithstanding such termination, (i) the
Company shall remain liable to
<PAGE>
Silicon Graphics for fees owed and payable in respect of any Service provided
prior to the effective date of the termination and (ii) the provisions of
Articles III, V and VI shall survive any such termination.
ARTICLE VI
MISCELLANEOUS
Section 6.01. PERFORMANCE UNDER ANCILLARY AGREEMENTS. Notwithstanding
anything to the contrary contained herein, the Company shall not be charged
anything under this Agreement for any Services that are specifically required to
be performed under the Separation Agreement or any other Ancillary Agreement (as
defined in the Separation Agreement) and any such other Services shall be
performed and charged for in accordance with the terms of the Separation
Agreement or such other Ancillary Agreement.
Section 6.02. NO AGENCY. Nothing in this Agreement shall constitute or be
deemed to constitute a partnership or joint venture between the parties hereto
or constitute or be deemed to constitute any party the agent or employee of the
other party for any purpose whatsoever and neither party shall have authority or
power to bind the other or to contract in the name of, or create a liability
against, the other in any way or for any purpose.
Section 6.03. COMPANY AS SOLE BENEFICIARY. The Company acknowledges that
the Services shall be provided only with respect to the business of the Company
and its Subsidiaries as currently operated or as mutually agreed by the parties
hereto. The Company shall not request performance of any Service for the
benefit of any entity other than the Company and its Subsidiaries. The Company
represents and agrees that the Company will use the Services only in accordance
with all applicable federal, state and local laws and regulations, and in
accordance with the reasonable conditions, rules, regulations and specifications
which may be set forth in any manuals, materials, documents and instructions
furnished from time to time by Silicon Graphics to the Company. Silicon
Graphics reserves the right to take all actions, including termination of any
particular Service, that Silicon Graphics reasonably believes to be necessary to
assure compliance with applicable laws and regulations. Silicon Graphics will
notify the Company of the reasons for any such termination of Services.
Section 6.04. ENTIRE AGREEMENT. This Agreement (including the Schedules
constituting a part of this Agreement) and any other writing signed by the
parties that specifically references this Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter hereof. This
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
Section 6.05. INFORMATION. Subject to applicable law and privileges, each
party hereto covenants and agrees to provide the other party with all
information regarding itself and transactions under this Agreement that the
other party reasonably believes are required to comply with all applicable
federal, state, county and local laws, ordinances, regulations and codes,
including, but not limited to, securities laws and regulations.
<PAGE>
Section 6.06. CONFIDENTIAL INFORMATION. Subject to Section 6.07, each
party and each of its Subsidiaries shall hold and shall cause its respective
directors, officers, employees, agents, consultants and advisors to hold, in
strict confidence, unless compelled to disclose by judicial or administrative
process or, in the opinion of its counsel, by other requirements of law, all
confidential, trade secret or proprietary information concerning the other
party, except to the extent that such information can be shown to have been (i)
in the public domain through no fault of such party, (ii) later lawfully
acquired on a non-confidential basis from other sources by the party to which it
was furnished, (iii) independently generated without reference to any
proprietary or confidential information of the other party, or (iv) information
that may be disclosed pursuant to any Ancillary Agreement. Neither party shall
release or disclose any such information to any other person, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors who shall be advised of and agree to comply with the provisions of this
Section 6.06.
Section 6.07. PROTECTIVE ARRANGEMENTS. In the event that any party hereto
(or any of its Subsidiaries) either determines on the advice of its counsel that
it is required to disclose any information pursuant to applicable law or
receives any demand under lawful process or from any governmental department,
commission, board, bureau, agency or official to disclose or provide information
of any other party hereto (or any of its Subsidiaries) that is subject to the
confidentiality provisions hereof, such party shall notify the other party prior
to disclosing or providing such information and shall cooperate at the expense
of the requesting party in seeking any reasonable protective arrangements
requested by such other party. Subject to the foregoing, the party that
received such request may thereafter disclose or provide information to the
extent required by such law (as so advised by counsel) or by lawful process or
such governmental department, commission, board, bureau, agency or official.
Section 6.08. NOTICES. Any notice, instruction, direction or demand under
the terms of this Agreement required to be in writing will be duly given upon
delivery, if delivered by hand, facsimile transmission, intercompany mail, or
mail, to the following addresses:
(a) If to the Company, to:
Mountain View, California 94043
Attn: General Counsel
(b) If to Silicon Graphics, to:
2011 North Shoreline Blvd.
Mountain View, California 94043
Attn: Director, Corporate Legal Services
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
Section 6.09. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the substantive internal laws of the State of
California.
<PAGE>
Section 6.10. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if
not containing the particular invalid or unenforceable provision, and the rights
and obligations of each party shall be construed and enforced accordingly.
Section 6.11. AMENDMENT. This Agreement may only be amended by a written
agreement executed by both parties hereto.
Section 6.12. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their duly authorized representatives.
SILICON GRAPHICS, INC.
By: /s/ William M. Kelly
------------------------------------------
Name: William M. Kelly
Title: Senior Vice President-
Corporate Operations
MIPS TECHNOLOGIES, INC.
By: /s/ John E. Bourgoin
-------------------------------------------
Name: John E. Bourgoin
Title: Chief Executive Officer and President
<PAGE>
SCHEDULE I
SILICON GRAPHICS, INC. ("SGI")
MIPS TECHNOLOGIES, INC. ("MTI")
MANAGEMENT SERVICES
POST CLOSING DATE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SERVICE DESCRIPTION SERVICE SERVICE
AREA PERIOD FEE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HR 1. Access to Resumix database. Period ending September 30, No charge. MTI responsible
1998. for purchasing and
installing network
infrastructure.
2. Participation in SGI's redeployment process. Same as above. Direct costs.
3. Maintain worker's compensation insurance Same as above. Direct costs.
coverage to extent required by law for benefit
of MTI employees
- ----------------------------------------------------------------------------------------------------------------------------------
Finance 1. Access to Oracle system for general ledger, Period ending September 30, No charge. MTI responsible
accounts payable, purchasing and fixed asset 1998. for purchasing and
accounting. installing network
infrastructure.
2. SGI to continue to process accounts payable, Same as above. Direct costs.
purchasing and fixed asset transactions.
3. SGI to generate bi-weekly payroll with ADP. Same as above. Direct costs. MTI
responsible for funding all
costs (e.g., salary, taxes
and ADP fees) to ADP
directly from MTI payroll
account.
4. SGI to generate IRS Form W-2 and Form 1099 For 1998 calendar year. Direct costs.
for applicable activity on Oracle and
ProBusiness. ADP (and not SGI) will be
responsible for payroll tax filings.
- ----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Treasury 1. Assist MTI in managing cash collections, cash Period ending on date that Direct costs.
disbursements, investments, borrowings and SGI owns 50% or less of
credit facilities. MTI.
2. Assist MTI in managing foreign exchange Same as above. Direct costs
exposure with regard to balance sheet exposure
and revenue exposure.
3. Assist MTI in managing its capital structure. Same as above. Direct costs.
4. Assist MTI in managing its bank relationships Same as above. Direct costs.
- ----------------------------------------------------------------------------------------------------------------------------------
Tax 1. Preparation of federal and state income tax Period ending on date that Direct costs (including,
returns for filing periods ending during service SGI owns 50% or less of without limitation,
period. MTI. professional fees and
costs).
2. Preparation of sales and use tax returns for Same as above. Direct costs (including,
filing periods ending during service period. without limitation,
professional fees and
costs).
3. Assist MIT in federal and state income tax Same as above. Direct costs (including,
planning. without limitation,
professional fees and
costs).
- ----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Risk Management 1. Purchase MTI stand-alone primary insurance Period commencing at MTI to pay all insurance
coverages to assist MTI in establishing a basic Closing Date and ending on premiums/fees related to
property and casualty insurance program date that SGI owns 50% or stand-alone policies
(property, crime, general liability, electronic less of MTI. directly to insurance
errors and omissions, auto liability and companies.
fiduciary liability).
2. Maintain SGI insurance coverages for benefit Same as above. Allocable portion of SGI's
of SGI and its subsidiaries pursuant to insurance costs to MTI based
Separation Agreement. upon percentage of MTI
revenue to SGI consolidated
revenue.
3. Advise MTI CFO of risk management function Same as above. Direct costs (including,
and insurance program and provide on-going without limitation,
management support for risk management and professional fees).
insurance issues.
4. Assist MTI in management of insurance claims. Same as above. Direct costs.
5. Assist MTI management with 3 month period preceding Direct costs (including,
researching/establishing a complete stand-alone the first anniversary of without limitation,
insurance program. Separation Date or date professional fees).
that SGI owns 50% or less
of MTI, whichever is
earlier.
- ----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Information Services 1. Provide voice and information systems/support Separation Date through Direct costs for third-party
to MTI in Bldg. 40 on same basis as provided move date to Bldg. 27. service and replacements.
prior to Separation Date.
2. Assist MTI in identifying and reviewing Prior to move date to Bldg. No charge. MTI to pay for
proposals from third-party vendors for 27. all equipment, network and
installation and maintenance of telephone and application costs directly
voice-mail systems in Bldg. 27. MTI responsible to third-party vendors.
for purchasing and installing all equipment and
system infrastructure (including, without
limitation, PBX and voice mail switches).
3. Assist MTI in identifying and reviewing Prior to move date to Bldg. Same as above.
proposals from third party vendors for 27.
installation of independent network supporting
Bldg. 27. MTI responsible for purchasing and
installing all equipment and network/system
infrastucture (including, without limitation,
WAN and LAN).
4. SGI to provide private network connection Move date to Bldg. 27 Direct costs.
between SGI and MTI, including (a) use of through September 30, 1998.
existing fiber connection to Bldg. 27 (which
will be split at 1st floor of Bldg. 27); (b)
configuration of SGI and MTI routers per
standards acceptable to SGI; (c) implementation
of "Gauntlet" firewalls per standards acceptable
to SGI; (d) limited network access only to
designated MTI workstations (approx. 5
workstations located in Bldg. 27) and MTI users;
(e) development of user administration and
access options applicable to identified
application systems (see Schedule 2 attached)
per standards acceptable to SGI; and (f)
configuration of application user interface to
prevent direct or indirect access to any SGI
system network resources per standards approved
by SGI.
5. Card-key access to Bldg. 40 during normal Through July 31, 1998 No charge.
business hours to be provided to designated MTI
employees for purposes of access T-Rex
information. No network access to be provided
to Building 27 regarding T-Rex information.
- ----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Facilities 1. Interim sublease of space in Bldg. 40, Separation Date through Per Sublease.
Amphitheatre Technology Center. move date to Bldg. 27.
2. Sublease of space in Bldg. 27, 1225 Move date to Bldg. 27 Per Sublease.
Charleston Road.. through May 31, 2002,
subject to 9 month
termination right after
June 30, 2000.
3. Plan and coordinate move from Bldg. 40 to Move date to Bldg. 27. Direct costs.
Bldg. 27.
4. Janitorial; interior plants and related care; Period ending on date that $52,500 per month. Posting
misc. utilities; minor repairs; receptionist; SGI owns 50% or less of MTI. and shipping charges will be
coffee and vending service; copier service; charged as additional direct
security; building alarm service; mail costs.
receiving, distribution and shipping (excluding
postage and shipping charges); customary
environmental, health and safety compliance
(including average ergonomic evaluations).
5. Lease of improvements and furniture for 108 Co-terminus with Bldg. 27 $12,500 per month.
offices located in Bldg. 27. MTI responsible sublease.
for cost of maintenance, repair, insurance and
property taxes during lease term. Parties to
enter separate lease agreement.
6. Construction/facilities management Same as above. Direct costs (including,
without limitation,
professional fees and
construction costs).
7. Access to Ozone Cafe and health club Same as above. $625/month.
facilities in Building 40.
- ----------------------------------------------------------------------------------------------------------------------------------
Service 1. Service and support of SGI-brand workstations Period ending on date that SGI's standard intercompany
and servers. SGI owns 50% or less of service and support charges.
MTI.
- ----------------------------------------------------------------------------------------------------------------------------------
Legal None
- ----------------------------------------------------------------------------------------------------------------------------------
Marketing/ Sales None
- ----------------------------------------------------------------------------------------------------------------------------------
Other None
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SILICON GRAPHICS, INC. ("SGI")
MIPS TECHNOLOGIES, INC. ("MTI")
APPLICATION ACCESS
Application access to be provided to MTI through September 30, 1998.
<TABLE>
<CAPTION>
<S> <C>
Oracle pontius, nero, brutus, caesar, caligula, tiberius, livia, ngsdev, ngsapp1, ngsapp2, ngsapp3 and
ngsapp4
WinDD PC-DIAMOND, PC-EMERALD, PC-GARNET and PC-SAPHIRE
Hyperion PC-RUBY
ER www-erprod.copr
A/P Dreamscreen silicon-sense.corp
Silicon Sense silicon-sense.corp
Resumix sun-resumix.corp
Netscape (Corp. Finance) www-finance.corp
Netscape (Global Chg) wwfo.corp
Business Object (Fixed Assets)
</TABLE>
If MTI unable to implement independent financial systems by September 30,
1998, MTI and SGI to meet and confer for purposes of reaching mutual agreement
regarding extension of application access beyond September 30, 1998 (but in no
event after SGI owns 50% or less of MTI).
MTI will not have access to any applications not specifically identified
above. For example, MTI will not have access to locate or weborgview.
<PAGE>
EXHIBIT 10.4
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (this "Agreement") is dated as of July 6,
1998, between Silicon Graphics, Inc. ("SGI") and MIPS Technologies, Inc.
WITNESSETH
WHEREAS, SGI is the common parent of an affiliated group of corporations
which includes MIPS Technologies, Inc. (the "SGI Affiliated Group") and which
group and the members thereof file consolidated federal income tax returns as
well as certain consolidated, combined or unitary state income tax returns;
WHEREAS, MIPS Technologies, Inc. is a Member (as hereinafter defined) of
the SGI Affiliated Group;
WHEREAS, the SGI Affiliated Group has filed a consolidated federal income
tax return for its prior taxable years, and intends to file a consolidated
federal income tax return for subsequent years; and
WHEREAS, the parties hereto desire to set forth their agreements with
regard to their respective liabilities for federal, state, local and foreign
taxes for periods ending after the completion of the offering described in the
prospectus dated June 29, 1998 (the "Offering"), and to provide for certain
other tax matters.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
For purposes of this Agreement:
1.1 "Affiliated Group" means an affiliated group as defined in section
1504(a) of the Code.
1.2 "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any law which may be a successor thereto. A
reference to any section of the Code means such section as in effect from time
to time and any comparable provision of the Code or any successor law.
<PAGE>
2
1.3 "Effective Period" shall have the meaning set forth in Article 8.1 of
this Agreement.
1.4 "MIPS Technologies, Inc. Subgroup" shall mean the group of
corporations, if any, that would constitute a separate Affiliated Group with
MIPS Technologies, Inc. as the common Parent if MIPS Technologies, Inc. was not
a Member of the SGI Affiliated Group. If no MIPS Technologies, Inc. Subgroup
exists, references to MIPS Technologies, Inc. Subgroup in this Agreement shall
be interpreted as references to MIPS Technologies, Inc..
1.5 "MIPS Technologies, Inc. Subgroup Separate Federal Amount" shall have
the meaning set forth in Article 4.2 of this Agreement.
1.6 "MIPS Technologies, Inc. Subgroup Separate State, Local and Foreign
Amount" shall have the meaning set forth in Article 4.3 of this Agreement.
1.7 "MIPS Technologies, Inc. Subgroup Separate Tax Return Amount" shall
having the meaning set forth in Article 4.1 of this Agreement.
1.8 "IRS" shall mean the Internal Revenue Service.
1.9 "Member" means, with respect to any SGI Consolidated Return Period, an
includible corporation (as defined in section 1504(b) of the Code) in an
Affiliated Group.
1.10 "Parent" means any Member that directly owns stock that possesses more
than 80 percent of the total voting power of the stock of another Member.
1.11 "Regulation" means an income tax regulation promulgated by the U.S.
Treasury Department under the Code. A reference to any section of the
Regulations means such section as in effect from time to time and any comparable
successor regulation.
1.12 "SGI Consolidated Federal Return" shall mean any consolidated federal
income Tax return or amendment thereof of the SGI Affiliated Group for any SGI
Consolidated Return Period.
1.13 "SGI Consolidated Return Period" shall mean any taxable period that
ends within the Effective Period of this Agreement for which a consolidated,
combined or unitary (as applicable) federal, state or local income tax return is
filed or required to be filed by the SGI Affiliated Group.
<PAGE>
3
1.14 "SGI Consolidated Tax Liability" means, with respect to any SGI
Consolidated Return Period, the consolidated, combined or unitary Tax (as
defined in Article 1.17 of this Agreement) liability of the SGI Affiliated
Group.
1.15 "SGI State, Local and Foreign Returns" shall have the meaning set
forth in Article 2.2(a) of this Agreement.
1.16 "Subsidiary" means, with respect to any Parent, a Member, the majority
of whose voting stock is owned directly by such Parent.
1.17 "Tax" or "Taxes" shall mean all federal, including alternative minimum
tax and environmental tax, state, local and foreign gross or net income, gross
receipts, withholding, franchise, transfer, estimated or other tax or similar
charges and assessments, including all interest, penalties and additions imposed
with respect to such amounts.
1.18 "Tax Benefit" shall mean, with respect to Taxes, any item of loss,
deduction or credit, including, but not limited to, foreign tax credits,
alternative minimum tax credits, net operating losses and capital losses.
ARTICLE 2 - TAX RETURN FILING
2.1 SGI CONSOLIDATED FEDERAL RETURNS. (a) GENERAL. For any SGI
Consolidated Return Period, SGI shall have sole and exclusive responsibility for
the preparation and filing of all SGI Consolidated Federal Returns and
amendments thereto with the IRS. Such returns shall include all income, gains,
losses, deductions and credits of the MIPS Technologies, Inc. Subgroup.
(b) COOPERATION. The MIPS Technologies, Inc. Subgroup shall furnish SGI,
at least sixty (60) days before the due date (including extensions) of any such
SGI Consolidated Federal Return, with its completed section of such SGI
Consolidated Federal Return, prepared in accordance with this Agreement, in
accordance with instructions from SGI and in a manner consistent with prior
returns, if any, provided that such actions are not inconsistent with this
Agreement. The MIPS Technologies, Inc. Subgroup will also furnish SGI work
papers and other such information and documentation as is reasonable requested
by SGI with respect to the MIPS Technologies, Inc. Subgroup.
2.2 SGI STATE, LOCAL AND FOREIGN RETURNS. (a) GENERAL. For any SGI
Consolidated Return Period, SGI shall have sole and exclusive responsibility for
the preparation and filing of all combined, consolidated or unitary state, local
or foreign income or franchise Tax returns which are required to be filed by SGI
or a Subsidiary of SGI (such returns collectively, the "SGI State, Local and
Foreign Returns").
<PAGE>
4
(b) COOPERATION. SGI will timely advise the MIPS Technologies, Inc.
Subgroup of the inclusion of the MIPS Technologies, Inc. Subgroup in any SGI
State, Local and Foreign Returns and the jurisdictions in which such returns
will be filed. The MIPS Technologies, Inc. Subgroup will evidence its agreement
to be included in such return on the appropriate form(s) and will take such
other actions as may be appropriate, in the opinion of SGI, to carry out the
purposes and intent of this Article 2.2, provided that such actions are not
inconsistent with this Agreement. The MIPS Technologies, Inc. Subgroup shall
furnish SGI, at least sixty (60) days before the due date (including extensions)
of any such SGI State, Local and Foreign Returns, with its completed section of
such SGI State, Local and Foreign Returns, prepared in accordance with this
Agreement, in accordance with instructions from SGI and in a manner consistent
with prior returns, if any, provided that such actions are not inconsistent with
this Agreement. MIPS Technologies, Inc. will also furnish SGI work papers and
other such information and documentation as is reasonable requested by SGI with
respect to MIPS Technologies, Inc..
ARTICLE 3 - SGI TAX LIABILITY
3.1 SGI CONSOLIDATED FEDERAL RETURN LIABILITY. Except to the extent
otherwise provided herein, for each SGI Consolidated Return Period, SGI shall be
liable for and indemnify the MIPS Technologies, Inc. Subgroup against all Taxes
due in respect of all SGI Consolidated Federal Returns, subject to reimbursement
from the MIPS Technologies, Inc. Subgroup as contemplated by Article 4 of this
Agreement.
3.2 SGI STATE, LOCAL AND FOREIGN RETURN LIABILITY. Except to the extent
otherwise provided herein, for each SGI State, Local and Foreign Return Period,
SGI shall be liable for and indemnify the MIPS Technologies, Inc. Subgroup
against all Taxes due in respect of all SGI State, Local and Foreign Returns,
subject to reimbursement from the MIPS Technologies, Inc. Subgroup as
contemplated by Article 4 of this Agreement.
ARTICLE 4 - MIPS TECHNOLOGIES, INC. SUBGROUP SEPARATE TAX RETURN AMOUNT
4.1 GENERAL. For any taxable period ending during the Effective Period of
this Agreement, the term "MIPS Technologies, Inc. Subgroup Separate Tax Return
Amount" shall mean the aggregate amount, whether a negative or positive, of (i)
the MIPS Technologies, Inc. Subgroup Separate Federal Amount and (ii) the MIPS
Technologies, Inc. Subgroup Separate State, Local and Foreign Amount, each as
adjusted pursuant to the terms of this Agreement.
4.2 COMPUTATION OF MIPS TECHNOLOGIES, INC. SUBGROUP SEPARATE FEDERAL
AMOUNT. For each SGI Consolidated Return Period that ends during the Effective
Period of this Agreement, the MIPS Technologies, Inc. Subgroup shall compute the
MIPS Technologies, Inc. Subgroup Separate Federal Amount for the portion of such
periods in which MIPS
<PAGE>
5
Technologies, Inc. is a Member of the SGI Affiliated Group. "MIPS
Technologies, Inc. Subgroup Separate Federal Amount" means, with respect to
each SGI Consolidated Return Period, the federal Tax liability that would be
payable by the MIPS Technologies, Inc. Subgroup to the IRS (in which case
such amount will be positive), or the federal Tax refund that would be
payable by the IRS to the MIPS Technologies, Inc. Subgroup (in which case
such amount will be negative) IF (1) in the case that no MIPS Technologies,
Inc. Subgroup exists, MIPS Technologies, Inc. had filed a separate federal
income tax return for the SGI Consolidated Return Period or (2) in the case
that a MIPS Technologies, Inc. Subgroup exists, the MIPS Technologies, Inc.
Subgroup had filed a separate consolidated federal income tax return
exclusively with the Members of the MIPS Technologies, Inc. Subgroup for the
SGI Consolidated Return Period. In the event that the MIPS Technologies,
Inc. Subgroup would have a net operating loss, tax credit or other favorable
Tax attribute (a "Tax Attribute) for federal Tax purposes for a particular
SGI Consolidated Return Period that would eliminate the federal Tax liability
of the MIPS Technologies, Inc. Subgroup for such taxable period but would not
yield a federal Tax refund for MIPS Technologies, Inc. on a separate federal
income tax return basis or the MIPS Technologies, Inc. Subgroup on a separate
consolidated federal income tax return basis, the MIPS Technologies, Inc.
Subgroup Separate Federal Amount shall be zero for such taxable period, and
such federal Tax Attribute shall be recoverable, if at all, by MIPS
Technologies, Inc. or the MIPS Technologies, Inc. Subgroup in a subsequent
SGI Consolidated Return Period on such separate return basis, as herein
provided. In computing the MIPS Technologies, Inc. Subgroup Separate Federal
Amount, MIPS Technologies, Inc. and each Member of the MIPS Technologies,
Inc. Subgroup shall follow the Tax elections and other Tax positions adopted
or prescribed by SGI and shall take into account the adjustments and
modifications set forth in Article 4.4 of this Agreement.
4.3 COMPUTATION OF MIPS TECHNOLOGIES, INC. SUBGROUP SEPARATE STATE,
LOCAL AND FOREIGN AMOUNT. For each SGI Consolidated Return Period that ends
on or after the first day of the Effective Period of this Agreement, the MIPS
Technologies, Inc. Subgroup shall compute the MIPS Technologies, Inc.
Subgroup Separate State, Local and Foreign Amount for the portion of such
periods in which MIPS Technologies, Inc. is a Member of the SGI Affiliated
Group. "MIPS Technologies, Inc. Subgroup Separate State, Local and Foreign
Amount" means, with respect to each SGI Consolidated Return Period, the
state, local and foreign Tax liability that would be payable by the MIPS
Technologies, Inc. the applicable taxing authorities (in which case such
amount will be positive), or the state, local and foreign Tax refund that
would be payable by the applicable taxing authorities to MIPS Technologies,
Inc. (in which case such amount will be negative) IF (1) in the case that no
MIPS Technologies, Inc. Subgroup exists, MIPS Technologies, Inc. had filed a
separate state, local and foreign income or franchise tax returns for the SGI
Consolidated Return Period or (2) in the case that a MIPS Technologies, Inc.
Subgroup exists, the MIPS Technologies, Inc. Subgroup had filed combined,
consolidated or unitary state, local or foreign income or franchise tax
returns exclusively with the Members of the MIPS Technologies, Inc. Subgroup
<PAGE>
6
for the SGI Consolidated Return Period. In the event that the MIPS
Technologies, Inc. Subgroup would have a net operating loss, tax credit or
other favorable Tax attribute (a "Tax Attribute) for state, local or foreign
Tax purposes for a particular SGI Consolidated Return Period that would
eliminate the state, local or foreign Tax liability of the MIPS Technologies,
Inc. Subgroup for such taxable period but would not yield a state, local or
foreign Tax refund for MIPS Technologies, Inc. on a separate state, local,
foreign or franchise tax return basis or the MIPS Technologies, Inc. Subgroup
on a separate combined, consolidated or unitary state, local or foreign
income or franchise tax return basis, the MIPS Technologies, Inc. Subgroup
Separate State, Local and Foreign Amount shall be zero for such taxable
period, and such state, local or foreign Tax Attribute shall be recoverable,
if at all, by MIPS Technologies, Inc. or the MIPS Technologies, Inc. Subgroup
in a subsequent SGI Consolidated Return Period on such separate return basis,
as herein provided. In computing the MIPS Technologies, Inc. Subgroup
Separate State, Local and Foreign Amount, MIPS Technologies, Inc. and each
Member of the MIPS Technologies, Inc. Subgroup, if any, shall follow the Tax
elections and other Tax positions adopted or prescribed by SGI and shall take
into account the adjustments and modifications set forth in Article 4.4 of
this Agreement.
4.4 ADJUSTMENTS. In computing the MIPS Technologies, Inc. Subgroup
Separate Federal Amount (and to the extent appropriate, the MIPS Technologies,
Inc. Subgroup Separate State, Local and Foreign Amount), MIPS Technologies, Inc.
and each Member of the MIPS Technologies, Inc. Subgroup, if any, shall take into
account the following adjustments and modifications:
(a) The MIPS Technologies, Inc. Subgroup Separate Federal Amount
shall be computed as if MIPS Technologies, Inc. came into
existence in a Code section 351 transaction on the date of the
Offering, and unless otherwise provided, MIPS Technologies, Inc.
shall be deemed not to have existed prior to such date. The MIPS
Technologies, Inc. Subgroup shall not be entitled to any Tax
Benefits of either the SGI Affiliated Group or MIPS Technologies,
Inc. that existed prior to the date of the Offering (a
"Preexisting Tax Benefit").
(b) Dividends from any Member of the SGI Affiliated Group shall be
eliminated.
(c) Items of income, gain, loss or deduction arising from a
transaction described in section 1.1552-1(a)(2)(ii) of the
Treasury Regulations shall be taken into account by the MIPS
Technologies, Inc. Subgroup, respectively, in the same manner and
in the same taxable years as such items are actually taken into
account on the SGI Consolidated Federal Return.
<PAGE>
7
(d) Carryforwards and carrybacks of any Tax Benefit shall be
calculated as though SGI were the IRS and the MIPS Technologies,
Inc. Subgroup was a separate Affiliated Group of corporations
filing Tax returns on a consolidated, combined or unitary basis.
(e) Characterization of items of income, expense, gain or loss that
are determined on a consolidated or combined basis in the
calculation of SGI Consolidated Federal Return Liability and SGI
State, Local and Foreign Liability, such as characterizations
under Code section 1231, shall retain their characterization for
purposes of determining the MIPS Technologies, Inc. Subgroup
Separate Federal Amount and the MIPS Technologies, Inc. Subgroup
Separate State, Local and Foreign Amount.
(f) All ordinary income and capital gains shall be deemed to be
subject to Tax at the highest applicable Tax rate applicable to
taxable ordinary income of corporations.
(g) Any exemption or similar items that must be prorated or
apportioned among the component Members of the MIPS Technologies,
Inc. Subgroup shall not be taken into account.
(h) Estimated Tax payments made pursuant to Article 5 of this
Agreement shall not be included in the computation of the MIPS
Technologies, Inc. Subgroup Separate Tax Return Amount.
(i) Other adjustments reasonably specified by SGI and consistent with
this agreement shall be made.
4.5 PAYMENT OF MIPS TECHNOLOGIES, INC. SUBGROUP SEPARATE TAX RETURN
AMOUNT. (a) PAYMENT FROM MIPS TECHNOLOGIES, INC. SUBGROUP TO SGI. For any SGI
Consolidated Return Period covered by this Agreement, if the MIPS Technologies,
Inc. Subgroup Separate Tax Return Amount is a positive amount, MIPS
Technologies, Inc. shall pay such amount to SGI on or before the due date
(without extensions) of the SGI Consolidated Federal Returns for the appropriate
SGI Consolidated Return Period. Such payment shall be reduced by the estimated
Tax payments made by the MIPS Technologies, Inc. Subgroup for such taxable
period pursuant to Article 5 of this Agreement. For administrative or other
reasons, SGI may direct or allow the above payment to be made after the
prescribed date. If all relevant information necessary to determine the amount
of the payment is not available by the due date, the payment shall be based on
estimates, and adjustments shall be made when sufficient information is
available or as soon as practicable after the SGI Consolidated Federal Return
for the appropriate SGI Consolidated Return Period is filed.
<PAGE>
8
(b) PAYMENT FROM SGI TO MIPS TECHNOLOGIES, INC. SUBGROUP. For any SGI
Consolidated Return Period covered by this Agreement, if the MIPS Technologies,
Inc. Subgroup Separate Tax Return Amount is a negative amount SGI shall pay to
MIPS Technologies, Inc. the amount that would have been allowed as a net Tax
refund to the MIPS Technologies, Inc. Subgroup on or before the due date
(without extensions) of the SGI Consolidated Federal Returns for the appropriate
SGI Consolidated Return Period. Such payment shall be increased by the
estimated Tax payments made by the MIPS Technologies, Inc. Subgroup for such
taxable period pursuant to Article 5 of this Agreement. For administrative or
other reasons, SGI may decide to make the above payment after the prescribed
date. If all relevant information necessary to determine the amount of the
payment is not available by the due date, the payment shall be based on
estimates, and adjustments shall be made when sufficient information is
available or as soon as practicable after the SGI Consolidated Federal Return
for the appropriate SGI Consolidated Return Period is filed.
ARTICLE 5 - ESTIMATED TAX PAYMENTS
5.1 The MIPS Technologies, Inc. Subgroup shall pay to the SGI quarterly
installments of estimated Tax. The amount of such payments for the first,
second, third and fourth installments shall cumulatively equal 25 percent, 50
percent, 75 percent and 100 percent, respectively, of the estimated full-year
MIPS Technologies, Inc. Subgroup Separate Tax Return Amount (including the
minimum tax and environmental tax). Settlement for such payment shall be made
on or before, or as soon as practicable after, the due date of the applicable
estimated Tax payment to be paid by SGI.
5.2 The MIPS Technologies, Inc. Subgroup shall pay to SGI any and all
interest and penalties imposed on the SGI Affiliated Group as a result of the
underpayment of estimated Tax attributable to the MIPS Technologies, Inc.
Subgroup. For purposes of this Article 5.2, the Chief Financial Officer of SGI
shall determine to which Member or Members of the SGI Affiliated Group the
underpayment is attributable. Such determination of the Chief Financial Officer
shall be final. A payment of such interest and penalties shall not be
considered a payment of estimated Tax.
ARTICLE 6 - ADJUSTMENTS TO SGI CONSOLIDATED TAX LIABILITY
6.1 GENERAL. If any adjustment in the SGI Consolidated Tax Liability is
made as a result of an audit by the IRS, the granting of a claim for refund, a
final decision by a court, the carryback or carryforward of a loss, deduction or
credit or any other similar circumstance, the Tax refund or Tax liability
resulting therefrom, including any interest and penalties (an "Adjustment"),
shall be allocated between the SGI Affiliated Group and the MIPS Technologies,
Inc. Subgroup in accordance with the principles of this Agreement as if such
adjustments had been taken into account in the year to which they relate.
<PAGE>
9
6.2 ADJUSTMENT RESULTING IN BASIS INCREASE TO MIPS TECHNOLOGIES, INC.
SUBGROUP. If any Adjustment results in an increase in the adjusted basis of any
asset transferred by SGI to the MIPS Technologies, Inc. Subgroup, the MIPS
Technologies, Inc. Subgroup shall pay to SGI the amount of any Tax benefit
resulting to it by virtue of such basis increase as and when such Tax benefit is
realized. If any Adjustment results in a decrease in the adjusted basis of any
asset transferred by SGI to the MIPS Technologies, Inc. Subgroup, SGI shall pay
to the MIPS Technologies, Inc. Subgroup the amount of any Tax benefit resulting
to SGI by virtue of such basis decrease as and when such Tax benefit is
realized. The preceding sentences shall survive the expiration of the Effective
Period of this Agreement.
ARTICLE 7 - MISCELLANEOUS PROVISIONS
7.1 It is understood and acknowledged that, in accordance with Regulation
Section 1.1502-77, SGI will be the agent for all Members of the SGI Affiliated
Group with respect to all matters referred to therein. SGI shall have authority
to compromise or concede any Tax issues for any SGI Consolidated Return Period.
7.2 If for any reason the application of this Agreement results in an
inequitable and unintended allocation, the General Tax Counsel of SGI shall have
the authority to reallocate items to eliminate or reduce the inequity, provided
such reallocation, to the greatest extent possible, is based on the principles
of this Agreement.
7.3 If the MIPS Technologies, Inc. ceases to be a Member of the SGI
Affiliated Group, this Agreement shall apply with respect to any period in which
the income, losses or other Tax items of MIPS Technologies, Inc. are included in
the SGI Consolidated Tax Return. MIPS Technologies, Inc. shall remain liable to
SGI for payments required under this Agreement, including, but not limited to,
payments of Tax and estimated Tax for periods in which the MIPS Technologies,
Inc. Subgroup's income, losses or other Tax items are included in the SGI
Consolidated Tax Return and payments attributable to adjustments referred to in
Article 6 of this Agreement. Additionally, MIPS Technologies, Inc. shall
cooperate and provide reasonable access to books, records and other information
needed in connection with audits, administrative proceedings, litigation and
other similar matters related to periods in which MIPS Technologies, Inc. was a
member of the SGI Affiliated Group.
7.4 If MIPS Technologies, Inc. ceases to be a Member of the SGI Affiliated
Group, MIPS Technologies, Inc. shall not be entitled to any compensation from
SGI relating to (i) any federal Tax Attributes or (ii) any state, local or
foreign Tax Attributes that have not been utilized by MIPS Technologies, Inc. or
the MIPS Technologies, Inc. Subgroup on a separate return basis in any prior SGI
Consolidated Return Period.
<PAGE>
10
7.5 Notwithstanding any other provision of this Agreement, SGI's
obligation to compensate or reimburse the MIPS Technologies, Inc. Subgroup for
its Tax Attributes shall terminate at such time as MIPS Technologies, Inc.
ceases to be a Member of the SGI Affiliated Group.
7.6 If MIPS Technologies, Inc. ceases to be a Member of the SGI Affiliated
Group, MIPS Technologies, Inc. shall pay to SGI the amount of any benefit MIPS
Technologies, Inc. receives from the use of any Preexisting Tax Benefit in any
taxable period after ceasing to be such a Member. The preceding sentence shall
survive the expiration of the Effective Period of this Agreement.
7.7 Any matter not specifically covered by this Agreement shall be handled
in the manner determined by SGI in accordance with the general principles of
this Agreement. Any dispute concerning the interpretation of this Agreement
shall be settled by the Chief Executive Officer, Chief Financial Officer and
General Tax Counsel of SGI.
7.8 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same Agreement.
ARTICLE 8 - EFFECTIVE PERIOD
8.1 This Agreement shall apply to all taxable periods that begin or end
after the after the date of the Offering, provided that the MIPS Technologies,
Inc. Subgroup is a Member of the SGI Affiliated Group for a portion of such
taxable period (the "Effective Period").
8.2 The termination of this Agreement shall not relieve any party of any
obligation arising hereunder.
* * * * * * *
<PAGE>
11
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed and attested.
MIPS TECHNOLOGIES, INC.
By: /s/ Kevin C. Eichler
-------------------------------
Name: Kevin C. Eichler
Title: Chief Financial Officer
SILICON GRAPHICS, INC.
By: /s/ William M. Kelly
-------------------------------
Name: William M. Kelly
Title: Senior Vice President-
Corporate Operations
<PAGE>
EXHIBIT 10.5
TECHNOLOGY AGREEMENT
This Technology Agreement ("Agreement") is made, entered into, and to be
effective as of the Closing Date (as defined below) ("Effective Date") by and
between Silicon Graphics, Inc., a Delaware corporation ("SGI") and MIPS
Technologies, Inc., a Delaware corporation ("MIPS").
RECITALS
WHEREAS, the Board of Directors of Silicon Graphics has determined that it
is in the best interests of Silicon Graphics and its shareholders to separate
the MIPS Business from Silicon Graphics' other operations;
WHEREAS, as part of the foregoing, SGI and MIPS have entered into a
Separation Agreement of even date herewith (the "Separation Agreement");
WHEREAS the parties desire to enter into this ancillary agreement pursuant
to which SGI will assign and license certain intellectual property to MIPS, and
MIPS will license back certain rights to SGI.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements, provisions and convenants contained in this Agreement, the parties
hereby agree as follows:
1. DEFINITIONS
1.1. "Affiliates" means shall mean any corporation or other entity that is
directly or indirectly controlling, controlled by or under common control with a
party. For the purpose of this definition, "control" shall mean the direct or
indirect ownership of more than fifty percent (50%) of the capital stock of the
subject entity entitled to vote in the election of directors (or, in the case of
an entity that is not a corporation, interests entitled to vote in the election
of the corresponding managing authority). For the purposes of this Agreement,
the term "Affiliate" shall not include MIPS where the term Affiliates is used in
connection with a period of time after the Closing Date.
1.2. "Capture Period" means the period starting on the Closing Date and
ending on the later of (i) three years from the Closing Date, or (ii) the date
when SGI's owns less than 50% of the capital stock of MIPS.
1.3. "Closing Date" means the date of the closing of MIPS's initial public
offering.
1.4. "Intellectual Property Rights" means (i) all Patents; (ii) all
copyrights in both published works and unpublished works, all registrations and
applications therefor and all associated moral rights (collectively
"Copyrights"); (iii) all rights in mask works (collectively "Maskworks"); and
(iv)
<PAGE>
all know-how, trade secrets, confidential information, customer lists, software,
technical information, data, process technology, plans, drawings, and blue
prints (collectively "Trade Secrets") whether arising under the laws of the
United States or any other state, country or jurisdiction.
1.5. "MIPS Capture Period Patents" means all patents and patent
applications filed by MIPS that have a first effective filing date during the
Capture Period.
1.6. "MIPS Field of Use" means any CPU, ASSP and ASIC which implements
under license from MIPS, the MIPS ISA or derivative thereof that is
substantially compatible with the MIPS ISA.
1.7. "MIPS ISA" shall mean the instruction set architectures for MIPS
Processor Components first developed by, for or with substantial participation
by MIPS including without limitation the MIPS I, MIPS II, MIPS III, MIPS IV,
MIPS V and successor instruction set architectures or extensions thereto.
1.8. "MIPS Processor Know-How" means the know-how listed on Exhibit E.
1.9. "MIPS Patents" means the Patents listed on Exhibit A.
1.10. "MIPS Processor Components" means a component of a processor within
the MIPS Field of Use designed by, for, or with substantial participation by
MIPS.
1.11. "MIPS Tools" means the Tools listed on Exhibit D.
1.12. "Non-Patent IP Rights" means Trade Secrets, Maskworks, and
Copyrights.
1.13. "Patents" means all classes or types of patents, utility models and
design patents (including, without limitation, originals, divisions,
continuations, continuations-in-part, extensions or reissues), patent
applications and disclosures for these classes or types of patent rights in all
countries of the world (collectively "Patent Rights").
1.14. "SGI Compiler & Software Technology" means the know-how listed on
Exhibit F.
1.15. "SGI Compiler & Software Patents" means the Patents listed on
Exhibit F.
1.16. "SGI Capture Period Patents" only those patents and patent
applications filed by SGI that have a first effective filing date during the
Capture Period and constitute inventions arising from improvements to the
technology listed on Exhibit G.
1.17. "SGI Designed Products" means products based on designs developed by,
for or with substantial participation by SGI or its Affiliates which (i) do not
substantially implement a MIPS ISA other than in connection with a MIPS R10K
processor implementation or enhanced derivatives thereof, or (ii) are in the SGI
Field of Use.
<PAGE>
1.18. "SGI Exclusive Field of Use" means the field of use outside the MIPS
Field of Use.
1.19. "SGI Field of Use" means standalone desktop computers, workstations,
servers, mainframes, and minicomputers.
1.20. "SGI Group" means SGI and its Affiliates.
1.21. "SGI Processor Know-How" means the know-how listed on Exhibit B.
1.22. "SGI Processor Patents" mean the Patents listed on Exhibit B.
1.23. "SGI Tools" means the Tools listed on Exhibit C.
1.24. "SGI Tool Patents" means the Patents listed on Exhibit C.
1.25. "Sole SGI Tools" means the Tools listed on Exhibit C.1.
1.26. "Tools" means architectural verification tools, architectural
modeling tools, design verification tools, and operating system tools. Tools do
not include Compiler & Software Technology.
2. MIPS TECHNOLOGY
2.1. Assignment to MIPS. SGI hereby sells, conveys, assigns and transfers
to MIPS, and MIPS hereby accepts, all of SGI's right, title and interest in and
to the intellectual property and materials listed below ("Assigned IP") together
with all ancillary rights thereto, including without limitation, the right to
sue and recover damages for past, present and future infringements and to fully
and entirely stand in the place of SGI in all matters related thereto. Upon
MIPS's reasonable request, SGI agrees to take further action and to execute such
additional documents (at MIPS's expense) as may be necessary to perfect MIPS's
title in and to the Assigned IP. Assigned IP specifically includes and is
limited to:
o MIPS Patents (as listed on Exhibit A); o MIPS Processor Know-How (as
listed on Exhibit E); and o MIPS Tools (as listed on Exhibit D).
2.2. Processor Technology License to SGI. MIPS hereby grants to the SGI
Group, a non-exclusive, royalty-free, fully-paid, worldwide license, under
MIPS's Intellectual Property Rights in the MIPS Patents (as listed on Exhibit A)
and MIPS Processor Know-How (as listed on Exhibit E) to:
(a) make, have made, use, import, sell and otherwise dispose of products,
and practice any method or process in the manufacture of products;
(b) use, modify, distribute, reproduce, display, and perform any
copyrighted or copyrightable
<PAGE>
work or Maskwork;
(c) sublicense such rights to third parties only in connection with SGI
Designed Products.
(d) In addition, the license set forth in this Section 2.2 shall be an
exclusive license within the SGI Exclusive Field of Use, subject to any
licenses granted by MIPS prior to the Effective Date of this Agreement.
This license shall be reduced to a non-exclusive license only in the event
the SGI Group: (i) ceases to license, market, sell or otherwise dispose of
products that infringe, or practice any method or process that infringes,
any MIPS Patent or MIPS Processor Know-How, and (ii) ceases to use the MIPS
Processor Know- How.
2.3. Tools License to SGI. MIPS hereby grants to the SGI Group, a non-
exclusive, royalty-free, fully-paid, worldwide license, under MIPS's Non-Patent
IP Rights in the MIPS Tools (as listed on Exhibit D) to:
(a) make, have made, use, import, sell and otherwise dispose of products,
and practice any method or process in the manufacture of products; and
(b) use, modify, distribute, reproduce, display, and perform any
copyrighted or copyrightable work.
(c) except for those Tools identified in Exhibit D as "Not Sublicensable,"
sublicense the rights set forth in this Section 2.3 to third parties in
binary code format; provided that those Tools that are identified on
Exhibit D as "Source Code Sublicensable" may be licensed by the SGI Group
in source code format.
2.4. Right to Retain Information. For the purposes of enjoying the rights
granted under this Section 2, SGI shall have the right to retain copies of all
materials included in and associated with the Assigned IP.
3. SGI TECHNOLOGY
3.1. Processor Technology License to MIPS. SGI hereby grants to MIPS, a
non-exclusive, royalty-free, fully-paid, worldwide license, within the MIPS
Field of Use, under SGI's Intellectual Property Rights in the SGI Processor
Patents and SGI Processor Know-How (as listed on Exhibit B) to:
(a) make, have made, use, import, sell and otherwise dispose of MIPS
Processor Components, and practice any method or process in the manufacture
of MIPS Processor Components; and
(b) use, modify, distribute, reproduce, display, and perform any
copyrighted or copyrightable work or Maskwork only in connection with the
use, development, manufacture, or distribution of MIPS Processor
Components.
<PAGE>
(c) sublicense the rights granted in Section 3.1(a) and 3.1(b) above to
third parties.
3.2. Tools License to MIPS. SGI hereby grants to MIPS, a non-exclusive,
royalty-free, fully-paid, worldwide license, within the MIPS Field of Use, under
SGI's Intellectual Property Rights in the SGI Tools Patents and SGI Tools (as
listed on Exhibit C) to:
(a) make, have made, use, import, sell and otherwise dispose of MIPS
Processor Components, and practice any method or process in the manufacture
of MIPS Processor Components; and
(b) use, modify, distribute, reproduce, display, and perform any
copyrighted or copyrightable work or Maskwork only in connection with the
use, development, manufacture, or distribution of MIPS Processor
Components.
(c) sublicense to third parties, only in binary format, those SGI Tools
specifically identified in Exhibit C as "Sublicensable"; provided that
those SGI Tools specifically identified in Exhibit C as "Source Code
Licensable" may be sublicensed by MIPS in source code format.
(d) The above license shall be a sole license with respect to the Sole SGI
Tools, subject to any licenses granted by SGI prior to the Effective Date
of this Agreement. This license shall be reduced to a non-exclusive license
with respect to any Sole SGI Tool in the event MIPS ceases to license,
market, sell or otherwise dispose of MIPS Processor Components that use
such Sole SGI Tool.
3.3. Compiler & Software Technology License to MIPS. SGI hereby grants to MIPS,
a non-exclusive, royalty-free, fully-paid, worldwide license, within the MIPS
Field of Use, under SGI's Intellectual Property Rights in the SGI Compiler &
Software Technology and SGI Compiler & Software Patents (as listed on Exhibit F)
to:
(a) use, modify, and reproduce (for internal use only) the SGI Compiler &
Software Technology only in connection with the development of MIPS
Processor Components;
(b) Under the SGI Compiler & Software Patents to make, have made, use,
import, sell and otherwise dispose of MIPS Processor Components, and
practice any method or process in the manufacture of MIPS Processor
Components; and
(c) MIPS shall have the right to sublicense only that SGI Compiler &
Software Technology and those SGI Compiler & Software Patents identified in
Exhibit F as "Sublicensable" to third parties. All such sublicenses of SGI
Compiler & Software Technology shall be in binary format only; provided
that that SGI Compiler & Software Technology specifically identified in
Exhibit F as "Source Code Licensable" may be sublicensed by MIPS in source
code format.
3.4. No Foundry Rights. MIPS understands and acknowledges that the
licenses granted under Sections 3.2 and 3.3 are intended to cover only MIPS
Processor Components and are not intended
<PAGE>
to cover foundry activities that MIPS may undertake on behalf of third parties.
3.5. Third Party Rights. MIPS understand that some the technology and
materials assigned or licensed to MIPS hereunder contains third party
technology. MIPS agrees that: (i) SGI's obligations and MIPS's licenses under
this Section 3 are subject in all cases to any restrictions, limitations or
obligations contained in agreements entered into between SGI and third parties,
(ii) MIPS shall be solely responsible for obtaining such licenses or consents,
(iii) MIPS agrees that in the event any third party licenses or consents are
required, MIPS will obtain such third party licenses, and MIPS will undertake
all efforts necessary to protect SGI's rights and meet SGI's obligations under
agreements with third parties to the extent such rights and obligations are
affected by this Agreement.
4. FUTURE TECHNOLOGY
4.1. MIPS Capture Period Patents. MIPS hereby grants to the SGI Group, a
non-exclusive, royalty-free, fully-paid, worldwide license, including the right
to sublicense, under the MIPS Capture Period Patents to make, have made, use,
import, sell and otherwise dispose of SGI Designed Products, and practice any
method or process in the manufacture of SGI Designed Products.
4.2. SGI Capture Period Patents. SGI hereby grants to MIPS, a non-exclusive,
royalty-free, fully-paid, worldwide license, including the right to sublicense,
within the MIPS Field of Use, under the SGI Capture Period Patents to make, have
made, use, import, sell and otherwise dispose of MIPS Processor Components, and
practice any method or process in the manufacture of MIPS Processor Components.
4.3. Improvements to SGI Tools and MIPS ISA.
4.3.1. License. MIPS hereby grants to the SGI Group, a non-exclusive,
royalty-free, fully-paid, worldwide license under MIPS's Non-Patent IP Rights to
any improvements or other changes made by MIPS to the SGI Tools licensed to
MIPS, the SGI Compiler & Software Technology, or to the MIPS ISA ("MIPS
Improvements") during the Capture Period, including the right to:
(i) make, have made, use, import, sell and otherwise dispose of products,
and practice any method or process in the manufacture of products; and
(ii) to use, modify, distribute, reproduce, display, and perform any
copyrighted or copyrightable work.
4.3.2. Conditions. Any licenses granted pursuant to Section 4.3.1 and any
obligation to provide materials relating to MIPS Improvements shall be subject
to any third party obligations of MIPS with respect to any such MIPS
Improvements. MIPS shall deliver all MIPS Improvements to SGI when MIPS makes
such MIPS Improvements generally available to MIPS customers and licensees or
upon SGI's reasonable written request provided that SGI may request MIPS
Improvements no more once in any six (6) month period. MIPS shall deliver the
applicable changes
<PAGE>
to software source code and any reasonably available supporting documentation.
4.3.3. Additional License. Upon the SGI Group's request, MIPS shall
license to the SGI Group under commercially favorable terms, any MIPS
Improvements or other MIPS technology or designs it makes available to its
customers or third parties, not already licensed hereunder. MIPS shall deliver
all such technology when MIPS makes such it generally available to MIPS
customers and licensees or upon SGI's reasonable written request provided that
SGI may make such request no more once in any six (6) month period. MIPS shall
deliver the applicable changes to software source code and any reasonably
available supporting documentation.
5. DISCLAIMER
5.1. No Implications. Nothing contained in this Agreement shall be
construed as:
5.1.1. A representation or warranty by either of the parties to this
Agreement as to the validity, enforceability or scope of any class or type
of Intellectual Property Rights;
5.1.2. A warranty or representation that anything made, used sold or
otherwise disposed of under any assignment or license set forth in this
Agreement is or will be free from infringement of any third party Intellectual
Property Rights other than those which are assigned or licensed hereunder;
5.1.3. Except as explicitly set forth in Section 9, an agreement to bring
or prosecute or any grant of a right to bring or prosecute actions or suits
against third parties for infringement;
5.1.4. Requiring either party to obtain the right to license to the other,
third party technology contained in any know-how, software or other materials
licensed, assigned or provided hereunder. The parties agree that the receiving
party shall be solely responsible for obtaining any necessary third party
licenses;
5.1.5. Except as expressly set forth herein, requiring a party to furnish
or disclose technical information, know-how, improvements, support or other
information or assistance to the other party; or
5.1.6. Conferring by implication, estoppel or otherwise, upon either party
licensed hereunder, any license or other right under any Intellectual Property
Rights except the assignments, licenses and rights expressly granted hereunder
regardless of whether such Intellectual Property Rights are dominant or
subordinate to the rights granted hereunder.
5.2. No Warranties. EACH PARTY HEREBY DISCLAIMS ANY EXPRESS OR IMPLIED
WARRANTIES WITH RESPECT TO THE INTELLECTUAL PROPERTY RIGHTS OR RELATED MATERIALS
LICENSED HEREUNDER, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF
MERCHANTABILITY, NONINFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE.
<PAGE>
6. CONFIDENTIALITY
6.1. Obligation. MIPS and SGI each acknowledges that by reason of its
relationship with the other party, it has and will have access to certain
information and materials that is confidential and of substantial value to the
other party ("Confidential Information"), which value would be impaired if such
information were disclosed to third parties. Each party agrees that, except as
specifically authorized hereunder, it will not use in any way for its own
account or the account of any third party, nor disclose to any third party, any
such Confidential Information, and will take every reasonable precaution to
protect the confidentiality of such information which shall in no event be less
than the industry standard and shall include: entering into non- disclosure
agreements with third parties prior to disclosing any Confidential Information
that the other party grants permission to disclose, entering into employment
agreements with all employees requiring employees to protect Confidential
Information, providing to employees access to Confidential Information on a need
to know basis only, password protect servers and files that contain Confidential
Information, restricting access to confidential information by third parties
(including contractors), storing Confidential Information in locked files or
rooms. Upon request by a party, the other party will advise the requesting party
whether or not it considers any particular information or materials to be
Confidential Information.
6.2. Transfer of Information. MIPS acknowledges that (i) all technical
information, know-how, software, or other materials (excluding non- technical
business materials) transferred by MIPS from SGI are listed on Exhibits to this
Agreement, (ii) information in electronic format was transferred to clean
servers and only information set forth in Exhibits to this Agreement or
otherwise authorized in writing by an SGI officer was transferred to such
servers, and (iii) MIPS has no access to the SGI Group's servers as of the
Closing Date or as mutually agreed. MIPS agrees to promptly return or destroy
all copies of any unauthorized SGI Confidential Information in its possession or
control. MIPS agrees that SGI, during the Capture Period, shall have the right
to audit MIPS's servers, files, and premises to ensure compliance with this
Section 6. In the event SGI discovers unauthorized use of SGI Confidential
Information, MIPS shall pay the cost of the audit and shall use its best efforts
to correct such unauthorized use, including without limitation, obtaining a
license to use such information, destroying or returning such information, and
ceasing to license or distribute products or materials that contain such
information.
6.3. Exceptions. The foregoing restrictions will not apply to information
that (i) has become publicly known through no wrongful act of the receiving
party; (ii) has been rightfully received from a third party authorized to make
such disclosure without restriction; (iii) has been independently developed by
the receiving party after the Closing Date of this Agreement; (iv) has been
approved for release by written authorization of the disclosing party, or (v) is
required by law or regulation to be disclosed; provided, however, that the
receiving has provided written notice to the disclosing party promptly to enable
disclosing party to seek a protective order or otherwise prevent disclosure of
Confidential Information.
6.4. Term. The obligations of each party pursuant to this Section 6 with
respect to Confidential Information shall continue in full force and effect for
a period of ten (10) years after the Effective Date of this Agreement; provided
that if the disclosing party requests an additional ten (10)
<PAGE>
year period for maintaining the confidentiality of any specified Confidential
Information, the obligations under this Section 6 shall continue with respect to
such Confidential Information for an additional ten (10) years.
6.5. Injunctive Relief. Each party acknowledges that any breach of any of
its obligations under this Section 6 may cause irreparable harm and significant
injury to the disclosing party to an extent that may be extremely difficult to
measure. Accordingly, the receiving party agrees that the disclosing party will
have, in addition to any other rights or remedies available to it at law or in
equity, the right to seek injunctive relief to enjoin any breach of this Section
6.
7. TERM AND TERMINATION
7.1. Term. This Agreement and the rights and licenses granted hereunder
shall become effective on the Effective Date and shall continue in effect,
unless terminated as provided below, until the latter of: (i) expiration,
revocation, invalidation or abandonment of the last Patent licensed hereunder,
or (ii) the parties cease to use the Non-Patent IP Rights.
7.2. Termination
7.2.1 Termination for Bankruptcy. Either party may terminate this Agreement
effective immediately and without liability upon written notice to the other
party if any one of the following event occurs:
(a) he other party files a voluntary petition in bankruptcy or otherwise
seeks protection seeks protection under any law for the protection of
debtors;
(b) A proceeding is instituted against the other party under any provision
of any bankruptcy laws which is not dismissed within ninety (90) days;
(c) Any adjudication that the other party is bankrupt or insolvent;
(d) A court assumes jurisdiction of all or a substantial portion of the
assets of the other party under a reorganization law;
(e) A trustee or receiver is appointed by a court for all or a substantial
portion of the assets of the other party;
(f) The other party becomes insolvent, ceases or suspends business;
(g) The other party makes an assignment of the majority of its assets for
the benefit of its creditor; or
(h) The other party admits in writing its inability to pay its debts as
they become due.
<PAGE>
7.2.2. Termination for Breach. If MIPS materially breaches any material
term or condition of this Agreement, then upon forty- five (45) days written
notice to MIPS specifying the default ("Notice of Default"), SGI may terminate
or suspend this Agreement, without liability, unless the default reasonably
requires more than forty-five (45) days to correct and MIPS has begun
substantial corrective actions to remedy the default and is diligently pursuing
such actions, in which event, MIPS shall have so much time as is reasonably
necessary to cure such default.
7.3. Effect of Termination. (a) In the event of termination pursuant to
Section 7.2 above, the party terminating the Agreement pursuant to Section 7.2
above shall retain all licenses and rights granted to it under this Agreement
for the term of the Agreement, and all licenses granted to the other party shall
terminate subject to any sublicenses previously granted, and (b) the following
sections shall survive any termination or expiration of the Agreement:
Sections 2.1, 2.4, 5, 6, 7, 8, 9 and 10.
8. ASSIGNMENT AND CHANGE OF CONTROL
8.1. Assignment. This Agreement is personal to MIPS and the Agreement or
any right or obligation under it may not be assigned by MIPS without the prior
written consent of SGI (except for a Change of Control as defined below). SGI
may freely assign this Agreement provided that in such case, the licenses
granted to SGI under Section 2.2 above shall be limited to the SGI Field of Use
unless otherwise agreed to by MIPS in writing. Any purported assignment, except
as explicitly permitted herein, shall be deemed a breach of this Agreement and
shall be null and void. This Agreement shall be binding upon and inure to the
benefit of the parties and their permitted successors and assigns.
8.2. Change of Control.
8.2.1. MIPS. Except where SGI's sale of MIPS capital stock to a third
party results in a Change of Control, in the event more than fifty (50%) of the
outstanding shares or securities (representing the right to vote for the
election of directors or other managing authority) of MIPS becomes owned or
controlled directly or indirectly by a third party ("Change of Control"), MIPS
shall promptly give notice to SGI of such Change of Control. Upon such Change of
Control the licenses granted to MIPS pursuant to Section 3 above shall
immediately terminate except that in the event after such Change of Control,
MIPS is kept by the acquirer as an intact and independent business unit
recognizable as the same business unit that existed prior to the Change of
Control, then: (i) MIPS's licenses shall be restricted to the MIPS business unit
only and not the acquirer's other business units, and (ii) SGI's licenses under
Section 4 above shall be limited to Patents obtained or filed, and improvements
developed, by MIPS only and not the acquirer's other business units. If MIPS is
not maintained as a independent business unit as set forth above then: (i) SGI's
licenses under Section 4 above shall apply to all Patents obtained or filed, and
improvements developed, by the acquirer or any of its business units, and (ii)
MIPS license will terminate, provided that in the event there is a pre-existing
license agreement between SGI and the acquirer, the licenses shall continue
within the scope of such preexisting licenses subject to the payment of any
royalties due SGI under such pre- existing agreement.
<PAGE>
8.2.2. SGI. In the event more than fifty (50%) of the outstanding shares
or securities (representing the right to vote for the election of directors or
other managing authority) of SGI becomes owned or controlled directly or
indirectly by a third party the licenses granted to SGI pursuant to Section 2.2
above shall be limited to use only within the SGI Field of Use.
8.3. MIPS understands that SGI may divest some or all of its assets in the
future; and MIPS agrees to grant such new entity a non-exclusive license similar
in scope and on similar terms and conditions upon SGI's written request.
9. INFRINGEMENT ACTIONS
9.1. Infringement Actions within SGI's Field of Use. For so long as the
licenses granted to SGI under the MIPS Patents under Section 2.2 above remain
exclusive, MIPS agrees that SGI can bring suit, without MIPS's consent, against
any third party infringing the MIPS Patents within the SGI Exclusive Field of
Use. MIPS agrees, at SGI's expense, to make available at reasonable times and
under appropriate conditions all relevant personnel, records, papers,
information, samples, specimens and other similar materials in its possession.
MIPS agrees to provide, at SGI's expense, all cooperation reasonably necessary
or useful to allow SGI to litigate or settle such suit, including without
limitation, becoming party to the suit.
9.2. Request to Bring Suit. In the event a Party reasonably believes that
a third party infringes one or more of the patents licensed to it pursuant to
this Agreement, it may request that the other party ("Patent Owner") bring an
infringement action against such third party infringer. Upon receiving such
request, the Patent Owner shall use its reasonable efforts to file such claim
unless the Patent Owner can demonstrate that it is not commercially reasonable
for it to do so. The requesting party shall reimburse Patent Owner for all costs
and expenses associated with filing, litigating and settling such claim.
10. GENERAL
10.1. All Other Technology. The parties agree that the technical materials
and Intellectual Property Rights assigned or licensed to MIPS are limited to
those expressly provided for hereunder. All other technology, materials and
information (excluding non-technical business materials) under SGI's control
shall, as between the parties, be owned exclusively by SGI, and MIPS shall have
no rights or interest in such technology, materials and information unless
expressly provided in the Trademark Agreement or the Separation Agreement. MIPS
shall not remove any tangible materials embodying such Intellectual Property
Rights or information from SGI's premises other than those listed on the
Exhibits attached to this Agreement.
10.2. Confidentiality of Agreement. Each party agrees that the terms and
conditions of this Agreement shall be treated as confidential information and
that neither party will disclose the terms or conditions to any third party
without the prior written consent of the other party, provided, however, that
each party may disclose the terms and conditions of this Agreement, to the
extent
<PAGE>
necessary:
(a) as required by any court or other governmental body;
(b) as otherwise required by law;
(c) to legal counsel of the parties, accountants, and other professional
advisors;
(d) in confidence, to banks, investors and other financing sources and
their advisors;
(e) in connection with the enforcement of this Agreement or rights under
this Agreement; or
(f) in confidence, in connection with an actual or prospective merger or
acquisition or similar transaction
With respect to disclosure required by a court order, the disclosing party shall
provide prior notification of such impending disclosure to the non- disclosing
party. All reasonable efforts to preserve the confidentiality of the terms of
this Agreement shall be expended by the disclosing party in complying with such
an order, including obtaining a protective order to the extent reasonably
possible. The parties shall cooperate in preparing and releasing an
announcement or other form of publicity, if any, relating to this Agreement.
10.3. Export Controls. Each party understands and acknowledges that
certain technology licensed or assigned hereunder is subject to regulation by
agencies of the U.S. government, including the U.S. Department of Commerce,
which prohibit export or diversion of certain products and technology to certain
countries. Each party warrants that it will comply in all respects with the
export restrictions applicable to any materials or technology provided hereunder
and will otherwise comply with the Export Administration Regulations or other
United States laws and regulations in effect from time to time.
10.4. Other General Terms. The terms and conditions set forth in Sections
7, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, and 8.13 of the
Separation Agreement are hereby incorporated by reference.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
effective as of the date set forth above.
MIPS Technologies, Inc. Silicon Graphics, Inc.
By: /s/ John E. Bourgoin By: /s/ William M. Kelly
---------------------------- ----------------------------
Name: John E. Bourgoin Name: William M. Kelly
-------------------------- --------------------------
<PAGE>
Print or Type Print or Type
Title: Chief Executive Title: Senior Vice President-
Officer and President Corporate Operations
------------------------- -------------------------
Date: Date:
-------------------------- --------------------------
<PAGE>
EXHIBIT A
MIPS PATENTS
Certain patents currently owned by SGI that are related to the MIPS ISA and MIPS
architecture and which are assigned to MIPS hereunder.
<PAGE>
EXHIBIT B
SGI PROCESSOR KNOW-HOW AND SGI PROCESSOR PATENTS
SGI Processor Patents
Certain patents owned by SGI that are related to the MIPS ISA and MIPS
architecture which are licensed to MIPS hereunder.
SGI Processor Know-How
Certain know-how related to the MIPS ISA and MIPS architecture which are
licensed to MIPS hereunder.
<PAGE>
EXHIBIT C
SGI TOOLS AND SGI TOOL PATENTS
C.1 Sole SGI Tools
Certain architectural verification tools, architectural modeling tools, design
verification tools, and operating system tools owned by SGI which are
licensed to MIPS hereunder under a sole license.
C.2 SGI Tools
Certain architectural verification tools, architectural modeling tools, design
verification tools, and operating system tools owned by SGI which are
licensed to MIPS hereunder under a non-exclusive license.
C.3 SGI Tool Patents
Certain patents owned by SGI which relate to architectural verification tools,
architectural modeling tools, design verification tools, and operating system
tools, and which are licensed to MIPS hereunder under a non-exclusive
license.
<PAGE>
EXHIBIT D
MIPS TOOLS
Certain architectural verification tools, architectural modeling tools,
design verification tools, and operating system tools currently owned by SGI
which are assigned to MIPS hereunder. The list also identifies those MIPS
Tools that are not sublicensable, and those MIPS Tools which may be
sublicensed in source code format, by SGI under SGI's license to the MIPS
Tools.
<PAGE>
EXHIBIT E
MIPS MICROPROCESSOR KNOW-HOW
Certain know-how related to the MIPS ISA and MIPS architecture currently owned
by SGI which is assigned to MIPS hereunder.
<PAGE>
EXHIBIT F
SGI COMPILER & SOFTWARE TECHNOLOGY
AND SGI COMPILER & SOFTWARE PATENTS
SGI Compiler & Software Technology
Certain compiler software and tools, and other software owned by SGI which are
licensed to MIPS hereunder.
SGI Compiler & Software Patents
Certain patents owned by SGI relating to compiler technology which are
licensed to MIPS hereunder.
<PAGE>
EXHIBIT G
SGI CAPTURE PERIOD PATENTS
Certain technology to which improvements may be made by SGI, in its sole
discretion.
<PAGE>
EXHIBIT 10.6
TRADEMARK AGREEMENT
TRADEMARK AGREEMENT ("Agreement") dated as of July 6, 1998 by and
between Silicon Graphics, Inc., a Delaware corporation ("SGI"), and MIPS
Technologies Inc., a Delaware corporation (together with its successors and
permitted assigns, "MIPS").
RECITALS
WHEREAS, the Board of Directors of SGI has determined that it is in the
best interests of SGI and its shareholders to separate the Company Business from
SGI's other operations;
WHEREAS, as part of the foregoing, SGI and MIPS have entered into a
Separation Agreement, dated on even date herewith (the "Separation Agreement"),
which provides, among other things, for the Separation of the Company Business
from SGI's other operations, the Initial Public Offering, and the execution and
delivery of certain ancillary agreements to facilitate and provide for the
foregoing; and
WHEREAS, the parties desire to enter into this ancillary agreement pursuant
to which SGI will assign certain trademark and trademark-related rights to MIPS,
and MIPS will license back certain rights to SGI.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements, provisions and covenants contained in this Agreement, the parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1. "Affiliates" means shall mean any corporation or other entity that is
directly or indirectly controlling, controlled by or under common control with a
party. For the purpose of this definition, "control" shall mean the direct or
indirect ownership of more than fifty percent (50%) of the capital stock of the
subject entity entitled to vote in the election of directors (or, in the case of
an entity that is not a corporation, interests entitled to vote in the election
of the corresponding managing authority). For the purposes of this Agreement,
the term "Affiliate" shall not include MIPS where the term Affiliates is used in
connection with a period of time after the Closing Date.
1.2 "Closing Date" means the date of the closing of MIPS's initial public
offering.
1.3 "Licensed Product" means a product that is designed by or for the SGI
Group that is substantially compatible with the MIPS ISA or is capable of
operating in conjunction with a MIPS
<PAGE>
processor.
1.4 "MIPS ISA" shall mean the instruction set architectures for MIPS
Processor Components first developed by, for or with substantial participation
by MIPS including without limitation the MIPS I, MIPS II, MIPS III, MIPS IV,
MIPS V and successor instruction set architectures.
1.5 "MIPS Marks" means all Trademarks listed on Exhibit A.
1.6 "SGI Group" means SGI and its Affiliates.
1.7 "Trademark Rights" means trademarks, service marks, trade dress,
logos, trade names and corporate names, whether or not registered, including all
common law rights, and registrations and applications for registration thereof,
including but not limited to, all marks registered with the United States Patent
and Trademark Office, the Trademark Offices of the States and Territories of the
United States of America, and the Trademark Offices of other nations throughout
the world, and all rights provided by multinational treaties or conventions.
1.8 The following terms shall have the meanings set forth for the
corresponding defined terms in the Separation Agreement: Initial Public
Offering, Company Business, and Separation.
ARTICLE 2
ASSIGNMENT OF THE MIPS MARKS
2.1. Assignment to MIPS. SGI hereby assigns and conveys to MIPS, and MIPS
hereby accepts and receives, all of SGI's right, title and interest in and to
the MIPS Marks and related goodwill throughout the world. These rights shall
include, but shall not be limited to, all rights to use, copy, modify and
exploit the MIPS Marks; the right to exclude others from using the MIPS Marks;
the right to license, assign, convey, and pledge the MIPS Marks to others; the
right to sue others and to collect damages for past, present and future
infringements of the MIPS Marks; the right to create derivatives of the MIPS
Marks and to retain full ownership of such derivatives; the right to file and
prosecute applications to protect the Trademark Rights in the MIPS Marks,
together with all priority rights, under any existing or future international
convention, union, agreement, act or treaty.
2.2. Further Acts. SGI agrees to, upon MIPS's reasonable request and at
MIPS's expense, to execute and deliver to MIPS or its legal representative all
papers, instruments or affidavits required to apply for, obtain, maintain, issue
and enforce the Trademark Rights in the MIPS Marks. SGI hereby requests that
the United States Patent and Trademark Office and the corresponding offices in
all state, local and foreign jurisdictions issue to MIPS all registrations for
the Trademark Rights in the MIPS Marks.
ARTICLE 3
LICENSE OF THE MIPS MARKS
<PAGE>
3.1 Grant of License. MIPS hereby grants to the SGI Group, and the SGI
Group hereby accepts and receives, a paid-up, royalty-free, non-exclusive,
worldwide right and license, including with right to sublicense, to use the MIPS
Marks on or in connection with the sale, license, lease or rental of Licensed
Products.
3.2 Ownership of the Marks. The SGI Group acknowledges that MIPS owns
each of the MIPS Marks and all of the worldwide rights in and to the MIPS Marks.
The SGI Group further acknowledges that any and all goodwill arising from the
SGI Group's use of the MIPS Marks shall inure solely to the benefit of MIPS, and
the SGI Group shall not assert any claim to such goodwill. The SGI Group agrees
that nothing in this Agreement shall give the SGI Group any right, title or
interest in the MIPS Marks other than the right to use the MIPS Marks in
accordance with this Agreement and the SGI Group agrees that it will not attack
the title of MIPS to the MIPS Marks or attack the validity of this Agreement.
The SGI Group agrees that it shall not file nor cause the filing of any
applications to register any mark identical or similar to the MIPS Marks
throughout the world, and upon MIPS's request, the SGI Group shall immediately
transfer all of its right, title and interest in such applications or
registrations to MIPS.
3.3 Quality Control. The SGI Group shall use the MIPS Marks consistent
with the form shown in Exhibit A, or as otherwise reasonably requested by MIPS.
The SGI Group shall use the MIPS Marks in a manner that is consistent with, and
does not detract from, the goodwill associated with the MIPS Marks. The SGI
Group agrees to cooperate with MIPS in maintaining MIPS's control of the nature
and quality of the goods with which the MIPS Marks are used.
ARTICLE 4
TERM AND TERMINATION
4.1 Term. Unless earlier terminated pursuant to Section 4.2, this
Agreement shall terminate when the SGI Group ceases to use the Trademark Rights
license hereunder.
4.2 Termination. MIPS shall have the right to terminate this Agreement
effective immediately upon SGI's receipt of written notice from MIPS in the
event of any affirmative act of insolvency by SGI, or upon the appointment of
any receiver or trustee to take possession of the properties of SGI or upon the
winding-up, sale, consolidation, merger or any sequestration by governmental
authority of SGI, or upon any material breach of any of the duties and
obligations of SGI under this Agreement.
4.3 Effects of and Procedure on Termination. Upon expiration or
termination of this Agreement, the SGI Group agrees to discontinue all use of
the MIPS Marks provided that the SGI Group and its sublicenses may sell, rent,
lease or license any Licensed Product stock on hand. The parties acknowledge
and agree that all rights in the MIPS Marks and the goodwill connected therewith
shall remain the property of MIPS upon expiration or termination of this
Agreement.
ARTICLE 5
MISCELLANEOUS
<PAGE>
5.1 Incorporation of the Separation Agreement. In addition to the
definitions in Section 1.8, the following terms of the Separation Agreement are
incorporated by reference as if fully set forth herein:
Section 2.4 No Representations or Warranties; Consents
Article IV Indemnification
Article VII Dispute Resolution
Section 8.2 Expenses
Section 8.3 Notices
Section 8.4 Amendment and Waiver
Section 8.5 Counterparts
Section 8.6 Governing Law; Jurisdiction; Forum
Section 8.7 Entire Agreement
Section 8.8 Parties in Interest
Section 8.9 Tax Sharing Agreement
Section 8.10 Further Assurances and Consents
Section 8.11 Exhibits and Schedules
Section 8.12 Legal Enforceability
Section 8.13 Titles and Headings
5.2 Relationship of the Parties. This Agreement does not constitute and
shall not be construed as constituting a partnership or joint venture or grant
of a franchise between MIPS and SGI.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the day and year first written above.
SILICON GRAPHICS, INC.
By: /s/ William M. Kelly
-----------------------------
Name: William M. Kelly
Title: Senior Vice President-
Corporate Operations
MIPS TECHNOLOGIES INC.
By: /s/ John E. Bourgoin
-----------------------------
Name: John E. Bourgoin
Title: Chief Executive Officer
and President
<PAGE>
ANNEX C
EXCHANGE AGREEMENT
BETWEEN
SILICON GRAPHICS, INC.
AND
MIPS TECHNOLOGIES, INC.
DATED AS OF , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
ARTICLE I
THE EXCHANGE
1.01. The Exchange...................................................................................... C-1
1.02. Closing Date...................................................................................... C-1
1.03. Exchange of Certificates.......................................................................... C-2
ARTICLE II
PURCHASE OBLIGATION
2.01. Required Purchase Amount.......................................................................... C-2
2.02. Common Stock to be Purchased...................................................................... C-2
2.03. Purchase Price for Shares of Class B Common Stock................................................. C-3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01. Organization and Qualification.................................................................... C-3
3.02. Amended and Restated Certificate of Incorporation and By-Laws..................................... C-4
3.03. Capitalization.................................................................................... C-4
3.04. Authority Relative to This Agreement.............................................................. C-4
3.05. No Conflict; Required Filings and Consents........................................................ C-4
3.06. Brokers........................................................................................... C-5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SILICON GRAPHICS
4.01. Organization and Qualification; Subsidiaries...................................................... C-5
4.02. Certificate of Incorporation and By-Laws.......................................................... C-5
4.03. Authority Relative to This Agreement.............................................................. C-5
4.04. No Conflict; Required Filings and Consents........................................................ C-6
4.05. Ability to Consummate the Distribution............................................................ C-6
4.06. Brokers........................................................................................... C-6
ARTICLE V
ADDITIONAL AGREEMENTS
5.01. Ability to Consummate the Distribution............................................................ C-6
5.02. Indemnification by Silicon Graphics............................................................... C-6
5.03. Transfer Restrictions............................................................................. C-7
5.04. Tax Indemnification Agreement..................................................................... C-7
ARTICLE VI
CONDITIONS TO THE EFFECTIVENESS OF THE AGREEMENT
6.01. Conditions to the Obligations of Each Party....................................................... C-8
6.02. Conditions to the Obligations of Silicon Graphics................................................. C-8
6.03. Conditions to the Obligations of the Company...................................................... C-9
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.01. Termination....................................................................................... C-9
7.02. Effect of Termination............................................................................. C-9
</TABLE>
C-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
7.03. Amendment......................................................................................... C-9
7.04. Waiver............................................................................................ C-10
7.05. Expenses.......................................................................................... C-10
ARTICLE VIII
GENERAL PROVISIONS
8.01. Notices........................................................................................... C-10
8.02. Certain Definitions............................................................................... C-10
8.03. Severability...................................................................................... C-11
8.04. Assignment; Binding Effect; Benefit............................................................... C-11
8.05. Specific Performance.............................................................................. C-11
8.06. Governing Law..................................................................................... C-11
8.07. Headings.......................................................................................... C-11
8.08. Counterparts...................................................................................... C-11
8.09. Entire Agreement.................................................................................. C-11
</TABLE>
<TABLE>
<C> <S> <C>
ANNEX A Certain Terms and Provisions of Tax Indemnification Agreement
</TABLE>
C-ii
<PAGE>
EXCHANGE AGREEMENT dated and effective as of the Closing Date (this
"AGREEMENT") between SILICON GRAPHICS, INC., a Delaware corporation ("SILICON
GRAPHICS"), and MIPS TECHNOLOGIES, INC., a Delaware corporation (the "COMPANY").
W I T N E S S E T H
WHEREAS, on the date hereof, the authorized capital stock of the Company
consists of 200,000,000 shares, of which 150,000,000 shares are common stock,
par value $0.001 per share (the "EXISTING COMMON STOCK"), and 50,000,000 shares
are preferred stock, par value $0.001 per share (the "PREFERRED STOCK");
WHEREAS, pursuant to an amended and restated certificate of incorporation of
the Company (the "AMENDED AND RESTATED CERTIFICATE OF INCORPORATION"), the
Company intends to effect a recapitalization (the "RECAPITALIZATION") pursuant
to which (i) the authorized capital stock of the Company will increase to
300,000,000 shares, of which 150,000,000 shares will be shares of Class A Common
Stock, par value $0.001 per share (the "CLASS A COMMON STOCK"), 100,000,000
shares will be shares of Class B Common Stock, par value $0.001 per share (the
"CLASS B COMMON STOCK" and, together with the Class A Common Stock, the "COMMON
STOCK"), and 50,000,000 shares will be shares of Preferred Stock, and (ii) each
issued and outstanding share of Existing Common Stock will be changed into and
reclassified as one share of Class A Common Stock.
WHEREAS, immediately following the Recapitalization, Silicon Graphics will
be the beneficial owner of 31,750,000 shares of Class A Common Stock;
WHEREAS, upon the terms and subject to the conditions contained in this
Agreement, Silicon Graphics has agreed to exchange all of the issued and
outstanding shares of Class A Common Stock it will beneficially own immediately
following the Recapitalization for an equal number of shares of Class B Common
Stock (the "EXCHANGE");
WHEREAS, Silicon Graphics has indicated its present intention to divest of
its interest in the Company in one or more public and/or private offerings
followed by a distribution (the "DISTRIBUTION") generally intended to qualify
under Section 355 of the United States Internal Revenue Code of 1986, as amended
(the "CODE"); and
WHEREAS, in the event that the Distribution has not occurred prior to
December 31, 2000, Silicon Graphics shall become obligated to purchase a
specified number of shares of Common Stock on a quarterly basis, upon the terms
and subject to the conditions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Silicon Graphics and the Company hereby agree as follows:
ARTICLE I
THE EXCHANGE
SECTION 1.01. THE EXCHANGE. Upon the terms and subject to the conditions
set forth in Article VI, on the Closing Date (as defined below), each share of
Class A Common Stock beneficially owned by Silicon Graphics immediately
following the Recapitalization shall, in accordance with Section 1.03 herein, be
exchanged by Silicon Graphics for one share of Class B Common Stock, with each
such share of Class B Common Stock having the relative powers, preferences,
rights, qualifications, limitations and restrictions attaching to the Class B
Common Stock as specified in the Amended and Restated Certificate of
Incorporation.
SECTION 1.02. CLOSING DATE. The term "CLOSING DATE" means the date when
the Amended and Restated Certificate of Incorporation becomes effective under
the General Corporation Law of the State
C-1
<PAGE>
of Delaware. On the Closing Date, a closing will be held at the offices of
Shearman & Sterling, 555 California Street, 20(th) Floor, San Francisco, CA
94104 (or such other place as the parties may agree).
SECTION 1.03. EXCHANGE OF CERTIFICATES. On or prior to the Closing Date,
Silicon Graphics shall deposit, or shall cause to be deposited, with the Company
the certificate or certificates representing the shares of Class A Common Stock
beneficially owned by Silicon Graphics as of the Closing Date. On the Closing
Date, the Company shall issue to Silicon Graphics a new certificate or
certificates representing an aggregate number of shares of Class B Common Stock
equal to the aggregate number of shares of Class A Common Stock beneficially
owned by Silicon Graphics as of the Closing Date.
ARTICLE II
PURCHASE OBLIGATION
SECTION 2.01. REQUIRED PURCHASE AMOUNT. (a) Subject to terms and
conditions of this Agreement, if Silicon Graphics shall not have disposed of its
entire interest in the Company (whether through a Distribution or otherwise)
prior to December 31, 2000, Silicon Graphics shall, on the last day of each
fiscal quarter of the Company beginning on December 31, 2000 (the last day of
each such quarter being a "QUARTER END DATE"), and ending on the last day of the
fiscal quarter immediately preceding any such disposition (the "Required
Purchase Termination Date") accrue an obligation to purchase, with respect to
such Quarter End Date, the number of shares of Common Stock set forth below (the
total number of shares of Common Stock with respect to any Quarter End Date, as
reduced in accordance with Section 2.01(b) below, being a "REQUIRED PURCHASE
AMOUNT"):
<TABLE>
<CAPTION>
QUARTER END DATE REQUIRED PURCHASE AMOUNT
- --------------------------------------------------------------------------------------- -------------------------
<S> <C>
December 31, 2000...................................................................... 1,800,000
March 31, 2001......................................................................... 1,700,000
June 30, 2001.......................................................................... 1,800,000
September 30, 2001..................................................................... 1,700,000
December 31, 2001...................................................................... 1,800,000
March 31, 2002......................................................................... 1,700,000
June 30, 2002.......................................................................... 1,700,000
September 30, 2002..................................................................... 2,000,000
December 31, 2002 and each Quarter End Date thereafter until the Required Purchase
Termination Date..................................................................... 2,000,000
</TABLE>
(b) If, prior to the Purchase Date (as defined in Section 2.02) for any
Required Purchase Amount, the Company notifies Silicon Graphics in writing (such
writing hereinafter referred to as a "PURCHASE WAIVER") that the independent
directors and the Chief Executive Officer of the Company have unanimously
determined that the purchase of shares of Common Stock equal to such Required
Purchase Amount is not in the interests of the Company and its stockholders
(other than Silicon Graphics and its affiliates), then the Required Purchase
Amount with respect to the related Quarter End Date shall be reduced by the
number of shares of Common Stock set forth in such Purchase Waiver.
(c) Notwithstanding anything to the contrary in this Agreement, Silicon
Graphics' obligation under this Section 2.01 to purchase shares of Common Stock
equal to the Required Purchase Amount shall terminate on the Quarter End Date
immediately preceding the day on which each of Silicon Graphics and each of its
subsidiaries (other than the Company) completes the exchange of all of its
shares of Class B Common Stock for shares of Class A Common Stock pursuant to an
exchange of such shares by the Company under Section 5.05 of this Agreement.
SECTION 2.02. COMMON STOCK TO BE PURCHASED. (a) At its sole option,
Silicon Graphics may satisfy its obligation to purchase shares of Common Stock
equal to any Required Purchase Amount by purchasing (i) newly issued shares of
Class B Common Stock from the Company, (ii) issued and outstanding shares of
C-2
<PAGE>
Class A Common Stock in the public market or otherwise from a third party or
(iii) any combination of Class B Common Stock and Class A Common Stock pursuant
to (i) and (ii) above, in each case on or prior to the applicable Purchase Date.
If Silicon Graphics elects to purchase shares of Class B Common Stock from the
Company in full or partial satisfaction of its obligation to purchase shares of
Common Stock equal to the Required Purchase Amount, Silicon Graphics shall,
prior to the relevant Purchase Date for such Required Purchase Amount, deliver
to the Company a written notice (a "PURCHASE NOTICE") to such effect specifying
(A) the number of shares of Class B Common Stock to be purchased by Silicon
Graphics from the Company and (B) a calculation of the purchase price for such
shares as determined pursuant to the terms of Section 2.03 of this Agreement. As
soon as practicable following receipt by the Company of a Purchase Notice, the
Company will deliver to Silicon Graphics, against payment therefor, certificates
(issued in the name of Silicon Graphics) representing the shares of Class B
Common Stock being purchased pursuant to such Purchase Notice. Payment for such
shares of Class B Common Stock shall be made by wire transfer of immediately
available funds to such account as shall be specified by the Company for the
full purchase price of such shares. The parties hereto intend that each share of
Common Stock purchased by Silicon Graphics pursuant to this Section 2.02 shall
be a "Registrable Security" as defined in the Corporate Agreement, dated as of
July 6, 1998, between the Company and Silicon Graphics (the "CORPORATE
AGREEMENT"), and the parties hereby agree to amend the Corporate Agreement to
effect the foregoing.
(b) The following shall apply in determining whether Silicon Graphics has
satisfied its obligation to purchase shares of Common Stock equal to the
Required Purchase Amount with respect to any Quarter End Date: (i) each share of
Class A Common Stock purchased by Silicon Graphics in the public market or
otherwise from a third party on or prior to the applicable Purchase Date shall
be counted as four (4) shares of Common Stock purchased in satisfaction of the
Required Purchase Amount and (ii) each share of Class B Common Stock purchased
by Silicon Graphics from the Company on or prior to the applicable Purchase Date
shall be counted as one (1) share of Common Stock purchased in satisfaction of
the Required Purchase Amounts. Shares of Class A Common Stock purchased by
Silicon Graphics in the public market or otherwise from a third party, and
shares of Class B Common Stock purchased by Silicon Graphics from the Company,
shall only be applied in satisfaction of a Required Purchase Amount one time.
(c) With respect to each Quarter End Date, Silicon Graphics shall make such
purchase or purchases of shares of Common Stock equal to the Required Purchase
Amount prior to the date (the "PURCHASE DATE") which is thirty (30) days
following the public announcement by the Company of its financial results for
the fiscal quarter ending on such Quarter End Date.
SECTION 2.03. PURCHASE PRICE FOR SHARES OF CLASS B COMMON STOCK. The
purchase price per share for any newly issued shares of Class B Common Stock
purchased by Silicon Graphics from the Company in satisfaction of Silicon
Graphics' obligation to purchase a Required Purchase Amount shall be the average
of the closing prices per share of the Class A Common Stock on the Nasdaq
National Market (or, if the Class A Common Stock is no longer traded on the
Nasdaq National Market, on such other market or exchange as the Class A Common
Stock is then listed or quoted) for the last ten (10) trading days of the
quarter immediately preceding the applicable Purchase Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Silicon Graphics that as of
the Closing Date:
SECTION 3.01. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware and has all requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good
C-3
<PAGE>
standing or to have such corporate power, authority and governmental approvals
have not had, and could not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect (as defined below). The Company
is duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that have not had, and could not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect. The
term "COMPANY MATERIAL ADVERSE EFFECT" means any change in or effect on the
business of the Company that is materially adverse to the financial condition or
results of operations of the Company.
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company has
heretofore made available to Silicon Graphics a complete and correct copy of the
Amended and Restated Certificate of Incorporation and the Amended and Restated
By-Laws of the Company. Upon filing and effectiveness of the Amended and
Restated Certificate of Incorporation, the Company will not be in violation of
any of the provisions of the Amended and Restated Certificate of Incorporation
or the Amended and Restated By-Laws.
SECTION 3.03. CAPITALIZATION. Effective as of the Closing Date, the
authorized capital stock of the Company will consist of (a) 250,000,000 shares
of Common Stock, of which 150,000,000 shares will be designated as Class A
Common Stock and 100,000,000 shares will be designated as Class B Common Stock
and (b) 50,000,000 shares of Preferred Stock. As of the Closing Date (after
giving effect to the Recapitalization but prior to giving effect to the Exchange
contemplated hereby), (i) 37,292,286 shares of Class A Common Stock will be
issued and outstanding, all of which will be validly issued, fully paid and
nonassessable, (ii) no shares of Class B Common Stock will be issued and
outstanding, (iii) no shares of Common Stock will be held in the treasury of the
Company, (iv) no shares of the Preferred Stock will be issued and outstanding
and (v) 7,200,000 shares are reserved for future issuance pursuant to the 1998
Long-Term Incentive Plan and the Directors' Stock Option Plan (the "COMPANY
STOCK OPTION PLANS"). Other than pursuant to the Company Stock Option Plans, the
Employee Stock Purchase Plan, the Non-U.S. Stock Purchase Plan and the Corporate
Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or obligating the Company to issue or sell any
shares of capital stock of, or other equity interests in, the Company. All
shares of Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
There are no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of Common Stock.
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and, subject to the filing of the Amended and Restated Certificate of
Incorporation of the Company with the Secretary of State of the State of
Delaware, to perform its obligations hereunder and to consummate the
transactions contemplated by this Agreement. The Recapitalization has been
approved and adopted by (i) the affirmative vote of the holders of a majority of
the issued and outstanding shares of Existing Common Stock and (ii) the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Existing Common Stock (excluding Silicon Graphics and its affiliates
as a stockholder for the purposes of this clause (ii)) and in accordance with
the Company's Restated Certificate of Incorporation. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
Recapitalization and the transactions contemplated by this Agreement have been
duly and validly authorized by all necessary corporate action and, except for
the filing of the Amended and Restated Certificate of Incorporation of the
Company with the Secretary of State of the State of Delaware, no other corporate
proceedings on the part of the Company are necessary to authorize the
Recapitalization, this Agreement or to consummate the transactions contemplated
by this Agreement. This Agreement has been duly and validly executed and
delivered
C-4
<PAGE>
by the Company and, assuming the due authorization, execution and delivery by
Silicon Graphics, constitutes a legal, valid and binding obligation of the
Company.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Amended and Restated Certificate of Incorporation or the Amended and
Restated By-laws of the Company, (ii) conflict with or violate any foreign or
domestic law, statute, ordinance, rule, regulation, order, judgment or decree
("LAW") applicable to the Company or by which any property or asset of the
Company is bound or affected, or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation, except, with respect to clause (iii), for any
such conflicts, violations, breaches, defaults or other occurrences that have
not had, and could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, and that could not reasonably be
expected to prevent or materially delay the consummation of the transactions
contemplated by this Agreement.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
domestic or foreign governmental or regulatory authority ("GOVERNMENTAL
ENTITY"), except (i) for applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended (together with the rules and regulations
promulgated thereunder, the "EXCHANGE ACT"), state securities or "blue sky" laws
("BLUE SKY LAWS") and The Nasdaq Stock Market, Inc. and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, has not had, and could not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect, and
could not reasonably be expected to prevent or materially delay the consummation
of the transactions contemplated by this Agreement.
SECTION 3.06. BROKERS. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Recapitalization or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SILICON GRAPHICS
Silicon Graphics hereby represents and warrants to the Company that as of
the Closing Date:
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of
Silicon Graphics and each subsidiary of Silicon Graphics other than the Company
(the "SILICON GRAPHICS SUBSIDIARIES") is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all corporate requisite power and authority and all
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing or in good standing or to have such corporate power,
authority and governmental approvals have not had, and could not reasonably be
expected to have, individually or in the aggregate, a Silicon Graphics Material
Adverse Effect (as defined below). Each of Silicon Graphics and the Silicon
Graphics Subsidiaries is duly qualified or licensed as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that have not had, and could not
reasonably be expected to have, individually or in the aggregate, a Silicon
Graphics Material Adverse Effect. The term "SILICON GRAPHICS MATERIAL ADVERSE
EFFECT" means any change in or effect on the business
C-5
<PAGE>
of Silicon Graphics or the Silicon Graphics Subsidiaries that is materially
adverse to the financial condition or results of operations of Silicon Graphics
and the Silicon Graphics Subsidiaries taken as a whole.
SECTION 4.02. CERTIFICATE OF INCORPORATION AND BY-LAWS. Silicon Graphics
has heretofore made available to the Company a complete and correct copy of the
Certificate of Incorporation and the By-Laws of Silicon Graphics. Such
Certificate of Incorporation and By-Laws are in full force and effect. Silicon
Graphics is not in violation of any of the provisions of its Certificate of
Incorporation or By-Laws.
SECTION 4.03. AUTHORITY RELATIVE TO THIS AGREEMENT. Silicon Graphics has
all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Silicon Graphics and the consummation by Silicon Graphics of the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of Silicon Graphics are necessary to authorize this Agreement or to
consummate the transactions contemplated by this Agreement. This Agreement has
been duly and validly executed and delivered by Silicon Graphics and, assuming
the due authorization, execution and delivery by the Company, constitutes a
legal, valid and binding obligation of Silicon Graphics.
SECTION 4.04. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by Silicon Graphics do not, and the
performance of this Agreement by Silicon Graphics will not, (i) conflict with or
violate the certificate of incorporation or by-laws of Silicon Graphics or any
other Silicon Graphics Subsidiary, (ii) conflict with or violate any Law
applicable to Silicon Graphics or any Silicon Graphics Subsidiary or by which
any property or asset of Silicon Graphics or any Silicon Graphics Subsidiary is
bound or affected, or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Silicon Graphics or any Silicon Graphics Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with
respect to clause (iii), for any such conflicts, violations, breaches, defaults,
or other occurrences that have not had, and could not reasonably be expected to
have, individually or in the aggregate, a Silicon Graphics Material Adverse
Effect, and that could not reasonably be expected to prevent or materially delay
the consummation of the transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement by Silicon Graphics do not,
and the performance of this Agreement by Silicon Graphics will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except (i) for applicable requirements, if any, of
the Exchange Act and Blue Sky Laws, and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, has not had, and could not reasonably be expected to have,
individually or in the aggregate, a Silicon Graphics Material Adverse Effect,
and could not reasonably be expected to prevent or materially delay the
consummation of the transactions contemplated by this Agreement
SECTION 4.05. ABILITY TO CONSUMMATE THE DISTRIBUTION. As of the date of
this Agreement, Silicon Graphics is not aware of any legal or contractual
restriction affecting it or any of its assets or properties that could
reasonably be expected to prevent or materially delay the consummation of the
Distribution.
SECTION 4.06. BROKERS. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Recapitalization or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Silicon Graphics.
C-6
<PAGE>
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. ABILITY TO CONSUMMATE THE DISTRIBUTION. Silicon Graphics
shall use its reasonable efforts to avoid becoming voluntarily or involuntarily
subject to any legal or contractual restriction that could reasonably be
expected to prevent the consummation of the Distribution; PROVIDED, HOWEVER,
that Silicon Graphics shall be permitted to enter into commercially reasonable
agreements in the ordinary course of business and consistent with past practice
which may contain provisions restricting Silicon Graphics' ability to consummate
the Distribution, including, but not limited to, provisions that restrict the
ability of Silicon Graphics to declare, set aside or pay any dividend or other
distribution in respect of its capital stock.
SECTION 5.02. INDEMNIFICATION BY SILICON GRAPHICS. (a) Silicon Graphics
shall indemnify and hold harmless the Company, its affiliates and their
successors and assigns, and the officers, directors, employees and agents of the
Company, its affiliates and their successors and assigns (each an "INDEMNIFIED
PARTY") from and against any and all liabilities, losses, damages, claims, costs
and expenses, interest, awards, judgments and penalties (including, without
limitation, attorneys' and consultants' fees and expenses) actually suffered or
incurred by them (including, without limitation, any action brought or otherwise
initiated by any of them) (hereinafter a "LOSS") by reason of or in connection
with any claim or cause of action of any third party (a "THIRD PARTY CLAIM"), to
the extent, but only to the extent, such Third Party Claim arises out of the
Recapitalization or a distribution; PROVIDED, HOWEVER, that any such Third Party
Claim shall have been brought prior to the expiration of the applicable statute
of limitations period governing such claim.
(b) Notwithstanding anything to the contrary in Section 5.02(a), Silicon
Graphics shall not be obligated under Section 5.02(a) to indemnify and hold
harmless any Indemnified Party for any Losses suffered or incurred by an
Indemnified Party by reason of or in connection with any secondary sales by
Silicon Graphics of Common Stock (other than in connection with a Distribution)
following the Recapitalization.
(c) If an Indemnified Party shall receive notice of any Third Party Claim,
the Indemnified Party shall give Silicon Graphics notice of such Third Party
Claim within 30 days of the receipt by the Indemnified Party of such notice;
PROVIDED, HOWEVER, that the failure to provide such notice shall not release
Silicon Graphics from any of its obligations under this Section 5.02 except to
the extent Silicon Graphics is materially prejudiced by such failure and shall
not relieve Silicon Graphics from any other obligation or liability that it may
have to any Indemnified Party otherwise than under this Section 5.02. If Silicon
Graphics acknowledges in writing its obligation to indemnify the Indemnified
Party hereunder against any Losses that may result from such Third Party Claim,
then Silicon Graphics shall be entitled to assume and control the defense of
such Third Party Claim at its expense and through counsel of its choice if it
gives notice of its intention to do so to the Indemnified Party within five days
of the receipt of such notice from the Indemnified Party; PROVIDED, HOWEVER,
that if there exists or is reasonably likely to exist a conflict of interest
that would make it inappropriate in the judgment of the Indemnified Party, in
its sole and absolute discretion, for the same counsel to represent both the
Indemnified Party and Silicon Graphics, then the Indemnified Party shall be
entitled to retain its own counsel, in each jurisdiction for which the
Indemnified Party determines counsel is required, at the expense of Silicon
Graphics. In the event Silicon Graphics exercises the right to undertake any
such defense against any such Third Party Claim as provided above, the
Indemnified Party shall cooperate with Silicon Graphics in such defense and make
available to Silicon Graphics, at Silicon Graphics' expense, all witnesses,
pertinent records, materials and information in the Indemnified Party's
possession or under the Indemnified Party's control relating thereto as is
reasonably required by Silicon Graphics. Similarly, in the event the Indemnified
Party is, directly or indirectly, conducting the defense against any such Third
Party Claim, Silicon Graphics shall cooperate with the Indemnified Party in such
defense and make available to the Indemnified Party, at Silicon Graphics'
expense, all such witnesses, records, materials and information in Silicon
Graphics' possession or under
C-7
<PAGE>
Silicon Graphics' control relating thereto as is reasonably required by the
Indemnified Party. No such Third Party Claim may be settled by Silicon Graphics
without the prior written consent of the Indemnified Party.
SECTION 5.03. TRANSFER RESTRICTIONS. Silicon Graphics has been advised and
understands that all shares of Class B Common Stock acquired by Silicon Graphics
in satisfaction of its obligations under Article II or as a result of the
automatic conversion of shares of Class A Common Stock into shares of Class B
Common Stock in accordance with Article IV of the Amended and Restated
Certificate of Incorporation have not been registered under the Securities Act
of 1933, as amended (the "SECURITIES ACT"). The parties hereto agree that such
shares may be resold, pledged or otherwise transferred by Silicon Graphics only
(a) to the Company (upon exchange or redemption thereof or otherwise), (b)
pursuant to an exemption from registration under the Securities Act, or (c) in
accordance with Article III of the Corporate Agreement.
SECTION 5.04. DISTRIBUTION TAX INDEMNIFICATION AGREEMENT. Prior to the
Distribution, the Company and Silicon Graphics shall enter into a Distribution
Tax Indemnification Agreement regarding such Distribution which shall contain
(i) each of the terms and provisions included in Appendix A hereto and (ii) such
other terms and provisions as are customary for such agreements and as shall be
mutually agreed to by the parties.
SECTION 5.05. EXCHANGE OF SHARES UPON CHANGE IN TAX LAW. (a) If, prior to
a Distribution, (i) the Code has been amended by the enactment of new
legislation which, in effect, generally imposes a requirement to the effect that
in a tax-free spin-off or split-off of a subsidiary, the distributing company
must hold not less than 80% of the value of all or a portion of the subsidiary's
stock (such change in the Code being a "CHANGE IN TAX LAW") AND (ii) Silicon
Graphics receives from the Company an opinion of counsel reasonably satisfactory
to Silicon Graphics that such Change in Tax Law would apply to a Distribution,
then Silicon Graphics shall, and shall cause each of its subsidiaries (other
than the Company) to, exchange all of the shares of Class B Common Stock it
owns, directly or indirectly, for shares of Class A Common Stock on a
one-for-one basis.
(b) Within twenty (20) days of its receipt of the opinion referred to in
clause (ii) of Section 5.05(a), Silicon Graphics shall, and shall cause each of
its subsidiaries (other than the Company) to, deliver to the Company the
certificate or certificates representing the shares of Class B Common Stock it
owns and, upon receipt of such certificate or certificates, the Company shall
issue a certificate or certificates to Silicon Graphics or such subsidiary, as
the case may be, for the aggregate number of shares of Class A Common Stock
issuable in exchange therefor pursuant to Section 5.05(a).
SECTION 5.06. RULING REQUEST. Silicon Graphics has submitted to the
Internal Revenue Service (the "IRS") a ruling request seeking a favorable ruling
from the IRS that the Distribution qualifies under Section 355 of the Code (the
"Ruling Request"). A copy of the Ruling Request has been provided to the
Company. In the Ruling Request, Silicon Graphics has requested that the Internal
Revenue Service consider, among other things, whether the provisions contained
in (a) Article IV, Section 2(i)(ii) and 2(i)(iii) of the Amended and Restated
Certificate of Incorporation regarding the automatic conversion of shares of
Class B Common Stock into shares of Class A Common Stock and (b) Article IV,
Section 2(j)(i) of the Amended and Restated Certificate of Incorporation
regarding the exchange of shares of Class B Common Stock for shares of Class A
Common Stock, would not cause the Distribution to not qualify under Section 355
of the Code. Silicon Graphics agrees to use good faith and reasonable best
efforts to obtain a ruling from the IRS regarding the Distribution that
provides, in effect, that the inclusion in the Amended and Restated Certificate
of Incorporation of the above provisions would not cause the Distribution to not
qualify under Section 355 of the Code.
C-8
<PAGE>
ARTICLE VI
CONDITIONS TO THE EFFECTIVENESS OF THE AGREEMENT
SECTION 6.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations
of the Company and Silicon Graphics to consummate this Agreement are subject to
the satisfaction or waiver (where permissible) of the following conditions:
(a) the Amended and Restated Certificate of Incorporation shall have
become effective in accordance with the General Corporation Law of the State
of Delaware;
(b) no Governmental Entity or court of competent jurisdiction located or
having jurisdiction in the United States shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, judgment,
decree, executive order or award (an "Order") which is then in effect and
has the effect of making the Recapitalization or the transactions
contemplated by this Agreement illegal or otherwise prohibiting consummation
of the Recapitalization or the transactions contemplated by this Agreement;
(c) the shares of Class A Common Stock to be issued in the
Recapitalization shall have been approved for quotation on the Nasdaq
National Market, subject to notice of issuance;
(d) a registration statement on Form 8-A (the "REGISTRATION STATEMENT")
registering the Class A Common Stock under the Exchange Act shall have
become effective upon filing with the Securities and Exchange Commission
("SEC") and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall
have been initiated by the SEC; and
(e) all consents, approvals and authorizations legally required to be
obtained to consummate this Agreement shall have been obtained from and made
with all Governmental Entities, except for such consents, approvals and
authorizations the failure of which to obtain would not have a material
adverse effect on the ability of the Company or Silicon Graphics to
consummate the transactions contemplated hereby.
SECTION 6.02. CONDITIONS TO THE OBLIGATIONS OF SILICON GRAPHICS. The
obligations of Silicon Graphics to consummate this Agreement are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Silicon Graphics shall have received a certificate of the Chief
Executive Officer or Chief Financial Officer of the Company to the effect
that each of the representations and warranties of the Company contained in
this Agreement shall be true and correct as of the Closing Date, except
where failure to be so true and correct would not have a Company Material
Adverse Effect, and except that those representations and warranties which
address matters only as of a particular date shall remain true and correct
as of such date, except where failure to be so true and correct would not
have a Company Material Adverse Effect; and
(b) the Company shall have performed or complied with in all material
respects all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date, and
Silicon Graphics shall have received a certificate of the Chief Executive
Officer or Chief Financial Officer of the Company to that effect.
SECTION 6.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate this Agreement are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) the Company shall have received a certificate of an executive
officer of Silicon Graphics to the effect that each of the representations
and warranties of Silicon Graphics contained in this Agreement shall be true
and correct as of the Closing Date, except where the failure to be so true
and correct
C-9
<PAGE>
would not have a Silicon Graphics Material Adverse Effect, and except that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, except where
the failure to be so true and correct would not have a Silicon Graphics
Material Adverse Effect; and
(b) Silicon Graphics shall have performed or complied with in all
material respects all agreements and covenants required by this Agreement to
be performed or complied with by it on or prior to the Closing Date, and the
Company shall have received a certificate of an executive officer of Silicon
Graphics to such effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. TERMINATION. This Agreement, including without limitation
the obligations of Silicon Graphics under Article II hereof, may be terminated,
and the other transactions contemplated by this Agreement may be abandoned at
any time, notwithstanding any requisite approval and adoption of this Agreement
and the transactions contemplated by this Agreement, as follows:
(a) by mutual written consent of the parties, duly authorized by their
respective boards of directors based on, in the case of the Company, the
unanimous recommendation of the independent directors of the Company; and
(b) by either party, upon the exchange by Silicon Graphics of all of its
shares of Class B Common Stock for shares of Class A Common Stock under
Section 5.05 of this Agreement.
SECTION 7.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 7.01, this Agreement shall forthwith become void,
there shall be no liability under this Agreement on the part of Silicon Graphics
or the Company or any of their respective officers or directors, and all rights
and obligations of each party hereto shall cease; PROVIDED, HOWEVER, that
nothing herein shall relieve any party from liability for the wilful breach of
any of its representations, warranties, covenants or agreements set forth in
this Agreement; and PROVIDED, FURTHER, that the obligations of Silicon Graphics
(i) under Section 5.02(a) to indemnify an Indemnified Party for Losses suffered
or incurred by reason of or in connection with a Third Party Claim arising out
of the Recapitalization or Distribution and (ii) under Section 7.05 to reimburse
certain fees and expenses incurred by the Company in connection with the
Recapitalization and the Distribution, shall survive.
SECTION 7.03. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 7.04. WAIVER. At any time any party hereto may (a) extend the time
for the performance of any obligation or other act of any other party hereto,
(b) waive any inaccuracy in the representations and warranties contained herein
or in any document delivered pursuant hereto, and (c) waive compliance with any
agreement or condition contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party to be bound
thereby.
SECTION 7.05. EXPENSES. Silicon Graphics shall reimburse the Company for
the fees and expenses of legal counsel incurred by the Company in connection
with the Recapitalization and the Distribution, whether or not the
Recapitalization or Distribution is consummated, in an amount set forth in a
budget to be agreed to between the parties (the "BUDGET"). In the event that the
scope or expected amount of legal work on which the Budget was based changes,
the parties shall agree to a revised budget for legal fees and expenses (the
"REVISED BUDGET") and Silicon Graphics shall pay for such revised legal fees and
expenses in accordance with the Revised Budget. Silicon Graphics shall also
reimburse the Company for (i) the reasonable fees and expenses of its financial
advisor and (ii) all other reasonable out-of-pocket expenses incurred by the
Company in connection with the Recapitalization and the Distribution. Silicon
Graphics
C-10
<PAGE>
will be responsible for all of the fees, costs and expenses incurred by Silicon
Graphics in connection with the Recapitalization and the Distribution, whether
or not consummated.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, facsimile, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 8.01):if to Silicon Graphics:
Silicon Graphics, Inc.
2011 N. Shoreline Boulevard
Mountain View, CA 94043
Facsimile No.: (650) 933-7096
Attention: Director, Corporate Legal Services
if to the Company:
MIPS Technologies, Inc.
1225 Charleston Avenue
Mountain View, CA 94043
Facsimile No.: (650) 567-5150
Attention: Chief Executive Officer
SECTION 8.02. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "AFFILIATE" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by, or
is under common control with such specified person;
(b) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise; and
(c) "PERSON" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "PERSON" as
defined in section 13(d)(3) of the Exchange Act), trust, association or
entity or government, political subdivision, agency or instrumentality of a
government.
SECTION 8.03. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
be consummated as originally contemplated to the fullest extent possible.
SECTION 8.04. ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other party. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Except as provided
in Section 5.02, nothing in this Agreement, expressed
C-11
<PAGE>
or implied, is intended to confer on any person other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
SECTION 8.05. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 8.06. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California applicable to
contracts executed in and to be performed in that state and without regard to
any applicable conflicts of law.
SECTION 8.07. HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 8.08. COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 8.09. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings among the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
IN WITNESS WHEREOF, Silicon Graphics and the Company have caused this
Agreement to be effective as of the Closing Date by their respective officers
thereunto duly authorized.
<TABLE>
<S> <C> <C> <C>
SILICON GRAPHICS, INC.
Attest
by: By
------------------------------------ ------------------------------------
Name: Name:
Title: Title:
MIPS TECHNOLOGIES, INC.
Attest
by: By
------------------------------------ ------------------------------------
Name: Name:
Title: Title:
</TABLE>
C-12
<PAGE>
APPENDIX A
CERTAIN TERMS AND PROVISIONS OF DISTRIBUTION TAX INDEMNIFICATION AGREEMENT
1. DISTRIBUTION. The Company and Silicon Graphics acknowledge that Silicon
Graphics intends to distribute the remaining portion of its interest in the
Company to Silicon Graphics stockholders in a transaction intended to qualify
generally as a tax-free distribution under Section 355 of the Internal Revenue
Code (the "Distribution").
2. LIMITATIONS ON CERTAIN ACTIONS. The Company covenants and agrees that
following the Distribution it will not take, or cause or allow any Company
Affiliate to take, any of the following actions:
(A) for the thirty (30)-month period beginning on the date of the
Distribution, issue stock of the Company in an acquisition or public or
private offering, except that the Company or any Company Affiliate may issue
stock:
(1) pursuant to the exercise of employee, director or consultant
stock options, stock awards, stock purchase rights or other employment
related arrangements under any stock incentive plan then in existence;
and
(2) up to a cumulative amount of ten percent (10%) of the outstanding
stock of the Company at the time of the Distribution (in addition to the
stock that may be issued under (A)(1) above);
(B) for the five (5)-year period beginning on the date of the
Distribution, amend its certificate of incorporation (or other
organizational documents), whether through a stockholder vote or otherwise,
in a manner that affects the relative voting rights of the separate classes
of the Common Stock (including, without limitation, through the conversion
of Class B Stock into Class A Stock);
(C) for the five (5)-year period beginning on the date of the
Distribution, exchange any shares of Class B Stock for Class A Stock,
including pursuant to the Company Exchange Right;
(D) take any action that would constitute a breach of, or an inaccuracy
in, any reasonable representation or covenant in the Ruling Documents,
Ruling, Supplemental Ruling Documents or Supplemental Ruling with respect to
the Company that is within the reasonable control of the Company (other than
any representation or covenant related to the stock issuances permissible
under (A)(1) or (2) above or to the extent the representation or covenant is
a Non-Required Representation or Covenant (as defined below)).
(E) for the thirty (30)-month period beginning on the date of the
Distribution, knowingly and voluntarily take any action (which action is (i)
neither described in (A)(1) or (2) above or (ii) not being undertaken or
planned at the time of the Distribution) which it believes will more likely
than not result in the Distribution failing to qualify under Section 355 of
the Code or cause the Distribution otherwise to be taxable under Section
355(e) of the Code.
3. INDEMNITY BY THE COMPANY. Except as provided in Section 4, the Company
and each Company Affiliate shall jointly and severally indemnify Silicon
Graphics and hold it harmless from and against any federal, state or local
income or franchise taxes imposed as a result of the Distribution failing to
qualify under Section 355 of the Code or otherwise being taxable under Section
355(e) of the Code as a result (and, in each case, any analogous provision under
state or local law) of:
(A) the Company or a Company Affiliate breaching any of the covenants
contained in Section 2;
(B) for the thirty (30)-month period beginning on the date of the
Distribution, any acquisition of stock of the Company (other than any
issuance of stock by the Company covered in Section 2(A)(1) or (2) above) by
any person or persons (including, without limitation, as a merger of another
entity with and into the Company) in excess of the amount of stock permitted
to be issued under Section 2(A)(2)
C-13
<PAGE>
above, but taking into account any prior or subsequent issuances of stock
covered by Section 2(A)(2) during such thirty (30)-month period.
Notwithstanding anything to the contrary, Silicon Graphics shall be liable for
any federal, state or local income or franchise taxes imposed on Silicon
Graphics as a result of the Distribution failing to qualify under Section 355 of
the Code or otherwise being taxable under Section 355(e) of the Code (and, in
each case, any analogous provision under state or local law) for any reason
other than as set forth in (A) or (B) of this Section 3.
4. PERMITTED ACTIONS. Notwithstanding the provisions of Section 2 and 3,
the Company and each Company Affiliate shall have no obligation to indemnify
under Section 3 (and may take any action otherwise prohibited by Section 2) if:
(A) Silicon Graphics obtains a Supplemental Ruling issued to Silicon
Graphics that rules that such action will not cause the Distribution to fail
to qualify under Section 355 of the Code or otherwise to be taxable under
Section 355(e) of the Code;
(B) Silicon Graphics consents to such action; or
(C) the Company delivers to Silicon Graphics an opinion, in form
reasonably satisfactory to Silicon Graphics (which determination by Silicon
Graphics may take into account, among other things, whether it is the type
of action with respect to which it is reasonably satisfactory to rely on an
opinion of counsel in light of the fact that Silicon Graphics previously
obtained the Ruling with respect to the Distribution), of nationally
recognized tax counsel, to the effect that such action will not cause the
Distribution to fail to qualify under Section 355 of the Code or otherwise
to be taxable under Section 355(e) of the Code.
4. SUPPLEMENTAL RULINGS; COOPERATION.
(A) REQUEST BY SILICON GRAPHICS. Silicon Graphics shall have the right
to obtain a Supplemental Ruling in its sole and exclusive discretion. If
Silicon Graphics determines to obtain a Supplemental Ruling, the Company
shall cooperate with Silicon Graphics and take any and all actions
reasonably requested by Silicon Graphics in connection with obtaining the
Supplemental Ruling (including, without limitation, by making any reasonable
representation or covenant or providing any materials or information
requested by the Internal Revenue Service; provided that, the Company shall
not be required to make any unreasonable representation or covenant or any
other representation or covenant that is inconsistent with historical facts
or its reasonable business objectives or as to future matters or events
outside its reasonable control (a "Non-Required Representation or
Covenant")). In connection with obtaining a Supplemental Ruling, (i) Silicon
Graphics shall cooperate with and keep the Company informed in a timely
manner of all material actions taken or proposed to be taken by Silicon
Graphics in connection therewith; (ii) Silicon Graphics shall (A) reasonably
in advance of the submission of any Supplemental Ruling Documents, provide
the company with a draft copy thereof, (B) reasonably consider the Company's
comments on such draft copy, and (C) provide the Company with a final copy;
and (iii) Silicon Graphics shall provide the Company with notice reasonably
in advance of, and the Company shall have the right to attend, directly
and/or through its representatives, any formally scheduled meetings with the
Internal Revenue Service (subject to the approval of the Internal Revenue
Service) that relate to such Supplemental Ruling.
(B) REQUEST BY THE COMPANY. Silicon Graphics agrees that, if the
Company desires to obtain a Supplemental Ruling or other guidance from the
Internal Revenue Service with respect to the treatment of the Distribution
under Section 355 of the Code (which may include, among other things,
instances in which the Company desires certain actions to fall within
Section 4(A) (e.g., because such actions do not fall within Sections 4(B) or
(C)), at the reasonable request of the Company Silicon Graphics shall
cooperate with the Company and use its reasonable best efforts to seek to
obtain, as expeditiously as possible, such Supplemental Ruling or other
guidance. In no event shall Silicon
C-14
<PAGE>
Graphics be required to file any Supplemental Ruling under this Section 4
unless the Company represents that (1) it has read the request for the
Supplemental Ruling and any Supplemental Ruling Documents and (2) all
information and representations, if any, relating to the Company and any
Company Affiliate contained in the Supplemental Ruling Documents are true,
correct and complete in all material respects. The Company shall reimburse
Silicon Graphics for all reasonable costs and expenses incurred by Silicon
Graphics in obtaining a Supplemental Ruling requested by the Company. The
Company hereby agrees that Silicon Graphics shall have sole and exclusive
control subject to the provisions hereof over the process of obtaining a
Supplemental Ruling. In connection with obtaining any such Supplemental
Ruling, (i) Silicon Graphics shall cooperate with and keep the Company
informed in a timely manner of all material actions taken or proposed to be
taken by Silicon Graphics in connection therewith; (ii) Silicon Graphics
shall (A) reasonably in advance of the submission of any Supplemental Ruling
Documents, provide the Company with a draft copy thereof, (B) reasonably
consider the Company's comments on such draft copy, and (C) provide the
Company with a final copy; and (iii) Silicon Graphics shall provide the
Company with notice reasonably in advance of, and the Company shall have the
right to attend, directly and/or through its representatives, any formally
scheduled meetings with the Internal Revenue Service (subject to the
approval of the Internal Revenue Service) that relate to such Supplemental
Ruling.
(C) COOPERATION. The Company and Silicon Graphics agree to cooperate
with each other in obtaining the Ruling, any Supplemental Rulings or any
other rulings from the Internal Revenue Service or other taxing authority or
any opinions or counsel.
C-15
<PAGE>
EXHIBIT 10.8.1
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
JOINT DEVELOPMENT AND LICENSE AGREEMENT
This JOINT DEVELOPMENT AND LICENSE AGREEMENT is made the 20th day of
August, 1993, among Nintendo Co., Ltd., a Japan corporation having a place of
business at 60 Fukuine Kamitakamatsu-cho, Higashiyama-ku, Kyoto 605, Japan
("NCL"), Nintendo of America Inc., a Washington corporation, having a place of
business at 4820 150th Avenue NE, Redmond, WA 98052 ("NOA") (NCL and NOA are
collectively referred to as "COMPANY"), Silicon Graphics, Inc., a Delaware
corporation and MIPS Technologies, Inc., a Delaware corporation, both of which
have a place of business at 2011 North Shoreline Blvd., Mountain View, CA
94039-7311 (collectively, "SGI").
WHEREAS, SGI (i) is in the business of designing, manufacturing and
marketing computer graphics workstation, server, subsystem, board level, and
microprocessor products, including accessories, options and software therefor,
and (ii) possesses expertise and owns proprietary rights relating to its
products, including, but not limited to, copyrights, know-how, inventions, trade
secrets, patents, patent applications and the like;
WHEREAS, Company (i) is in the business of: developing,
manufacturing and distributing high quality entertainment systems, including
the Nintendo Entertainment System-Registered Trademark-, the Super Nintendo
Entertainment System-Registered Trademark-, the Famicom-TM-, the Super
Famicom-TM-, and the Game Boy-Registered Trademark- compact video game
system, and (ii) possesses expertise and owns proprietary rights relating to
its products, including, but not limited to, copyrights, know-how,
inventions, trade secrets, patents, patent applications and the like; and
WHEREAS, the parties desire to conduct joint development of products
which will incorporate certain existing technology of SGI, and new technology to
be jointly developed by the parties;
NOW, THEREFORE, in furtherance of the foregoing, and in consideration
of the mutual covenants set forth below, Company and SGI hereby agree as
follows:
1. DEFINITIONS
1.1 "ACCESSORY" means a peripheral device which mechanically or
electrically connects to the Consumer Hardware to enhance the application
software. Examples of an Accessory include, but are not limited to: a
specialized joystick, head-mounted display or a CD ROM player.
1.2 "AFFILIATE" means any Person that directly or indirectly
controls, is controlled by, or is under common control with another Person.
<PAGE>
1.3 "AGREEMENT" means this Joint Development and License Agreement.
1.4 "BACKGROUND TECHNOLOGY" means all Technology which (i) is under
the Control of SGI, (ii) was developed by SGI prior to the Effective Date
or is under development by SGI as of the Effective Date, and (iii) is
implemented into the design of one or more Company Products, including but
not limited to, the Technology specified in Attachment A to this Agreement.
1.5 "COIN OPERATED HARDWARE" means a dedicated screen and speaker
which are fully integrated so as to compromise a single physical unit or
multiple physical units, when such hardware (i) remains free-standing and
stationary during play, (ii) requires the player to insert coins, paper
currency, credit cards or tokens in a metering device to initiate Video Game
play or non-Video Game applications, (iii) is otherwise designed for
installation at arcades or other retail or commercial establishments, and (iv)
has a wholesale price of less than U.S. $30,000.00.
1.6 "COIN OPERATED SOFTWARE" means Video Game and Non-Video Game
software applications for use with the Coin-Operated Hardware.
1.7 "COMPANY" means NOA and NCL.
1.8 "COMPANY PRODUCTS" means the following products manufactured by
or on behalf of Company and/or the Licensees and sold by Company and/or the
Licensees, to the extent that they incorporate or are based upon some or all of
the Background Technology and/or the Developed Technology: (i) the Consumer
Hardware, (ii) the Packaged Software (and the application software stored
therein), (iii) Accessories, (iv) Coin Operated Hardware and (v) Coin Operated
Software.
1.9 "COMPANY TECHNOLOGY" means technology which (i) was developed by
Company prior to the Effective Date or is under development by Company as of the
Effective Date, or (ii) is otherwise independently developed or owned by
Company. In this Section 1.9, "technology" means technical information, data and
processes, whether tangible or intangible, including, without limitation, any
and all techniques, discoveries, inventions, copyrights, mask works, net lists,
know-how, patents (including any extension, reissue, continuation or renewal
patents), patent applications, mask work or copyright applications, inventor
certificates, trade secrets, designs, drawings, specifications, software
programs (including source code and object code), microcode, operating and
instruction manuals, magnetic tapes, methods of production, and other
proprietary information.
1.10 "CONSUMER HARDWARE" means stand-alone electronic hardware for
consumer use consisting of a microprocessor and other components which are
collectively designed, manufactured, distributed, sold, and marketed, at the
time of market introduction, primarily for the playing of Video Games in
conjunction with player input transmitted by "control pads" consisting of
directional buttons or switches, and/or joysticks, optical light guns,
accelerator sensors, or other peripheral devices, which may be manipulated by
the thumbs and/or one or two fingers of each hand of the player, or by
2
<PAGE>
the foot, hand, head, or body of the player. Consumer Hardware generates the
visual and aural output of Video Games, or other software applications, by means
of a hard-wire interface or connection with a television set or other output
display. Based on market information currently available, examples of Consumer
Hardware currently include, but are not limited to, the following: the Nintendo
Entertainment System; the Sega Game Gear, the Nintendo Game Boy System, the
Super Nintendo Entertainment System; the Sega Genesis; Atari Jaguar; and the
Interactive Multiplayer sold under license from 3DO Company. The Consumer
Hardware may be used for software applications other than playing Video Games.
1.11 " CONTROL" means, in the case of Background Technology, the
possession by either party of the right to grant licenses or sublicenses to, or
otherwise distribute, Background Technology without (i) violating the terms of
any agreement or other arrangement with, or the rights of, any third party, or
any binding laws or regulations, and (ii) such grant or the exercise of rights
thereunder giving rise to the payment of royalties, fees or other consideration
to a third party (except for payments between a party and its Affiliates).
"Control" means, in the case of a corporation or other legal entity, the
ownership or the right to vote in the corporation sufficient to elect a majority
of the corporation's board of directors.
1.12 "COORDINATOR" means a qualified representative of a party
designated by such party as project coordinator, to be responsible for
supervising and coordinating the implementation of the Development Plan
hereunder.
1.13 "DEVELOPED TECHNOLOGY" means the Technology developed
specifically for purposes of this Agreement and delivered by SGI to Company in
the course of the Development Plan, whether or not patentable or registrable,
which is conceived or first actually reduced to practice solely by a party, or
jointly by the parties, under the Development Plan, as listed in Attachment B
(Developed Technology). Developed Technology shall not include any of the
Background Technology, regardless of whether such Background Technology is
implemented or incorporated into Developed Technology. Developed Technology
shall not include Company Technology.
1.14 "DEVELOPMENT PLAN" means the plan for the research and
development of the Developed Technology conducted under the terms and conditions
of this Agreement, as mutually agreed in writing by SGI and Company.
1.15 "EFFECTIVE PLAN" means the date first set forth above, on which
date the term of this Agreement shall commence.
1.16 "FILING" means the submission of any documentation, application,
filing, registration or the like required to perfect or, with respect to
copyright registrations, to enforce, the parties' interest in the Developed
Technology under statutory intellectual property rights protection mechanisms,
including, without limitation, any correspondence or other communication with
any patent or copyright office or other governmental entities with respect
thereto.
3
<PAGE>
1.17 "LICENSED BACKGROUND TECHNOLOGY" means Background Technology
implemented in the Developed Technology, but only to the extent that such
Background Technology is not Purchasable Background Technology.
1.18 "LICENSEE" means a third party licensed by Company to use,
design, manufacture, market, distribute and/or sell Packaged Software,
Accessories, Coin Operated Hardware, and/or Coin Operated Software.
1.19 "PACKAGED SOFTWARE" means the form by which the application
software (Video Game and non-Video Game software) used in connection with the
Consumer Hardware is distributed to consumers, including but without limitation,
by semi- conductor, magnetic, optical media and/or similar method of
distribution. Packaged Software shall exclude: (i) application software
transmitted electronically and (ii) upgrades to system software that is embedded
in the Consumer Hardware.
1.20 "PERSON" means a corporation, partnership, trust, association,
government authority, educational institution, individual or other legal entity.
1.21 "PURCHASABLE BACKGROUND TECHNOLOGY" means equipment, software
and components that SGI and/or SGI licensees make generally available to
third parties and for which separate price quotes are included in price
lists, including INDY computer systems, MIPS-Registered Trademark-
microprocessors and MIPS-Registered Trademark- compilers.
1.22 "SGI" means Silicon Graphics, Inc., and MIPS Technologies, Inc.
1.23 "TECHNOLOGY" means technical information, data and processes,
whether tangible or intangible, including, without limitation, any and all
techniques, discoveries, inventions, copyrights, mask works, net lists,
know-how, patents (including any extension, reissue, continuation or renewal
patents), patent applications, mask work or copyright applications, inventor
certificates, trade secrets, designs, drawings, specifications, schematics,
software programs (including source and object codes), microcode, operating and
instructional manuals, magnetic tapes, methods of production and any other
proprietary information. Technology is either Background Technology or
Developed Technology.
1.24 "THEME PARK APPLICATION SYSTEM" means an entertainment device or
system that has audio and/or visual stimulation capability and (i) which has a
cost to an operator of more than U.S. $30,000.00, and (ii) is located at a theme
park, amusement park, carnival entertainment center, retail or commercial
establishment.
1.25 "VIDEO GAME" means any aurally and visually-oriented interactive
application game software, consisting of an independently marketed and packaged
unit of Packaged Software (or such unit of the Packaged Software when packaged
and sold together with a unit of the Consumer Hardware). "Video Games" may be
played by one or more players at a time; may coordinate graphics with fanciful
tunes or thematically significant music, along with incidental sound effects;
may feature
4
<PAGE>
special effects; may be designated to keep score, record milestones, or
otherwise track the progress or achievement of the players in terms of numbers
or with respect to the fictional narrative of the game environment; and are
intended to amuse and entertain. Examples of Video Games include: Tetris and
Super Mario Bros. 3, both of which are distributed for play on the Nintendo
Entertainment System; Sonic the Hedgehog II, distributed for play on the Sega
Genesis Video Game System; Street Fighter II and NCAA Basketball, both of which
are distributed for play on the Super Nintendo Entertainment System.
2. ATTACHMENTS.
2.1 This Agreement includes the following attachments:
a. Attachment A (Background Technology), which sets forth and
describes the Background Technology provided hereunder;
b. Attachment B (Developed Technology), which sets forth and
describes the Technology to be developed hereunder;
c. Attachment C (Development Funding and royalties), which sets
forth the development funding and royalties payable by Company to
SGI pursuant to this Agreement;
d. Attachment D (Competitive Companies), which sets forth the
companies referred to in Section 6.4
e. Attachment E (Minimums for Exclusivity), which sets forth the
royalties payable by Company as a condition to continued
exclusivity under Section 6.4.
All attachments listed in this Section 2 are incorporated into
and form a part of this Agreement.
3. SCOPE OF AGREEMENT
3.1 SCOPE. This Agreement sets forth the terms and conditions under
which (i) the parties shall conduct joint research and development of the
Developed Technology, (ii) Company will obtain a license to use the Licensed
Background Technology and the Developed Technology and (iii) SGI will arrange to
fulfill Company's requirements for Purchasable Background Technology.
5
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
3.2 LIMITED RIGHTS. Each party hereby acknowledges and agrees that
the scope of the relationship between the parties shall be limited to the
purposes and activities set forth herein, and that the rights and obligations of
the parties with respect to each other shall be limited to those provided in
this Agreement. Neither party has the authority to assume or create any
obligation or responsibility in the name of the other party except as
specifically authorized herein, or as authorized after the Effective Date hereof
by the mutual written agreement of the parties.
4. DEVELOPMENT ACTIVITIES.
4.1 NAMING A COORDINATOR. SGI shall designate a Coordinator to
Company in writing within fifteen (15) days after the Effective Date. Company
hereby designates Genyo Takeda as its Coordinator.
4.2 TECHNICAL AND FEASIBILITY REVIEW. Beginning on the Effective
Date and thereafter through January 31, 1994, (i) Company shall have the right
to evaluate the Background Technology and evaluate its suitability for the
development of and use in Consumer Hardware and Coin Operated Hardware, (ii)
Company and SGI will agree on a Development Plan, including the schedule for the
development of Company's Consumer Hardware and Coin Operated Hardware
incorporating the Developed Technology, the allocation of responsibility between
the parties, and the deliverables to be provided by each party to the other, and
(iii) Company and SGI will agree on the budget for the Development Plan. SGI
shall deliver a budget to Company for SGI's completion of its work under the
Development Plan that: (a) is stated as a flat fee (or fixed fee) for completion
of SGI's work under the Development Plan and represents SGI's good faith
calculation of its actual costs to complete its work under the Development Plan,
and (b) provides reasonable detail regarding such anticipated actual costs.
Provided SGI meets the foregoing conditions, and provided the budget is for
U.S. XXXXXXXX or less, Company shall accept the budget. This Agreement shall
terminate automatically if: (a) Company, in its sole discretion, desires to
terminate this Agreement and gives notice of its desire to terminate to SGI on
or before January 31, 1994, or (b) if Company and SGI do not agree in writing on
the Development Plan and the budget therefor on or before January 31, 1994;
provided, however, both parties are obligated to negotiate in good faith the
details of the Development Plan and budget. If this Agreement terminates on or
before January 31, 1994, then neither party shall have any further obligations
to the other under this Agreement, including the provisions of Section 7.0. From
the Effective Date through January 31, 1994, SGI shall facilitate Company's
evaluation of the Background Technology by (i) providing Company with a list of
patents pending and issued relating to the Background Technology, (ii) if
Company so requests, providing Company with copies of patent applications
pending and issued relating to the Background Technology; (iii) if Company so
requests, meeting and conferring with Company's patent counsel regarding such
patent information; and (iv) providing Company with such other information
reasonably requested by Company regarding the intellectual property rights of
SGI relating to the Background Technology.
4.3 DEVELOPMENT PLAN REVISIONS. At any time following the agreement
of SGI
6
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
and Company on the Development Plan pursuant to Section 4.2, upon the mutual
written agreement of the parties, deliverable items and tasks may be modified
in, added to, or deleted from, the Development Plan, and equitable adjustments
made to the fees payable by Company to SGI under this Agreement and the schedule
for completion of the development of the Developed Technology. SGI shall have no
obligation to implement any changes to the Development Plan, and Company shall
have no obligation to pay any additional fees to SGI on account of any such
changes, unless SGI and Company have agreed in writing on any such changes to
the Development Plan, the associated fees and/or development schedule.
4.4 DESIGN AND DEVELOPMENT ACTIVITIES. The parties shall use
reasonable efforts to conduct the research, experimentation, development and
implementation work necessary to complete the design and development of the
Developed Technology, substantially in accordance with the Development Plan
Except as otherwise provided in the Development Plan, neither party shall
subcontract or otherwise delegate the performance of the design and development
services required hereunder to any third party in amounts which, in the
aggregate, exceed Two Hundred Fifty Thousand Dollars ($250,000.00) without the
prior written approval of the other party, which approval shall not be
unreasonably withheld or delayed. To the extent that any planned procedures or
development milestones are not completed on schedule, the Coordinators shall
determine whether a rescheduling of such procedures or milestones is reasonably
possible, or whether alternative procedures or milestones should be implemented.
4.5 MEETINGS BETWEEN COORDINATORS. After the Effective Date and
through January 31, 1994, SGI shall make its Coordinator and other
representatives available from time to time for meetings (including meetings in
Japan, subject to availability) and/or telephone conferences with Company's
Coordinator and other Company representatives to assist Company with the
technical and feasibility review described in Section 4.2. Beginning on the
first Monday after the first full week following February 1, 1994, and monthly
thereafter or at such other intervals as SGI and Company may agree upon in
writing during the implementation of the Development Plan, the Coordinators
shall meet at mutually acceptable times and locations, or make contact via
telephone, to discuss the results of the Development Plan and activities which
have transpired since the previous meeting.
4.6 DEVELOPMENT TOOLS FOR LICENSEES. In connection with the Company
Products, Company shall endorse SGI computer systems and development tools as
the systems and development tools of choice to be used by Licensees. At a later
time, SGI and Company will meet and confer and agree in writing on whether SGI
will distribute such computer system and development tools directly to Licensees
or whether Company will acquire such systems and tools and distribute them to
Licensees. SGI and Company will mutually agree on how and when development
specifications are provided to the Licensees.
4.7 COMPANY PRODUCT INTRODUCTIONS. Company shall have the sole
discretion to decide whether, when and how to sell Company Products. If Company
does not make first commercial sales of Consumer Hardware incorporating
Developed Technology before XXXXXX
7
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
The preceding date presumes SGI's timely performance of each and every aspect of
the Development Plan. If SGI is untimely in performance under the Development
Plan, such date shall be considered to be extended for a period equivalent to
the period of SGI's delay in its performance under the Development Plan. Company
presently contemplates that the Consumer Hardware should have a suggested retail
price of less than U.S. $250 to be successful, but that such suggested retail
price may change.
5. BACKGROUND TECHNOLOGY
5.1 DEVELOPMENT AND EMBEDDED BACKGROUND TECHNOLOGY LICENSES. SGI
hereby grants to Company, and Company hereby accepts, (i) a nontransferable,
royalty- free temporary license to use the Licensed Background Technology only
to the extent necessary to permit Company to participate in the Development Plan
and only for so long as the parties are developing the Developed Technology
pursuant to the Development Plan, and (ii) a worldwide, royalty-bearing license
to use the Licensed Background Technology only to the extent specifically
implemented in the Developed Technology for purposes of the design, manufacture,
use, sale and distribution of Company Products. Except as specifically provided
in this Agreement, nothing in this Agreement shall authorize or entitle Company
to manufacture any products using the Background Technology, and no implied
licenses to use or to sublicense the Background Technology are granted under
this Agreement by implication, estoppel or otherwise. Subject to the written
agreement of Company and SGI on the compensation payable by Company to SGI,
Company shall also have the right to acquire from SGI a nonexclusive license to
use the Licensed Background Technology in connection with the design,
manufacture, use and sale of Theme Park Application Systems.
5.2 COMPANY SUBLICENSES. Company shall have the right to grant
nonexclusive sublicenses to Licensees to XXXXXX in connection with the design,
manufacture use, sale and/or distribution of Packaged Software, Accessories,
Coin Operated Software and/or Coin Operated Hardware, provided that all such
sublicenses shall be in writing and shall be pursuant to a form of agreement
incorporating license grant and proprietary rights provisions approved in
writing by SGI, whose approval shall not be unreasonably withheld.
5.3 SUPPLY OF PRODUCTS INCORPORATING PURCHASABLE BACKGROUND TECHNOLOGY.
To the extent that Company and/or Licensees require equipment, software and/or
components (including standard and/or customized MIPS microprocessors)
incorporating the Purchasable Background Technology for purposes of the design,
manufacture, use, sale or distribution of Company Products, SGI shall arrange
for the supply by SGI and/or its licensees of the requirements of Company and
such Licensees for such SGI equipment and/or components on SGI's or SGI's
licensees' standard commercial terms and conditions, as modified and agreed to
by the Company and SGI or the applicable SGI licensee.
5.4 MANUFACTURE OF COMPANY PRODUCTS. Company is free to choose,
8
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
negotiate the price with, and direct the work of manufacturers of any
Application Specific Integrated Circuits ("ASICS") incorporated in the Company
Products, subject to the manufacturer's ability to use necessary design rules
and process technology, and to the manufacturer(s) agreement to protect SGI's
intellectual property, XXXXXX Company is free to choose, negotiate the price
with, and direct the work of, all of the manufacturers of all other components
of Company Products.
6. RIGHTS IN DEVELOPED TECHNOLOGY
6.1 XXXXXX
6.2 COOPERATION OF THE PARTIES IN FILINGS. The parties shall
cooperate in Filings, and Company shall bear all out-of-pocket expenses with
respect thereto. All Filings will be made at a time when appropriate during the
development or after the completion of an item of Developed Technology XXXXXX
Company shall have the primary administrative responsibility for Filings, and
Company shall bear all filing and attorneys' fees incurred in connection
therewith. As used herein, "administrative responsibility" means the physical
preparation of any documents required for a Filing, and the submission thereof
to the appropriate governmental entity. If SGI has not yet received a proposed
Filing from Company on an item of Developed Technology, and SGI believes that a
Filing should be made with respect thereto, SGI may submit a written request to
Company that Company proceed with the preparation of such Filing, provided,
however, that Company may, at its sole discretion, proceed or decline to proceed
with the preparation of such Filing. If Company declines to prepare and submit a
Filing, SGI may proceed with the preparation and submission of such Filing at
SGI's expense. In either case, a party preparing a Filing shall submit such
Filing to the other party for its review and approval prior to any submission to
any governmental entity. A Filing shall be deemed accepted by the receiving
party if the receiving party does not provided a written notice of rejection to
the submitting party within thirty (30) days after the submitting party's notice
thereof. If a party rejects a Filing, it shall include with its rejection notice
a detailed description of its reason(s) for rejection, and shall make specific
suggestions as to any modifications which it believes should be made to the form
or content of such Filing prior to submission. If the submitting party believes
that the modifications suggested by the receiving party are inappropriate, the
submitting party's Coordinator shall contact the receiving party's Coordinator,
and the Coordinators shall arrange and hold a meeting or discussion between
appropriate representatives of the parties, at a mutually agreeable time and
place, in order to determine a mutually acceptable form, content and time for
the proposed Filing. Each party shall provide the other with copies of any
correspondence, materials or other communications submitted to or received from
a governmental entity or a third party relating to any Filing.
6.3 FURTHER COOPERATION. Each party will take all steps necessary to
XXXXXX and to establish, evidence, maintain, defend and enforce the intellectual
property rights therein. Without charge to the other party, each party shall
give the other party all reasonable assistance in obtaining such proprietary
rights protection and in preparing and prosecuting any patent, copyright, mask
work or other filing or application made by the other party, provided that such
assistance does
9
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
not require any out-of-pocket expenditure by the party providing such
assistance. Each party shall cause to be executed assignments and all other
instruments and documents as the other party may consider necessary or
appropriate to carry out the intent of this Section 6.3.
6.4 EXCLUSIVITY. The licenses hereby granted by SGI to Company shall
be non-exclusive, except as provided in this Section 6.4, which is subject to
Sections 4.7 and 7.6:
a. Competitive Companies. XXXXXX The "COMPETITIVE COMPANIES" are the
companies listed in Attachment D and any Affiliate of any of such companies, or
any successor of such companies (e.g. by way of merger, consolidation,
reorganization, transfer of assets or otherwise). Nothing in the preceding
sentence shall restrict SGI's direct or indirect sale of the Purchasable
Background Technology to the Competitive Companies.
b. Developed Technology. XXXXXX
c. Substantially Similar Developed Technology. XXXXXX
d. For purposes of Sections 6.4 and 6.5, XXXXXX
6.5 EXCEPTIONS TO COMPANY EXCLUSIVITY Notwithstanding the provisions
of Section 6.4(b), SGI shall itself be permitted to sell equipment or hardware
that incorporates the Developed Technology if: XXXXXX Except as explicitly
provided to the contrary in this Agreement, SGI shall have no obligation to
restrict, or to attempt to restrict the use or disposition by SGI customers or
equipment, software or components sold or licensed directly or indirectly from
SGI.
6.6 THIRD PARTY SOFTWARE. The parties acknowledge that (a) they do
not currently contemplate that the Developed Technology will incorporate any
third party software, and (b) neither SGI nor Company shall incorporate any
third party software into the Developed Technology unless the parties have
previously agreed in writing on the incorporation of such software into the
Developed Technology and the allocation of responsibility for any associated
royalties or license fees.
7. PAYMENTS
7.1 DEVELOPMENT FUNDING. Provided that this Agreement does not
terminate on or before January 31, 1994, as provided in Section 4.2, during the
twenty- four (24) month period after the Effective Date, NCL shall pay (or at
NCL's election, it shall direct NOA to pay) to SGI the development funding
agreed upon pursuant to Section 4.2, which shall consist of development fees and
prepaid royalties, in the proportions provided in Attachment C. Company shall
make the initial payment specified in Attachment C within five (5) days of the
Effective Date as the initial nonrefundable installment of such development
fees. The balance shall be paid in six (6) equal, non-refundable quarterly
installments beginning on February 1, 1994, and every three (3) months
10
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
thereafter.
7.2 ROYALTIES. NCL shall pay (or at NCL's election, it shall direct
NOA to pay) to SGI royalties on net sales (gross shipments less returns) of
Company Products as provided in Attachment C. If Company plans to distribute
application software for Consumer Hardware incorporating Developed Technology
XXXXXX, Company and SGI shall agree in writing on royalties payable by Company
for such software as a condition to the XXXXXX distribution of such software by
Company or any Licensee.
7.3 ACCRUALS. All royalties payable by Company under Section 7.2 shall
accrue as follows: (i) for Consumer Hardware, Packaged Software, and Coin
Operated Hardware sold by NCL or any of its Affiliates, the sale shall occur
when NCL or such Affiliate sells the Consumer Hardware, Packaged Software, or
Coin Operated Hardware to its distributor or retailer, (ii) for Packaged
Software manufactured by NCL and sold by Licensees, the sale occurs when the
Packaged Software is sold by NCL to such Licensees, (iii) for Packaged Software
manufactured by Licensees and sold by the Licensees, the sale occurs when the
Packaged Software is sold by the Licensees to their distributors or retailers,
(iv) for Coin Operated Hardware sold by Licensees, the sale shall occur when the
Coin Operated Hardware is sold by the Licensees to its distributors or
retailers. For purposes of this Section 7.3, a product shall be considered
"sold" upon the earlier of the seller's shipment of or invoice for that product.
7.4 QUARTERLY PAYMENTS AND STATEMENTS. Within thirty (30) days
after the end of each calendar quarter during the term of this Agreement, NCL
shall pay (or at NCL's election it shall direct NOA to pay) to SGI all royalties
that have accrued during that quarter pursuant to Section 7.3. Each such payment
shall be accompanied by a written statement, certified to be accurate by an
officer of Company, showing the total net sales for Coin Operated Hardware,
Consumer Hardware and Packaged Software, broken down by Company Product
categories, the royalties payable by Company, and such additional information as
SGI may reasonably request regarding the sale of Company Products.
7.5 RECORDS AND AUDITS. During the term of this Agreement and for a
period of two (2) years following any expiration or termination of this
Agreement, Company shall maintain full and complete records in sufficient detail
to permit SGI to verify the accuracy of payment and statements submitted by
Company pursuant to Section 7.4. Upon reasonable notice, and no more frequently
than once in any calendar year, SGI or its certified public accountants shall
have the right to audit Company's records for the purpose of verifying the
accuracy of payments made by Company under Section 7.4. All such audits shall be
at SGI's expense, unless the audit reveals an underpayment by Company of five
percent (5%) or more in any royalty period, in which case Company shall
reimburse SGI the reasonable and documented costs of the audit. Company shall
promptly pay to SGI all underpayments disclosed by the audit, together with
interest on all overdue amounts equal to one percent (1%) per month.
11
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
7.6 MINIMUMS FOR EXCLUSIVITY. As a condition to the continuation of
Company's rights under Section 6.4, Company shall have had royalties accrued as
provided for in Section 7.3 in an amount equal to the minimum royalties set
forth in Attachment E (provided Company thereafter makes payment of such
royalties to SGI in accordance with Section 7.4). XXXXXX
7.7 TAXES AND THE LIKE. Any payments made hereunder are net and
exclusive of all taxes, insurance, shipping and other charges. Company agrees to
pay or reimburse SGI for all sales, use, value added, or other taxes, duties,
importation fees or assessments with respect to this Agreement (excluding only
taxes based on the payee's net income), or shall supply appropriate tax
exemption certificates in form satisfactory to the taxing authority. The
development fees and advance royalties payable under Section 7.1 shall be
exclusive of all withholding taxes imposed by the laws of Japan. NCL shall be
entitled to withhold and deduct from royalties payable under Section 7.2
withholding taxes imposed by the laws of Japan on the remission of royalties to
the United States, provided that Company shall claim the benefits of the Treaty
on the Avoidance of Double Taxation between Japan and the United States, and
shall provide SGI with certificates of such withholding.
8. PROPRIETARY AND CONFIDENTIAL INFORMATION
8.1 CONFIDENTIALITY OF BACKGROUND TECHNOLOGY. Company acknowledges
SGI's representation that the Background Technology constitutes the valuable
proprietary and confidentiality information of SGI, and agrees to (i) retain in
confidence the Background Technology, (ii) restrict the use of and access to the
Background Technology to its employees to whom disclosure is necessary in
connection with the license granted in this Agreement and to authorized
sublicensees and subcontractors, (iii) appropriately bind each employee to whom
any such disclosure is made to hold the Background Technology in confidence, and
(iv) not sell, lease transfer or otherwise disclose the Background Technology to
any third party except in accordance with Section 5.0, provided, however, that
Company may disclose the Background Technology to its agents or consultants
under the terms and conditions of a signed, written confidential disclosure
agreement with terms and conditions which prohibit disclosure to other parties,
and which are otherwise at least as restrictive as the terms of subsections (i)-
(iii) of this Section 8.1. Without limiting the foregoing, Company agrees that
it will treat the Background Technology with at least the same degree of care as
it would its own highly proprietary information.
8.2 NO TRANSFER OF INTELLECTUAL PROPERTY. No right, title or
interest in or to the intellectual property in any Background Technology or any
copies, derivations or any portion of the Background Technology is transferred
to Company under this Agreement and/or as a result of Company's use of SGI's
Background Technology under any circumstances whatsoever. SGI is and shall
remain the sole and exclusive owner of the Background Technology. Company shall
remain the exclusive owner of all rights in the Company Technology.
8.3 NO TRANSFER OF RIGHTS IN TRADEMARKS. Nothing herein shall grant
either
12
<PAGE>
party any right, title or interest in the trade names, trademarks, service
marks, words, symbols, or other marks used, adopted or owned by the other party
(or of any third party from whom such party has acquired license rights) from
time to time, either alone or in association with other words or names. Each
party shall be free to unilaterally adopt and use trademarks for use in
conjunction with its marketing, distribution, licensing and sale of products,
provided that such trademarks do not infringe trademarks owned by the other
party.
8.4 PROPRIETARY RIGHTS NOTICES. Company shall not remove from, cover
over or prevent from being displayed the notices of SGI's copyright, trade
secrets and proprietary rights notices printed on the Background Technology,
affixed to the media or containers of the Background Technology or the Developed
Technology, embedded in the Background Technology, displayed by the Background
Technology during use, or printed on materials comprising the Background
Technology. Company acknowledges that the existence of such notice(s) does not
mean that the Background Technology or the trade secrets and proprietary
information therein have been published or otherwise made public.
8.5 NO DISCLOSURE OF AGREEMENT. Neither party shall disclose the
terms and conditions or existence of this Agreement without the prior written
approval of the other party, except as may be required by law or regulation.
8.6 EXCLUSIONS. Neither party shall have any obligation as to
information of the other party or technology, which may include Background
Technology, that (i) is known to the receiving party at the time of disclosure;
or (ii) is independently developed by the receiving party; or (iii) becomes
known to the receiving party from another source without confidentiality
restriction on subsequent disclosure or use; or (iv) is or becomes part of the
public domain through no wrongful act of the receiving party; or (v) is
disclosed pursuant to any judicial or governmental request, requirement or
order; provided that the receiving party takes reasonable steps to give the
disclosing party sufficient prior notice in order to contest such request,
requirement or order; or (vi) is furnished to a third party by the disclosing
party without a similar confidentiality restriction on such third party.
8.7 INJUNCTIVE RELIEF. Each party acknowledges and agrees that in
the event of an unauthorized use, reproduction, distribution or disclosure of
any confidential information or data contained in the technology of the other
party, an adequate remedy at law may not be available, and therefore, injunctive
or other equitable relief would be appropriate to restrain such use,
reproduction, distribution or disclosure, threatened or actual
8.8 RESIDUALS. Notwithstanding any provision of this Section 8.0 or
any other provision of this Agreement to the contrary, neither party shall be
prohibited from, or be subject to liability for, using for any purpose the
"residuals" from the activities conducted in furtherance of the Development Plan
and from the use of or access to information or materials developed or received
hereunder, including, without limitation, any Technology. For purposes of this
Section 8.8, "residuals" means the know-how, techniques, ideas and other
intangible information that remain
13
<PAGE>
within the general knowledge and experience of personnel who have participated
in such activities and used or had access to such information or materials.
9. WARRANTIES AND EXCLUSIONS
9.1 "AS IS." SGI PROVIDES THE BACKGROUND TECHNOLOGY TO COMPANY ON
AN "AS- IS" BASIS ONLY, AND DOES NOT WARRANT OR REPRESENT THAT THE OPERATION OF
THE BACKGROUND TECHNOLOGY WILL BE UNINTERRUPTED OR ERROR FREE, THAT ANY DEFECTS
IN THE BACKGROUND TECHNOLOGY ARE CORRECTABLE OR WILL BE CORRECTED, OR THAT THE
USE THEREOF WILL BE FREE FROM CLAIMS OF INFRINGEMENT.
9.2 WARRANTY EXCLUSION. NEITHER PARTY PROVIDES ANY WARRANTY
WHATSOEVER TO THE OTHER PARTY WITH RESPECT TO THE DEVELOPED TECHNOLOGY. Nothing
contained in this Agreement shall be construed as a warranty or representation
by either party that any manufacture, use, sale, lease or other disposition of
the Developed Technology will be free from infringement of any patent or other
proprietary right of any third party.
9.3 REPRESENTATIONS AND WARRANTIES.
a. By Company. Company represents and warrants to SGI as follows:
(i) This Agreement has been duly executed and delivered by
Company and is the valid and binding obligation of Company
enforceable in accordance with its terms. No approval or consent
of any foreign, federal, state, county, local, or other
governmental or regulatory body, and no approval or consent of
any other Person is required in connection with the execution and
delivery by Company of this Agreement and the consummation and
performance by Company of the transactions contemplated hereby;
and
(ii) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby will
not result in a material breach or violation of or constitute (or
with notice or lapse of time or both would constitute) a default
under: [1] the Articles of Incorporation, any amendments to it,
or the bylaws of Company; [2] any instrument, contract, or other
agreement to which Company is a party or by or to which Company
or any of its assets or properties is bound or subject; or [3]
any order, judgment, injunction, award, or decree of any court,
arbitrator or governmental or regulatory body against or binding
upon or applicable to Company or upon the securities, properties,
and businesses of Company.
14
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
b. By SGI. SGI represents and warrants to Company as follows:
(i) This Agreement has been duly executed and delivered by SGI
and is the valid and binding obligation of SGI enforceable in
accordance with its terms. No approval or consent of any foreign,
federal, state, county, local, or other governmental or
regulatory body, and no approval or consent of any other Person
is required in connection with the execution and delivery by SGI
of this Agreement and the consummation and performance by SGI of
the transactions contemplated hereby; and
(ii) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby will
not result in a material breach or violation of or constitute (or
with notice or lapse of time or both would constitute) a default
under: [1] the Articles of Incorporation, any amendments to it,
or the bylaws of SGI; [2] any instrument, contract, or other
agreement to which SGI is a party or by or to which SGI or any of
its assets or properties is bound or subject; or [3] any order,
judgment, injunction, award, or decree of any court, arbitrator
or governmental or regulatory body against or binding upon or
applicable to SGI or upon the securities, properties, and
businesses of SGI.
(iii) As of the Effective Date, no action, suit, or proceeding is
currently pending before any court or governmental or regulatory
body claiming that the Background Technology infringes or
misappropriates the intellectual property rights of any third
party.
9.4 DISCLAIMER. THE FOREGOING WARRANTIES ARE IN LIEU OF, AND EACH
PARTY DISCLAIMS, ANY OTHER WARRANTIES, EXPRESS, IMPLIED OR OTHERWISE, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NONINFRINGEMENT.
9.5 SGI INTELLECTUAL PROPERTY INDEMNIFICATION. SGI will defend,
indemnify, and hold harmless Company and its Affiliates, directors, officers,
employees and agents against any claim, suit or proceeding alleging that the
XXXXXX infringes or misappropriates any U.S. XXXXXX copyright, mask work, trade
secret, patent or other intellectual property, proprietary or contract rights of
any third party and against any damages or liability resulting from such claim,
suite or proceeding, including, without limitation, reasonable attorneys' fees
and other costs and expenses, provided that (i) Company gives SGI notice of the
claim, suit or proceeding promptly after commencement thereof (or, if later,
promptly after Company learns that such claim, suit or proceeding relates to
XXXXXX), (ii) SGI may not settle any claim, suit or proceeding without the
prior, written consent of Company which consent shall not be unreasonably
withheld, provided that if Company refuses to consent to settlement acceptable
to the plaintiff(s) and proposed by SGI to Company, SGI's total liability under
this Section 9.5 shall be limited to the amount of the proposed
15
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
settlement and attorney's fees incurred as of the date of SGI's request for
Company's consent, and (iii) Company provides SGI with all reasonable assistance
requested by SGI in connection with the defense and/or resolution of any such
claim, suit or proceeding, at SGI's expense. Notwithstanding the defense
obligation of SGI under this Section 9.5, Company shall have the right, at its
own expense, to appoint its own counsel to participate in any claim, suit or
proceeding, and SGI shall cooperate with Company and such counsel. If there is a
final determination of infringement or misappropriation, SGI shall, at its
option, use reasonable efforts to, (i) replace or modify any component of XXXXXX
with a functionally equivalent noninfringing component that conforms to the
requirements of this Agreement, or (ii) obtain a license for Company to use such
XXXXXX. Notwithstanding the foregoing, SGI shall have no liability for a claim,
suit or proceeding to the extent based on (a) modification of XXXXXX by or for
Company (other than by SGI), or (b) Company's use of the XXXXXX with Accessories
not supplied by SGI, or (c) Company's use of a version of the XXXXXX that was
not at the time of use the most recent version provided by SGI to Company. For
purposes of this Section 9.5, XXXXXX SGI'S LIABILITY UNDER THIS SECTION 9.5
SHALL IN NO EVENT EXCEED XXXXXX.
9.6 COMPANY INTELLECTUAL PROPERTY INDEMNIFICATION. Company will
defend, indemnify, and hold harmless SGI and its Affiliates, directors,
officers, employees and agents against any claim, suit or proceeding alleging
that the XXXXXX infringes or misappropriates any U.S. XXXXXX copyright, mask
work, trade secret, patent or other intellectual property, proprietary or
contract rights of any third party and against any damages or liability
resulting from such claim, suite or proceeding, including, without limitation,
reasonable attorneys' fees and other costs and expenses, provided that (i) SGI
gives Company notice of the claim, suit or proceeding promptly after
commencement thereof (or, if later, promptly after SGI learns that such claim,
suit or proceeding relates to XXXXXX), (ii) SGI gives Company sole authority to
defend and/or resolve any such claim, suit or proceeding or the portion thereof
relating to the XXXXXX and (iii) SGI provides Company with all reasonable
assistance requested by Company in connection with the defense and/or resolution
of any such claim, suit or proceeding, at Company's expense. Notwithstanding the
defense obligation of Company under this Section 9.6, SGI shall have the right,
at its own expense, to appoint its own counsel to participate in any claim, suit
or proceeding, and Company shall cooperate with SGI and such counsel.
Notwithstanding the foregoing, Company shall have no liability for a claim, suit
or proceeding to the extent based on (a) modification of the XXXXXX or (b) SGI's
use of the XXXXXX with equipment or components not supplied by Company. For
purposes of this Section 9.6, XXXXXX COMPANY'S LIABILITY UNDER THIS SECTION 9.6
SHALL IN NO EVENT EXCEED XXXXXX.
10.0 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES OF
ANY KIND, (INCLUDING WITHOUT LIMITATION LOSS OF PROFIT OR DATA) WHETHER OR NOT
ADVISED OF THE POSSIBILITY OF SUCH LOSS, HOWEVER CAUSED, WHETHER FOR BREACH OR
REPUDIATION OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, INABILITY
16
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
TO USE THE BACKGROUND OR DEVELOPED TECHNOLOGY, OR OTHERWISE. IN NO EVENT SHALL
THE AGGREGATE LIABILITY OF EITHER PARTY TO THE OTHER EXCEED XXXXXX. THE
ESSENTIAL PURPOSE OF THIS PROVISION IS TO LIMIT THE POTENTIAL LIABILITY OF THE
PARTIES ARISING OUT OF THIS AGREEMENT AND/OR LICENSE.
11. TERM; TERMINATION.
11.1 TERM. This Agreement shall commence on the Effective Date, and
shall expire ten (10) years from the date of Company's first commercial shipment
of a Coin Operated Hardware or Consumer Hardware incorporating Developed
Technology, whichever is first, provided, however, that (i) the development
stage of this Agreement shall expire in accordance with the Development Plan,
(ii) this Agreement may be terminated earlier in accordance with Section 4.2,
and (iii) this Agreement may be terminated earlier in accordance with Section
11.2. Company shall have the right to renew this Agreement for an additional
five-year period; provided (i) that, during the initial term of this Agreement,
Company has paid royalties to SGI in the amount set forth on Attachment E; and
(ii) that Company and SGI agree on royalty rates applicable to such five
(5)-year term (Company and SGI agree to negotiate such royalties in good faith).
11.2 TERMINATION FOR BREACH. If either party materially breaches any
of its obligations under this Agreement, upon sixty (60) days written notice
specifying such breach in detail, the notifying party may terminate this
Agreement, and all rights or licenses granted by the notifying party to the
breaching party hereunder, unless the breach specified in such notice has been
cured during the sixty (60) day period, or unless the breaching party is making
diligent efforts to cure a breach that is not reasonably susceptible of cure
within sixty (60) days. Notwithstanding the foregoing, Company shall be
obligated to cure any breach of any monetary obligations to SGI within thirty
(30) days of its receipt of notice of the breach. In the event of a termination
for breach, all licenses in Background Technology granted to the notifying party
hereunder prior to the effective date of such termination shall continue in full
force and effect.
11.3 EFFECT OF TERMINATION. In any event of termination under Section
11.2, the nonbreaching party shall be entitled to retain any Developed
Technology which it has received or developed to the date of such termination,
and all sublicenses granted by either party prior to the date of such
termination shall remain in effect.
11.4 SURVIVAL. The rights and obligations of the parties under
Sections 6.1 XXXXXX, 8.0 (PROPRIETARY AND CONFIDENTIAL INFORMATION), 9.0
(WARRANTIES AND EXCLUSIONS), 10.0 (LIMITATION OF LIABILITY), 11.2, 11.3, 11.4,
12.0, and 13.1 shall survive and continue after any termination or expiration of
this Agreement or termination of any license or rights under this Agreement, for
any reason whatsoever.
12. EXPORT. Notwithstanding any rights, license or privileges specified in
this Agreement, each
17
<PAGE>
party agrees that it will not export any technology provided by the other party
hereunder or jointly developed hereunder, or any part thereof, either directly
or indirectly, without first obtaining any required licenses to so export from
the United States Government, and further agrees that it will comply with all
laws, rules and regulations applicable to the export or reexport of such
technology.
13. GENERAL.
13.1 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California, excluding
its choice of law rules. Company hereby consents to the jurisdiction of the
federal courts located in the Northern District of California over any dispute
between SGI and Company arising out of or in connection with this Agreement, and
waives any other venue to which it may be entitled by virtue of domicile or
otherwise.
13.2 SEVERABILITY. In the event that any one or more of the
provisions of this Agreement shall for any reason be held to be unenforceable in
any respect under any federal or state law, such unenforceability shall not
affect any other provision, but this Agreement shall then be construed as if
such unenforceable provision or provisions had never been contained herein,
provided that in such event the parties agree to negotiate in good faith
substitute enforceable provisions which most nearly effect the parties original
intent in entering into this Agreement.
13.3 ASSIGNMENT. Except as specifically provided to the contrary in
this Agreement, this Agreement and the licenses granted hereunder are to a
specific entity or legal person, and all rights hereunder are not assignable nor
are the obligations imposed delegable by either party without the prior written
consent of the other party which shall not be unreasonably withheld.
13.4 MODIFICATION. This Agreement may be modified only by a writing
signed by each party.
13.5 NONWAIVER. The failure of either party to enforce at any time
any of the provisions hereof shall not be construed to be a waiver of the right
of such party thereafter to enforce any such provisions.
13.6 NO AGENCY. This is a development and license agreement; no
agency, partnership, joint venture or other relationship is created hereby, and
neither party has any authority of any kind to bind the other party in any
respect whatsoever.
13.7 FORCE MAJEURE. Except for Company's obligations under Section 7
above, notwithstanding anything else in this Agreement, no default, delay or
failure to perform on the part of either party shall be considered a breach of
this Agreement, if such default, delay, or failure to perform is shown to be due
entirely to causes beyond the reasonable control of the party charged with a
default, including, but not limited to, causes such as strikes, lockouts or
other labor disputes, riots, civil disturbances, actions or inactions of
governmental authorities or suppliers, epidemics, war,
18
<PAGE>
embargoes, severe weather, fire, earthquakes, acts of God or the public enemy,
nuclear disasters, or default of a common carrier.
13.8 NOTICES. All notices, reports, statements and approvals
("Notices") which either party is required or permitted to give under this
Agreement shall be sufficiently given when the same shall be: (a) personally
served or delivered to the party entitled to such Notice; or (b) deposited,
postage prepaid, with a guaranteed international or domestic air courier
service, addressed to the person and address stated herein, or to such other
person or address as may be provided in a written notice by either party to the
other; or (c) when transmitted by facsimile with an original sent concurrently
by first class mail (or guaranteed international or domestic air courier
service), addressed to the person, facsimile number, and address stated above,
or to such other person, address or facsimile number as may be provided in a
written notice by either party to the other. Notice shall be deemed effective
upon the earlier of actual receipt or three (3) business days after mailing or
transmittal.
THIS SPACE INTENTIONALLY LEFT BLANK; AGREEMENT CONTINUES ON NEXT PAGE.
19
<PAGE>
13.9 SECTION HEADINGS AND CAPTIONS. The parties agree that the Section
or paragraph headings and captions used in this Agreement are for reference
purposes only and shall not be used in the interpretation of this Agreement.
13.10 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be an original instrument, but all of
which shall constitute one and the same agreement. A facsimile signature shall
have the same force and effect as an original signature.
13.11 ENTIRE AGREEMENT. This Agreement supersedes all proposals oral
or written, all negotiations, conversations or discussions between the parties
relating to this Agreement and all past course of dealing or industry custom,
including the Nondisclosure Agreement between Company and SGI. It is expressly
understood and agreed that, because the parties hereto, no usage of trade or
other regular practice or method of dealing, either within the computer
industry, the software industry or between the parties hereto shall be used to
modify, interpret, supplement or alter in any manner the express terms of this
Agreement or any part hereof.
SGI: COMPANY:
SILICON GRAPHICS, INC. NINTENDO CO., LTD.
By: /s/ Wei Yen By: /s/ Mr. Hiroshi Yamauchi
Name: Wei Yen ----------------------------
Title: Senior Vice President Mr. Hiroshi Yamauchi, President
-------------------------------
MIPS TECHNOLOGIES, INC. NINTENDO OF AMERICA INC.
By: /s/ Wei Yen By: /s/ Mr. Minoru Arakawa
Name: Wei Yen --------------------------
Title: President Mr. Minoru Arakawa, President
-----------------------------
20
<PAGE>
ATTACHMENT A
BACKGROUND TECHNOLOGY
"Background Technology" means the MIPS Multimedia Engine, including the MIPS
microprocessor architecture and instruction set, graphics library, video library
and audio library, and SGI and MIPS API and ABI and any other Technology (a)
developed prior to the Effective Date of (b) under development at SGI as of the
Effective Date and supplied by SGI to Company in connection with the development
of the Company Products.
Attachment A-1
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
ATTACHMENT B
DEVELOPED TECHNOLOGY
"Developed Technology" means XXXXXX
Attachment B-1
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
ATTACHMENT C
DEVELOPMENT FUNDING AND ROYALTIES
DEVELOPMENT FUNDING: To be agreed pursuant to Section 4.2
ADVANCE AGAINST ROYALTIES:
XXXXXX of the development funding paid to SGI, up to US$XXXXXXXX
pursuant to Sections 4.2 and 7.1, shall be deemed an advance against
royalties. All development funding in excess of US$XXXXXXXX paid to
SGI pursuant to Sections 4.2 and 7.1 shall be deemed an advance
against royalties.
INITIAL PAYMENT: $XXXXXXXX (such initial payment shall be considered all
development fees, and not an advance against royalties).
ROYALTIES:
a) XXXXXXXX for each Coin Operated Hardware incorporating Developed Technology
sold by Company or Licensee;
b) XXXXXXXX for each of the first XXXXXXXX units of Consumer
Hardware incorporating Developed Technology sold by Company; and
c) XXXXXXXX for each Packaged Software sold by Company or a Licensee
for use on a Consumer Hardware incorporating Developed Technology.
XXXXXX
Attachment C-1
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
ATTACHMENT D
COMPETITIVE COMPANIES
1. XXXXXX 2. XXXXXX 3. XXXXXX 4. XXXXXX
Attachment D-1
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
ATTACHMENT E
MINIMUMS FOR EXCLUSIVITY
MINIMUM ROYALTIES PER YEAR
YEAR (IN MILLIONS)
-------------
2* XXXXXXXX
3 XXXXXXXX
4 XXXXXXXX
5 XXXXXXXX
6 XXXXXXXX
7 XXXXXXXX
8 XXXXXXXX
9 XXXXXXXX
10 XXXXXXXX
. Ends 24 months after the date of first sale of the Consumer Hardware
incorporating Developed Technology.
Attachment E-1
<PAGE>
EXHIBIT 10.8.2
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
FIRST ADDENDUM TO
JOINT DEVELOPMENT AND LICENSE AGREEMENT
THIS IS A FIRST ADDENDUM TO THAT CERTAIN JOINT DEVELOPMENT AND LICENSE
AGREEMENT DATED AUGUST 20, 1993, (the "ORIGINAL AGREEMENT") among Nintendo Co.,
Ltd. ("NCL"), Nintendo of America Inc. ("NOA") (NCL and NOA are collectively
referred to as "COMPANY"), Silicon Graphics, Inc., and MIPS Technologies, Inc.
(collectively referred to as "SGI").
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS. The definitions in the Original Agreement are hereby
incorporated by reference in this FIRST ADDENDUM.
2. BUDGET. SGI has advised the Company that the budget for SGI's work
under the Development Plan is XXXXXX (the "BUDGET"). The Budget represents SGI's
good faith calculation of its actual costs to complete its work under the
Development Plan which includes, but is not limited to, SGI's costs of personnel
resources, equipment costs for experimentation, development and CAD tools. The
Budget is stated as a flat fee (fixed fee) for the completion of SGI's work
under the Development Plan. Company hereby accepts the Budget and shall make
payment to SGI in accordance with Schedule B. SGI acknowledges that the Company
has already paid XXXXXXX of the Budget.
3. DEVELOPMENT PLAN. The parties agree to the Development Plan set forth
on Schedule A. The parties acknowledge that Section 4.4 of the Original
Agreement requires that the parties use "reasonable efforts" to develop the
Developed Technology substantially in accordance with the Development Plan
attached as Schedule A, or any revised Development Plan agreed upon by the
parties, including any applicable target dates.
Except as set forth herein, the Original Agreement is hereby ratified
and confirmed.
1
<PAGE>
NINTENDO CO., LTD. NINTENDO OF AMERICA INC.
By: /s/ Mr. Hiroshi Yamauchi By: /s/ Mr. Minoru Arakawa
--------------------------
Mr. Hiroshi Yamauchi Mr. Minoru Arakawa
President President
February 4, 1994 February 5th, 1994
SILICON GRAPHICS, INC. MIPS TECHNOLOGIES, INC.
By /s/ Wei Yen By: /s/ Wei Yen
---------------
Name: Wei Yen Name: Wei Yen
Title: Senior Vice President Title: Chairman of the Board
February 4 , 1994 February 4 , 1994
Attachments: Schedules A, A-1, and B.
2
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
(7 pages of Schedule A have been redacted)
(4 pages of Schedule A1 have been redacted)
3
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
SCHEDULE B
<TABLE>
<CAPTION>
DEVELOPMENT FEE ADVANCE TOTAL TO BE PAID
ROYALTY ON
<S> <C> <C> <C> <C>
1. XXXXXX XXXXXX XXXXXX Already Paid
2. XXXXXX XXXXXX XXXXXX February 8, 1994
3. XXXXXX XXXXXX XXXXXX May 1, 1994
4. XXXXXX XXXXXX XXXXXX August 1, 1994
5. XXXXXX XXXXXX XXXXXX November 1, 1994
6. XXXXXX XXXXXX XXXXXX February 1, 1995
7. XXXXXX XXXXXX XXXXXX May 1, 1995
------ ------ ------ -----------
TOTAL: XXXXXX XXXXXX* XXXXXX
</TABLE>
* NCL will make XXXXXX withholding on the advance royalty, so only XXXXXX
will be received by SGI.
4
<PAGE>
EXHIBIT 10.8.3
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
SECOND ADDENDUM TO
JOINT DEVELOPMENT AND LICENSE AGREEMENT
THIS SECOND ADDENDUM TO JOINT DEVELOPMENT AND LICENSE AGREEMENT is
made as of the _____ day of February, 1996 (the "EFFECTIVE DATE"), among
Nintendo Co., Ltd. ("NCL"), Nintendo of America Inc. ("NOA") (NCL and NOA are
referred to collectively as "COMPANY"), Silicon Graphics, Inc., and MIPS
Technologies, Inc. (collectively referred to as "SGI").
BACKGROUND
Company and SGI are parties to a "JOINT DEVELOPMENT AND LICENSE
AGREEMENT", dated August 20, 1993, as supplemented by the "First Addendum to
Joint Development and License Agreement", dated February 5, 1994 (collectively,
the "AGREEMENT"). Company and SGI have agreed to enter into this Second
Addendum as it relates to the XXXXXX of certain patents rights, as described
herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS.
(a) Unless otherwise defined in this Second Addendum, all capitalized
words used in this Second Addendum shall have the meanings set forth in the
Agreement.
(b) Section 1.8. "COMPANY PRODUCTS" is hereby revised to add the phrase
"and/or Foreground Technology" immediately after the term "Developed
Technology."
(c) Section 1.16, "FILING" is hereby revised to add the phrase "or
Foreground Technology" immediately after the term "Developed Technology."
(d) The last sentence of Section 1.23, "TECHNOLOGY", is hereby revised to
read as follows:
Technology is either Background Technology, Developed Technology
or Foreground Technology.
(e) A new Section 1.26 is hereby added to the Agreement as follows:
1.26 "FOREGROUND TECHNOLOGY" means XXXXXX
(f) A new Section 1.27 is hereby added to the Agreement as follows:
1.27 "COPROCESSOR COMMAND SET" means XXXXXX
1
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
(g) A new Section 1.28 is hereby added to the Agreement as follows:
1.28 "MICROCODE/LIBRARIES" means XXXXXX
(h) A new Section 1.29 is hereby added to the Agreement as follows:
1.29 "PATENT" means letters patent issued under laws of the
United States, reissue patents, divisional patents, reexamination
patents, continuations, continuations-in-part and the foreign
counterparts of any of the foregoing.
(i) A new Section 1.30 is hereby added to the Agreement as follows:
1.30 "CROSS LICENSE" means an agreement between either party to
this Agreement and a third party, other than a Licensee, effective
prior to the Effective Date of this Second Addendum. pursuant to
which such party and the third party grant each other licenses to
patents developed or acquired during the term of such agreement,
which licenses are granted in settlement of infringement claims.
(j) A new Section 1.31 is hereby added to the Agreement as follows:
1.31 "COPROCESSOR MICROINSTRUCTION SET" means XXXXXX
(k) A new Section 1.32 is hereby added to the Agreement as follows:
1.32 "COPROCESSOR" means the Application Specific Integrated
Circuit developed by SGI pursuant to Schedule A for incorporation
in the Consumer Hardware.
(I) A new Section 1.33 is hereby added to the Agreement as follows:
1.33 "DEVELOPER'S MANUAL" shall mean all versions of the Nintendo
64 Developer's Manual, covering the topics listed in Schedule D,
developed and delivered by SGI to Company pursuant to this
Agreement.
(m) A new Section 1.34 is hereby added to the Agreement as follows:
1.34 "DEVELOPMENT ENVIRONMENT" shall mean all versions of the
software listed in Schedule D, developed and delivered by SGI to
Company pursuant to this Agreement for use by Packaged Software
developers.
(n) A new Section 1.35 is hereby added to the Agreement as follows:
2
<PAGE>
1.35 "MASK WORK" means the layout of the Coprocessor.
2. A new Schedule C, as attached to this Second Addendum, is hereby added
to the Agreement.
3. A new Schedule D, as attached to this Second Addendum, is hereby added
to the Agreement.
4. The following is hereby added to the end of Section 6.2 of the
Agreement:
SGI and Company shall use reasonable efforts to pursue and to
prosecute Filings applicable to the invention identified as
"Invention 2" in Schedule C, which the parties acknowledge is
directed primarily to the protection of Developed Technology. As
provided in this Section 6.2, Company shall have the
administrative responsibility for such Filings.
5. CONFIDENTIALITY. New Sections 8.9, 8.10 and 8.11, which the parties
agree shall be effective as of the effective date of the Agreement, are hereby
added to the Agreement as follows:
8.9 CONFIDENTIALITY OF COMPANY TECHNOLOGY. SGI acknowledges
Company's representation that the Company Technology constitutes
the valuable proprietary and confidential information of Company,
and agrees to (i) retain in confidence the Company Technology,
(ii) restrict the use of and access to the Company Technology to
its employees to whom disclosure is necessary in connection with
this Agreement, and to authorized subcontractors, (iii)
appropriately bind each employee to whom any such disclosure is
made to hold the Company Technology in confidence, and (iv) not to
sell, lease, transfer or otherwise disclose the Company Technology
to any third party except as permitted by this Agreement,
provided, however, that SGI may disclose the Company Technology to
its agents and consultants; if necessary or appropriate in
furtherance of SGI's development work under this Agreement, under
the terms and conditions of a signed, written confidential
disclosure agreement with terms and conditions which prohibit
disclosure to other parties, and which are otherwise at least as
restrictive as the terms of subsections (i)-(iii) of this Section
8.9. Without limiting the foregoing, SGI agrees that it will treat
the Company Technology with at least the same degree of care as it
would its own highly proprietary information.
8.10 CONFIDENTIALITY OF FOREGROUND TECHNOLOGY. SGI and Company
acknowledge that the Foreground Technology constitutes their
valuable and proprietary information. Except to the extent that
any Foreground Technology is described in any Patent, and except
as otherwise agreed in writing by the parties, each of SGI and
Company agrees to (i) retain in confidence the Foreground
Technology, (ii) restrict
3
<PAGE>
the use of and access to the Foreground Technology to its
employees to whom disclosure is necessary or permitted in
connection with the exercise of their rights in the Foreground
Technology as provided in this Agreement, and to authorized
licensees and subcontractors, (iii) appropriately bind each
employee to whom any such disclosure is made to hold the
Foreground Technology in confidence, and (iv) not sell, lease,
transfer or otherwise disclose the Foreground Technology to any
third party except to licensees permitted by this Agreement and to
its agents or consultants under the terms and conditions of a
signed, written confidential disclosure agreement with terms and
conditions which prohibit disclosure to other parties, and which
are otherwise at least as restrictive as the terms of subsections
(i)-(iii) of this Section 8.10. Without limiting the foregoing,
SGI agrees that it will treat the Foreground Technology with at
least the same degree of care as it would its own highly
proprietary information.
8.11 CONFIDENTIALITY OF DEVELOPED TECHNOLOGY. SGI and Company
acknowledge that the Developed Technology constitutes their
valuable and proprietary information. Except to the extent that
any Developed Technology is described in any Patent, and except as
otherwise agreed in writing by the parties, each of SGI and
Company agrees to (i) retain in confidence the Developed
Technology, (ii) restrict the use of and access to the Developed
Technology to its employees to whom disclosure is necessary or
permitted in connection with the exercise of their rights in the
Developed Technology as provided in this Agreement, and to
authorized licensees and subcontractors, (iii) appropriately bind
each employee to whom any such disclosure is made to hold the
Developed Technology in confidence, and (iv) not sell, lease,
transfer or otherwise disclose the Developed Technology to any
third party except to licensees permitted by this Agreement and to
its agents or consultants under the terms and conditions of a
signed, written confidential disclosure agreement with terms and
conditions which prohibit disclosure to other parties, and which
are otherwise at least as restrictive as the terms of subsections
(i)-(iii) of this Section 8.11. Without limiting the foregoing,
SGI agrees that it will treat the Developed Technology with at
least the same degree of care as it would its own highly
proprietary information.
6. The following is hereby added to the end of Section 9.3(b) of the
Agreement:
As of the effective date of this Second Addendum, SGI represents
and warrants to Company that, to the best of SGI's actual
knowledge, SGI has provided Company with a copy of (i) all patent
applications filed by SGI whose claims would be infringed by the
unauthorized manufacture, use or sale of the Consumer Hardware
and/or the Packaged Software incorporating those components of the
Consumer
4
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
Hardware and/or the Packaged Software developed by SGI pursuant to
this Agreement; and (ii) all patent applications currently being
prepared by SGI whose claims, as currently drafted, would be
infringed by the unauthorized manufacture, use or sale of Consumer
Hardware and/or the Packaged Software incorporating those
components of the Consumer Hardware and/or the Packaged Software
developed by SGI pursuant to this Agreement. If, subsequent to the
effective date of this Second Addendum, SGI learns of any such
patent application or if any such claim is added to any such
application, SGI shall promptly notify Company.
7. INTELLECTUAL PROPERTY INDEMNITY. Sections 9.5 and 9.6 of the
Agreement are hereby deleted in their entirety and replaced with the following:
9.5 SGI INTELLECTUAL PROPERTY INDEMNIFICATION. SGI will defend,
indemnify, and hold harmless Company and its Affiliates,
directors, officers, employees and agents against any claim, suit
or proceeding alleging that the XXXXXX or use thereof infringes or
misappropriates any U.S. XXXXXX copyright, mask work, trade
secret, patent or other intellectual property, proprietary or
contract rights of any third party and against any damages or
liability resulting from such claim, suit or proceeding,
including, without limitation, reasonable attorneys' fees and
other costs and expenses, provided that (i) Company gives SGI
notice of the claim, suit or proceeding promptly after
commencement thereof (or, if later, promptly after Company learns
that such claim, suit or proceeding relates to XXXXXX), (ii) SGI
may not settle any claim, suit or proceeding without the prior,
written consent of Company which consent shall not be unreasonably
withheld, provided that if Company refuses to consent to
settlement acceptable to the plaintiff(s) and proposed by SGI to
Company, SGI's total liability under this Section 9.5 shall be
limited to the amount of the proposed settlement and attorney's
fees incurred as of the date of SGI's request for Company's
consent, and (iii) Company provides SGI with all reasonable
assistance requested by SGI in connection with the defense and/or
resolution of any such claim, suit or proceeding, at SGI's
expense. Notwithstanding the defense obligation of SGI under this
Section 9.5, Company shall have the right, at its own expense, to
appoint its own counsel to participate in any claim, suit or
proceeding, and SGI shall cooperate with Company and such counsel.
If there is a final determination of infringement or
misappropriation, SGI shall, at its option, use reasonable efforts
to, (i) replace or modify any component of XXXXXX with a
functionally equivalent noninfringing component that conforms to
the requirements of this Agreement, or (ii) obtain a license for
Company to use XXXXXX Notwithstanding the foregoing, SGI shall
have no liability for a claim, suit or proceeding to the extent
based on (a) modification of XXXXXX by or for Company (other than
by SGI), or (b)
5
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
Company's use of the XXXXXX with Accessories not supplied by SGI,
or (c) Company's use of a version of the XXXXXX that was not at
the time of use the most recent version provided by SGI to
Company. For purposes of this Section 9.5, XXXXXX SGI'S LIABILITY
UNDER THIS SECTION 9.5 SHALL IN NO EVENT EXCEED XXXXXX
9.6 COMPANY INTELLECTUAL PROPERTY INDEMNIFICATION. Company will
defend, indemnify, and hold harmless SGI and its Affiliates,
directors, officers, employees and agents against any claim, suit
or proceeding alleging that the XXXXXX or use thereof infringes or
misappropriates any U.S. XXXXXX copyright, mask work, trade
secret, patent or other intellectual property, proprietary or
contract rights of any third party and against any damages or
liability resulting from such claim, suit or proceeding,
including, without limitation, reasonable attorneys' fees and
other costs and expenses, provided that (i) SGI gives Company
notice of the claim, suit or proceeding promptly after
commencement thereof (or, if later, promptly after SGI learns that
such claim, suit or proceeding relates to XXXXXX), (ii) SGI gives
Company sole authority to defend and/or resolve any such claim,
suit or proceeding or the portion thereof relating to XXXXXX and
(iii) SGI provides Company with all reasonable assistance
requested by Company in connection with the defense and/or
resolution of any such claim, suit or proceeding, at Company's
expense. Notwithstanding the defense obligation of Company under
this Section 9.6, SGI shall have the right, at its own expense, to
appoint its own counsel to participate in any claim, suit or
proceeding, and Company shall cooperate with SGI and such counsel.
Notwithstanding the foregoing, Company shall have no liability for
a claim, suit or proceeding to the extent based on (a)
modification of the XXXXXX or (b) SGI's use of the XXXXXX with
equipment or components not supplied by Company. For purposes of
this Section 9.6, XXXXXX COMPANY'S LIABILITY UNDER THIS SECTION
9.6 SHALL IN NO EVENT EXCEED XXXXXX
8. RIGHTS IN FOREGROUND TECHNOLOGY. A new Article 14.0 is hereby added to
the Agreement as follows:
14.0 RIGHTS IN FOREGROUND TECHNOLOGY.
14.1 XXXXXXXXXXXX
14.2 SGI RIGHTS IN FOREGROUND TECHNOLOGY. XXXXXXXXXXXX SGI's
rights in the Foreground Technology shall survive the expiration
or termination of this Agreement and shall continue until the
expiration of the last Patent to expire that would be infringed by
6
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
the manufacture, use or sale of any Foreground Technology.
14.3 COMPANY RIGHTS IN FOREGROUND TECHNOLOGY. XXXXXX Company
agrees that Company shall only have (a) the worldwide,
nontransferable (except to Company's authorized subcontractors)
right to use the Foreground Technology only in combination with
the Licensed Background Technology and the Developed Technology
for purposes of the design, manufacture, use, sale and/or
distribution of Company Products, and (b) the worldwide right to
grant nonexclusive licenses to Licensees to use the Foreground
Technology, only in combination with the Licensed Background
Technology and the Developed Technology, for purposes of the
design, manufacture, use, sale and/or distribution of Packaged
Software, Accessories, Coin Operated Software and/or Coin Operated
Hardware. All such licenses shall be in writing and shall be
pursuant to a form of agreement incorporating license grant and
proprietary rights provisions approved in writing by SGI, which
approval shall not be unreasonably withheld. Company shall have no
obligation to obtain the consent of SGI, or to account to or to
share proceeds with SGI, on account of such licensing or use of
the Foreground Technology as permitted in this Section 14.3.
Company's rights in the Foreground Technology shall commence as of
the effective date of this Second Addendum and shall survive the
expiration of the term of this Agreement and shall continue until
the expiration of the last Patent to expire that would be
infringed by the unauthorized manufacture, use or sale of any
Foreground Technology. If the parties succeed in obtaining Patents
XXXXXX, and which would be infringed by the manufacture, use or
sale of any Foreground Technology, SGI will not assert a claim
against Company or a Licensee for infringement of any such Patent
on account of Company's or a Licensee's manufacture, use or sale
of such Foreground Technology in products other than Company
Products; provided, however, that SGI reserves the right to assert
a claim against Company for breach of this Agreement if Company
manufactures, uses, sells or licenses any products other than
Company Products which use Foreground Technology.
14.4 COOPERATION OF THE PARTIES IN FILINGS. The parties shall
use reasonable efforts to pursue and prosecute Filings applicable
to the Foreground Technology. All Filings applicable to the
Foreground Technology will be made at a time when appropriate
during the development or after completion of the Foreground
Technology XXXXXX. Company shall have the primary administrative
responsibility for Filings with respect to the Foreground
Technology, and the parties will cooperate with respect to Filings
on the Foreground Technology (including with respect to claim
amendments). Silicon Graphics will bear
7
<PAGE>
all fees and out-of-pocket expenses payable to Sterne, Kessler,
Goldstein and Fox in connection therewith, and Company shall bear
all other filing fees, attorneys' fees and out-of-pocket expenses
incurred in connection therewith. As used herein, "ADMINISTRATIVE
RESPONSIBILITY" means the preparation of any documents required
for a Filing, and the submission thereof to the appropriate
governmental entity. If SGI has not yet received a proposed Filing
from Company on an item of Foreground Technology, and SGI believes
that a Filing should be made with respect thereto, SGI may submit
a written request to Company that Company proceed with the
preparation of such Filing, provided, however, that Company may,
in its sole discretion, proceed or decline to proceed with the
preparation of such Filing. If Company declines to prepare and
submit a Filing on an item of Foreground Technology, SGI may
proceed with the preparation and submission of such Filing at
SGI's expense. In either case. a party preparing a Filing shall
submit such Filing to the other party for its review and approval
prior to any submission to any governmental entity. A Filing shall
be deemed accepted by the receiving party if the receiving party
does not provide written notice of rejection to the submitting
party within thirty (30) (or such shorter period as the parties
may agree upon) days after the submitting party's notice thereof.
If a party rejects a Filing, it shall include with its rejection
notice a detailed description of its reason(s) for rejection, and
shall make specific suggestions as to any modifications which it
believes should be made to the form or content of such Filing
prior to submission. If the submitting party believes that the
modifications suggested by the receiving party are inappropriate,
the submitting party's Coordinator shall contact the receiving
party's Coordinator, and the Coordinators shall arrange and hold a
meeting or discussion between appropriate representatives of the
parties, at a mutually acceptable time and place, to determine a
mutually acceptable form, content and time for the proposed
Filing. Each party shall provide the other with copies of any
correspondence, materials or communications submitted to or
received from a governmental entity or a third party relating to
any Filing. SGI will provide such information regarding the
Background Technology, Foreground Technology and Developed
Technology as Company may reasonably request for purposes of
permitting Company and its advisors to evaluate actual or
potential infringement claims directed at Company Products.
Nothing in this Section 14.4 shall be interpreted to expand SGI's
obligations under Section 9.5.
14.5 ENFORCEMENT OF RIGHTS IN FOREGROUND TECHNOLOGY. Before
initiating any action against an alleged infringer of any rights
in the Foreground Technology, each party (the "ENFORCING PARTY")
shall contact the other party to confirm that the alleged
infringer has not been granted a license to use the Foreground
Technology
8
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
by the other party or has not purchased from the other party
products whose use would entitle the alleged infringer to use the
Foreground Technology. If the alleged infringer has not obtained
such a license or purchased such products, the Enforcing Party
shall have the right, without further consent of the other party,
to take such steps as it chooses, in its sole discretion, to
enforce its rights XXXXXX and the other party shall provide such
reasonable assistance as the Enforcing Party may request in
connection therewith, provided either that such assistance does
not require any out-of-pocket expenditures by the other party or
that the Enforcing Party agrees to reimburse any such
out-of-pocket expenses incurred by the other party. The Enforcing
Party shall be entitled to retain all amounts recovered from the
alleged infringer in connection with the litigation and/or
settlement of any such action. The Enforcing Party shall defend,
indemnify and hold harmless the other party and its Affiliates
from and against any claim, suit or proceeding initiated against
the other party by any alleged infringer in connection with or in
response to actions initiated against the alleged infringer by the
Enforcing Party, provided that (i) the other party gives the
Enforcing Party notice of the claim, suit or proceeding promptly
after commencement thereof, (ii) the other party gives the
Enforcing Party sole authority to defend and/or resolve any such
claim, suit or proceeding, and (iii) the other party gives the
Enforcing Party all reasonable assistance requested by the
Enforcing Party in connection with the defense and/or settlement
of the claim, suit or proceeding, at the Enforcing Party's
expense.
14.6 MICROCODE/LIBRARIES, COPROCESSOR COMMAND SET, COPROCESSOR
MICROINSTRUCTION SET, AND MASK WORK. SGI will deliver to Company
the Microcode/Libraries, in source code and object code forms, the
Microcode/Libraries development environment, and documentation of
the Coprocessor Command Set and the Coprocessor Microinstruction
Set, at a time to be mutually agreed upon in writing by SGI and
Company. SGI and Company acknowledge and agree that XXXXXX (d) all
Developed Technology incorporated in the Microcode/Libraries,
Coprocessor Command Set, Coprocessor Microinstruction Set, and the
Mask Work shall be subject to the provisions of Sections 6.4 and
6.5 applicable to the Developed Technology. XXXXXX
14.7 FOREGROUND TECHNOLOGY CROSS LICENSES. XXXXXX neither party
shall have the right to license the Foreground Technology to a
third party pursuant to a Cross License unless it obtains the
prior, written agreement of the other party to this Agreement.
14.8 LIMITATIONS ON SGI'S USE OF DEVELOPED
9
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
TECHNOLOGY. In addition to the provisions of Sections 6.4 and
6.5, XXXXXX
14.9 XXXXXX
14.10 SOFTWARE DEVELOPMENT BY COMPANY AND LICENSEES. As an
owner of the copyrights in the Microcode/Libraries and the
Coprocessor Microinstruction Set, the Developer's Manual and the
Development Environment Company shall have the right to develop,
reproduce and distribute derivative works thereof, and to grant
Licensees the right to develop, reproduce and distribute
derivative works thereof. SGI makes no claim of rights in any
portions of such derivative work(s) developed by Company and/or
any Licensee.
9. WARRANTY EXCLUSION. Section 9.2. "Warranty Exclusion"s shall be
amended to insert the phrase "or Foreground Technology" immediately following
the phrase "Developed Technology", wherever it appears in such section.
10. LIMITATION OF LIABILITY. Article 10.0 is hereby revised to read as
follows:
10.0 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL,
INCIDENTAL OR INDIRECT DAMAGES OF ANY KIND (INCLUDING WITHOUT
LIMITATION LOSS OF PROFIT OR DATA) WHETHER OR NOT ADVISED OF THE
POSSIBILITY OF SUCH LOSS, HOWEVER CAUSED, WHETHER FOR BREACH OR
REPUDIATION OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, INABILITY
TO USE THE BACKGROUND TECHNOLOGY, THE FOREGROUND TECHNOLOGY, OR
OTHERWISE. IN NO EVENT SHALL THE AGGREGATE LIABILITY OF EITHER
PARTY TO THE OTHER EXCEED XXXXXX. THE ESSENTIAL PURPOSE OF THIS
PROVISION IS TO LIMIT THE POTENTIAL LIABILITY OF THE PARTIES
ARISING OUT OF THIS AGREEMENT.
11. SURVIVAL OF OBLIGATIONS. Section 11.4 is hereby revised to add the
provisions of Article 14.0 to the list of provisions setting forth rights and
obligations of the parties that survive termination of the Agreement.
12. EFFECT OF ADDENDUM. Except as amended and supplemented by this Second
Addendum, the Agreement remains in effect pursuant to its terms, and is hereby
ratified and confirmed.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Addendum as of
the date first written above.
NINTENDO CO., LTD. NINTENDO OF AMERICA INC.
By: /s/ (illegible) By: /s/ (illegible)
-------------------
Title: Senior Managing Director Title: Executive Vice President
February 20, 1996
SILICON GRAPHICS, INC. MIPS TECHNOLOGIES, INC.
By: /s/ (illegible) By: /s/ (illegible)
-------------------
Title: President & Chief Title: President
Operating Officer
11
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
SCHEDULE C
Invention l XXXXXX
Invention 2 XXXXXX
Invention 3 XXXXXX
Invention 4 XXXXXX
Invention 5 XXXXXX
Invention 6 XXXXXX
Schedule C-1
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
SCHEDULE D
Developer's Manual covers the following topics:
XXXXXX
Development Environment consists of:
XXXXXX
Schedule D-1
<PAGE>
EXHIBIT 10.8.4
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
FOURTH ADDENDUM TO
JOINT DEVELOPMENT AND LICENSE AGREEMENT
Nintendo Co., Ltd. ("NCL"), Nintendo of America Inc. ("NOA") (NCL and
NOA are referred to collectively as "COMPANY"); and Silicon Graphics, Inc. and
MIPS Technologies, Inc. (Collectively referred to as "SGI"), have agreed to
enter into this Fourth Addendum to Joint Development and License Agreement,
which modifies the "JOINT DEVELOPMENT AND LICENSE AGREEMENT" dated August 20,
1993, as supplemented by the "FIRST ADDENDUM TO JOINT DEVELOPMENT AND LICENSE
AGREEMENT" dated February 5, 1994; the "SECOND ADDENDUM TO JOINT DEVELOPMENT AND
LICENSE AGREEMENT" dated February 21, 1996; and the "THIRD ADDENDUM TO JOINT
DEVELOPMENT AND LICENSE AGREEMENT" dated June 12, 1996 (collectively, the
"AGREEMENT").
1. Section 14.6 of the Agreement is modified as it relates to ownership
of certain rights in the Mask Work by adding underlined words and deleting
certain stricken-out words as indicated below:
14.6 MICROCODE/LIBRARIES, COPROCESSOR COMMAND SET, COPROCESSOR
MICROINSTRUCTION SET, AND MASK WORK. SGI will deliver to Company the
Microcode/Libraries, in source code and object code forms, the
Microcode/Libraries development environment, and documentation of the
Coprocessor Command Set and the Coprocessor Microinstruction Set, at a time
to be mutually agreed upon in writing by SGI and Company. SGI and Company
acknowledge and agree that (a) xxxxxxxxxxxxxxxx and (d) all Development
Technology incorporated in the Microcode/Libraries, Coprocessor Command
Set, Coprocessor Microinstruction set, and the Mask Work shall be subject
to the provisions of Section 6.4 and 6.5 applicable to the Developed
Technology. Company hereby grants to SGI a paid-up, nonexclusive,
irrevocable, worldwide license to duplicate, distribute, modify, enhance,
sublicense and otherwise use or exploit the Microcode/Libraries, the
Coprocessor Command Set, the Coprocessor Microinstruction Set, the Mask
Work and the Development Environment; subject only to the provisions of
Sections 6.4, 6.5, 14.8 and 14.9.
2. Company and SGI further agree that this Fourth Addendum is effective
retroactively as of February 21, 1996 (the "EFFECTIVE DATE").
1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Fourth Addendum as of June
_________, 1998.
NINTENDO CO., LTD. NINTENDO OF AMERICA, INC.
By By
---------------------- ---------------------
Title Title
-------------------- -------------------
SILICON GRAPHICS, INC. MIPS TECHNOLOGIES, INC.
By By
---------------------- ---------------------
Title Title
-------------------- -------------------
2
<PAGE>
MIPS TECHNOLOGIES, INC.
1998 LONG-TERM INCENTIVE PLAN
(as amended August 27, 1998)
1. Purposes
The purposes of the Plan are to (a) promote the long-term success of the Company
and to increase stockholder value by providing Eligible Individuals and
Consultants with incentives to contribute to the long-term growth and
profitability of the Company and (b) assist the Company in attracting, retaining
and motivating highly qualified individuals. The Plan permits the Committee to
make Awards which constitute "qualified performance-based compensation" for
purposes of Section 162(m) of the Code.
2. Definitions
For purposes of the Plan, the following terms shall be defined as follows:
"Administrator" means the individual or individuals to whom the Committee
delegates authority under the Plan in accordance with Section 3(d).
"Award" means an award made pursuant to the terms of the Plan to an Eligible
Individual in the form of Stock Options, Stock Appreciation Rights, Stock
Awards, Restricted Stock, Performance Units or Other Awards.
"Award Document" means a written document approved in accordance with Section 3
which sets forth the terms and conditions of the Award to the Participant. An
Award Document may be in the form of (i) an agreement between the Company which
is executed by an officer on behalf of the Company and is signed by the
Participant or (ii) a certificate issued by the Company which is executed by an
officer on behalf of the Company but does not require the signature of the
Participant.
"Board" means the Board of Directors of the Company.
"Cause" means the termination of Purchaser's employment as a result of: (i) an
act or acts of dishonesty undertaken by such Purchaser and intended to result in
gain or personal enrichment of the Purchaser, (ii) persistent failure to perform
the duties and obligations of such Purchaser which is not remedied in a
reasonable period of time after receipt of written notice from Employer, (iii)
violation of confidentiality or proprietary information obligations to or
agreements entered into with the Employer, (iv) use, sale or distribution of
illegal drugs on the Employer's premises, (v) threatening, intimidating or
coercing or harassing fellow employees, or (vi) the conviction of such Purchaser
of a felony.
"Change in Control" means:
(i) the acquisition of any Person (as such term is used in Sections
13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended
(the "1934 Act") as Beneficial Owner (as such term is used in Rule
13d-3 promulgated under the 1934 Act), directly or indirectly, of
fifty percent (50%) or more of the combined voting power of the
outstanding shares of capital stock of the Company's then outstanding
securities with respect to the election of the directors of the Board.
(ii) During any period of three (3) consecutive years, individuals
who, at the beginning of such period, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a Director of
the Board subsequent to the date of this Agreement whose election, or
a nomination for election by the Company's shareholders, was approved
by the vote of at least a majority of the directors then comprising
the Incumbent Board (other than an election or nomination of any
individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the
directors of the Board, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the 1934 Act) shall be, for these
purposes, considered as though such person were a member of the
Incumbent Board.
"Code" means the Internal Revenue Code of 1986, as amended, and the applicable
rulings and regulations (including any proposed regulations) thereunder.
"Committee" means the Compensation Committee of the Board, any successor
committee thereto or any other committee appointed from time to time by the
Board to administer the Plan. The Committee shall consist of at least two
individuals and shall serve at the pleasure of the Board.
"Common Stock" means the common stock, par value $.001 per share, of the
Company.
"Company" means MIPS Technologies, Inc., a Delaware corporation.
"Consultant" means any person, including an advisor, engaged by the Company to
render services and who is compensated for such services. The term Consultant
shall include directors on the Board.
"Eligible Individuals" means the individuals described in Section 6 who are
eligible for Awards under the Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
applicable rulings and regulations thereunder.
"Fair Market Value" means, with respect to a share of Common Stock, the fair
market value thereof as of the relevant date of determination, as determined in
accordance with a valuation methodology approved by the Committee. In the
absence of any alternative valuation methodology approved by the Committee, the
Fair Market Value of a share of Common Stock shall equal the closing selling
price of a share of Common Stock as
1
<PAGE>
reported on the composite tape for securities listed on the Nasdaq National
Market, or such other national securities exchange as may be designated by the
Committee, or, in the event that the Common Stock is not listed for trading on a
national securities exchange but is quoted on an automated system, on such
automated system, in any such case on the valuation date (or, if there were no
sales on the valuation date, the average of the highest and the lowest quoted
selling prices as reported on said composite tape or automated system for the
most recent day during which a sale occurred).
"Good Reason" for voluntary resignation means (i) the Employer reduces by ten
percent (10%) or more the Purchaser's compensation at the rate in effect
immediately prior to the Change of Control or (ii) without the Purchaser's
express written consent, the Employer requires the Purchaser to change the
location of his or her job or office, so that he or she will be based at a
location more than fifty (50) miles from the location of his or her job or
office immediately prior to the Change of Control. For these purposes,
"Compensation" means base salary, exclusive of bonus, incentive compensation and
shift differential, paid by the Employer as consideration for the Purchaser's
service.
"Incentive Stock Option" means a Stock Option which is an "incentive stock
option" within the meaning of Section 422 of the Code and designated by the
Committee as an Incentive Stock Option in an Award Document.
"Nonqualified Stock Option" means a Stock Option which is not an Incentive Stock
Option.
"Other Award" means any other form of award authorized under Section 13 of the
Plan.
"Participant" means an Eligible Individual to whom an Award has been granted
under the Plan.
"Performance Unit" means a performance unit granted to an Eligible Individual
pursuant to Section 12 hereof which is subject to performance criteria.
"Plan" means this MIPS Technologies, Inc.1998 Long-Term Incentive Plan as
described herein.
"Restricted Stock" means Common Stock granted to an Eligible Individual pursuant
to Section 11 hereof which is subject to restrictions.
"Restoration Option" means a Stock Option that is awarded upon the exercise of a
Stock Option earlier awarded under the Plan (an "Underlying Option") for which
the exercise price is paid in whole or in part by tendering shares of Common
Stock previously owned by the Participant, where such Restoration Option (i)
covers a number of shares of Common Stock no greater than the number of
previously owned shares tendered in payment of the exercise price of the
Underlying Option plus the number of shares withheld to pay taxes arising upon
such exercise, (ii) the expiration date of the Restoration Option is no later
than the expiration date of the Underlying Option and (iii) the exercise price
per share of the Restoration Option is no less than the Fair Market Value per
share of Common Stock on the date of exercise of the Underlying Option.
"Stock Appreciation Right" means a right to receive all or some portion of the
appreciation on shares of Common Stock granted to an Eligible Individual
pursuant to Section 9 hereof.
"Stock Award" means a share of Common Stock granted to an Eligible Individual
for no consideration other than the provision of services or offer for sale to
an Eligible Employee at a purchase price determined by the Committee, in either
case pursuant to Section 10 hereof.
"Stock Option" means an Award to purchase shares of Common Stock granted to an
Eligible Individual pursuant to Section 8 hereof, which Award may be either an
Incentive Stock Option or a Nonqualified Stock Option.
"Substitute Award" means an Award granted upon assumption of, or in substitution
for, outstanding awards previously granted by a company or other entity in
connection with a corporate transaction, such as a merger, combination,
consolidation or acquisition of property or stock.
3. Administration of the Plan
(a) Power and Authority of the Committee. The Plan shall be administered by
the Committee, which shall have full power and authority, subject to the
express provisions hereof:
(i) to select Participants from the Eligible Individuals;
(ii) to make Awards in accordance with the Plan;
(iii) to determine the number of shares of Common Stock subject to
each Award or the cash amount payable in connection with an Award;
(iv) to determine the terms and conditions of each Award, including,
without limitation, those related to vesting, forfeiture, payment and
exercisability, and the effect, if any, of a Participant's termination
of employment with the Company, and including the authority to amend
the terms and conditions of an Award after the granting thereof to a
Participant in a manner that is not, without the consent of the
Participant, prejudicial to the rights of such Participant in such
Award;
(v) to specify and approve the provisions of the Award Documents
delivered to Participants in connection with their Awards;
(vi) to construe and interpret any Award Document delivered under the
Plan;
(vii) to prescribe, amend and rescind rules and procedures relating to
the Plan;
2
<PAGE>
(viii) to vary the terms of Awards to take account of tax, securities law
and other regulatory requirements of foreign jurisdictions;
(ix) subject to the provisions of the Plan and subject to such additional
limitations and restrictions as the Committee may impose, to
delegate to one or more officers of the Company some or all of
its authority under the Plan;
(x) to employ such legal counsel, independent auditors and consultants
as it deems desirable for the administration of the Plan and to rely
upon any opinion or computation received therefrom; and
(xi) to make all other determinations and to formulate such procedures
as may be necessary or advisable for the administration of the Plan.
(b) Plan Construction and Interpretation. The Committee shall have full
power and authority, subject to the express provisions hereof, to construe
and interpret the Plan.
(c) Determinations of Committee Final and Binding. All determinations by
the Committee in carrying out and administering the Plan and in construing
and interpreting the Plan shall be final, binding and conclusive for all
purposes and upon all persons interested herein.
(d) Delegation of Authority. The Committee may, but need not, from time to
time delegate some or all of its authority under the Plan to an
Administrator consisting of one or more members of the Committee or of one
or more officers of the Company; provided, however, that the Committee may
not delegate its authority (i) to make Awards to Eligible Individuals who
are officers of the Company who are delegated authority by the Committee
hereunder, or (ii) under Sections 3(b) and 16 of the Plan. Any delegation
hereunder shall be subject to the restrictions and limits that the
Committee specifies at the time of such delegation or thereafter. Nothing
in the Plan shall be construed as obligating the Committee to delegate
authority to an Administrator, and the Committee may at any time rescind
the authority delegated to an Administrator appointed hereunder or appoint
a new Administrator. At all times, the Administrator appointed under this
Section 3(d) shall serve in such capacity at the pleasure of the Committee.
Any action undertaken by the Administrator in accordance with the
Committee's delegation of authority shall have the same force and effect as
if undertaken directly by the Committee, and any reference in the Plan to
the Committee shall, to the extent consistent with the terms and
limitations of such delegation, be deemed to include a reference to the
Administrator.
(e) Liability of Committee. No member of the Committee shall be liable for
any action nor determination made in good faith, and the members of the
Committee shall be entitled to indemnification and reimbursement in the
manner provided in the Company's certificate of incorporation as it may be
amended from time to time. In the performance of its responsibilities with
respect to the Plan, the Committee shall be entitled to rely upon
information and advice furnished by the Company's officers, the Company's
accountants, the Company's counsel and any other party the Committee deems
necessary, and no member of the Committee shall be liable for any action
taken or not taken in reliance upon any such advice.
(f) Action by the Board. Anything in the Plan to the contrary
notwithstanding, any authority or responsibility which, under the terms of
the Plan, may be exercised by the Committee may alternatively be exercised
by the Board.
4. Effective Date and Term
The Plan shall become effective upon its adoption by the Board subject to its
approval by the stockholders of the Company. Prior to such stockholder approval,
the Committee may grant Awards conditioned on stockholder approval. If such
stockholder approval is not obtained at or before the first annual meeting of
stockholders to occur after the adoption of the Plan by the Board (including any
adjournment or adjournments thereof), the Plan and any Awards made thereunder
shall terminate ab initio and be of no further force and effect. In no event
shall any Awards be made under the Plan after the [fifth] anniversary of the
date of stockholder approval.
5. Shares of Common Stock Subject to the Plan
(a) General. Subject to adjustment as provided in Section 15(b) hereof, the
number of shares of Common Stock that may be issued pursuant to Awards
under the Plan (the "Section 5 Limit") shall not exceed, in the aggregate,
6,600,000. Shares issued under this Plan may be either authorized but
unissued shares, treasury shares or any combination thereof.
(b) Rules Applicable to Determining Shares Available for Issuance. For
purposes of determining the number of shares of Common Stock that remain
available for issuance, the following shares shall be added back to the
Section 5 Limit and again be available for Awards:
(i) The number of shares tendered to pay the exercise price of a Stock
Option or other Award; and
(ii) The number of shares withheld from any Award to satisfy a
Participant's tax withholding obligations or, if applicable, to pay
the exercise price of a Stock Option or other Award.
In addition, any shares issued underlying Substitute Awards shall not
be counted against the Section 5 Limit and shall not be subject to
Section 5(c) below.
(c) Special Limits. Anything to the contrary in Section 5(a) above
notwithstanding, but subject to Section 15(b) below, the following special
limits shall apply to shares of Common Stock available for Awards under the
Plan:
3
<PAGE>
(i) The maximum number of shares that may be issued in the form of
Stock Awards, or issued upon settlement of Restricted Stock or Other
Awards, shall equal 800,000 shares, of which no more than a number of
shares equal to 10% of the Section 5 Limit shall be in the form of
Other Awards, provided, however, that any such Stock Awards,
Restricted Stock or Other Awards that are issued in lieu of cash
compensation that otherwise would be paid to a Participant, or in
satisfaction of any other obligation owed by the Company to a
Participant, shall not be counted against such limitation; and
(ii) The maximum number of shares of Common Stock that may be subject to
Stock Options or Stock Appreciation Rights granted to any Eligible
Individual in any fiscal year of the Company shall equal 3,000,000 shares
plus any shares which were available under this Section 5(c)(ii) for Awards
of Stock Options or Stock Appreciation Rights to such Eligible Individual
in any prior fiscal year but which were not covered by such Awards.
(iii) The maximum number of Performance Units that may be granted to any
Eligible Individual in any fiscal year of the Company shall equal 3,000,000
units plus any Performance Units which were available under this Section
5(c)(iii) for Awards of Performance Units to such Eligible Individual in
any prior fiscal year but which were not covered by such Awards
6. Eligible Individuals
Awards may be granted by the Committee to Eligible Individuals who are officers
or other key employees of the Company or Consultants; provided, however, that
Consultants shall not be eligible to receive Incentive Stock Options. An
individual's status as an Administrator will not, by itself, affect his or her
eligibility to participate in the Plan.
7. Awards in General
(a) Types of Award and Award Document. Awards under the Plan may consist of
Stock Options, Stock Appreciation Rights, Stock Awards, Restricted Stock,
Performance Stock or Other Awards. Any Award described in Sections 8
through 13 of the Plan may be granted singly or in combination or in tandem
with any other Award, as the Committee may determine. Awards may be made in
combination with, in replacement of, or as alternatives to grants of rights
under any other employee compensation plan of the Company, including the
plan of any acquired entity, or may be granted in satisfaction of the
Company's obligations under any such plan.
(b) Terms Set Forth in Award Document. The terms and provisions of an Award
shall be set forth in a written Award Document approved by the Committee
and delivered or made available to the Participant as soon as
administratively practicable following the date of such Award. The vesting,
exercisability, payment and other restrictions applicable to an Award
(which may include, without limitation, restrictions on transferability or
provision for mandatory resale to the Company) shall be determined by the
Committee and set forth in the applicable Award Document. Notwithstanding
the foregoing, the Committee may accelerate (i) the vesting or payment of
any Award, (ii) the lapse of restrictions on any Award or (iii) the date on
which any Stock Option, Stock Appreciation Right or Other Award first
becomes exercisable.
(c) Termination of Employment and Change in Control. The Committee shall
also have full authority to determine and specify in the applicable Award
Document the effect, if any, that a Participant's termination of employment
for any reason will have on the vesting, exercisability, payment or lapse
of restrictions applicable to an Award. The date of a Participant's
termination of employment for any reason shall be determined in the sole
discretion of the Committee. Similarly, subject to Section 15(c), the
Committee shall have full authority to determine the effect, if any, of a
Change in Control of the Company on the vesting, exercisability, payment or
lapse of restrictions applicable to an Award, which effect may be specified
in the applicable Award Document or determined at a subsequent time.
(d) Dividends and Dividend Equivalents. The Committee may provide
Participants with the right to receive dividends or payments equivalent to
dividends or interest with respect to an outstanding Awards, which payments
can either be paid currently or deemed to have been reinvested in shares of
Common Stock, and can be made in Common Stock, cash or a combination
thereof, as the Committee shall determine.
8. Stock Options
(a) Terms of Stock Options Generally. A Stock Option shall entitle the
Participant to whom the Stock Option was granted to purchase a specified
number of shares of Common Stock during a specified period at a price that
is determined in accordance with Section 8(b) below. Stock Options may be
either Nonqualified Stock Options or Incentive Stock Options. The Committee
will fix the vesting and exercisability conditions applicable to a Stock
Option, provided that no Stock Option shall vest sooner than twelve months
from the date of grant (subject to early vesting, if so provided by the
Committee, upon termination of employment or change in control of the
Company), but provided further that such minimum vesting period shall not
apply to any Restoration Option.
(b) Exercise Price. The exercise price per share of Common Stock
purchasable under a Stock Option shall be fixed by the Committee at the
time of grant or, alternatively, shall be determined by a method specified
by the Committee at the time of grant; provided, however, that, except as
provided in Section 15(b) below, the exercise price per share of Common
Stock applicable to a Stock Option may not be adjusted or amended,
including by means of amendment, cancellation or the replacement of such
Stock Option with a subsequently awarded Stock Option. Notwithstanding the
foregoing, the exercise price per share of a Stock Option that is a
Substitute Award may be less than the Fair Market Value per share on the
date of award, provided that the excess of:
(i) the aggregate Fair Market Value (as of the date such Substitute Award
is granted) of the shares of Common Stock subject to the Substitute Award,
over
(ii) the aggregate exercise price thereof,
4
<PAGE>
does not exceed the excess of:
(iii) the aggregate fair market value (as of the time immediately preceding
the transaction giving rise to the Substitute Award, such fair market value
to be determined by the Committee) of the shares of the predecessor entity
that were subject to the award assumed or substituted for by the Company,
over
(iv) the aggregate exercise price of such shares.
(c) Option Term. The term of each Stock Option shall be fixed by the
Committee and shall not exceed ten years from the date of grant.
(d) Incentive Stock Options. Each Stock Option granted pursuant to the
Plan shall be designated at the time of grant as either an Incentive
Stock Option or as a Nonqualified Stock Option. No Incentive Stock
Option may be issued pursuant to the Plan to any individual who, at
the time the Stock Option is granted, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the
Company or any of its Subsidiaries, unless (A) the exercise price
determined as of the date of grant is at least 110% of the Fair Market
Value on the date of grant of the shares of Common Stock subject to
such Stock Option, and (B) the Incentive Stock Option is not
exercisable more than five years from the date of grant thereof. No
Incentive Stock Option may be granted under the Plan after the tenth
anniversary of the Effective Date.
(e) Method of Exercise. Subject to the provisions of the applicable Award
Document, the exercise price of a Stock Option may be paid in cash or
previously owned shares or a combination thereof and, if the applicable
Award Document so provides, in whole or in part through the withholding of
shares subject to the Stock Option with a value equal to the exercise
price. In accordance with the rules and procedures established by the
Committee for this purpose, the Stock Option may also be exercised through
a "cashless exercise" procedure approved by the Committee involving a
broker or dealer approved by the Committee, that affords Participants the
opportunity to sell immediately some or all of the shares underlying the
exercised portion of the Stock Option in order to generate sufficient cash
to pay the Stock Option exercise price and/or to satisfy withholding tax
obligations related to the Stock Option.
(f) Accelerated Vesting Upon Death or Disability. In the event a
Participant terminates his or her service with the Company due to
Participant's death or disability (as defined in Section 22(e)(3) of the
Code), all Stock Options granted to Participant shall become fully vested
and exercisable upon such termination and remain exercisable for the period
of time stated in the Participant's stock option agreement.
9. Stock Appreciation Rights
(a) General. A Stock Appreciation Right shall entitle a Participant to
receive, upon satisfaction of the conditions to the payment specified in
the applicable Award Document, an amount equal to the excess, if any, of
the Fair Market Value on the exercise date of the number of shares of
Common Stock for which the Stock Appreciation Right is exercised, over the
exercise price for such Stock Appreciation Right specified in the
applicable Award Document. The exercise price per share of Common Stock
covered by a Stock Appreciation Right shall be fixed by the Committee at
the time of grant or, alternatively, shall be determined by a method
specified by the Committee at the time of grant; provided, however, that,
except as provided in Section 9(b) below, the exercise price per share
shall be no less than 100% of the Fair Market Value per share on the date
of grant (or if the exercise price is not fixed on the date of grant, then
on such date as the exercise price is fixed); and provided further, that,
except as provided in Section 15(b) below, the exercise price per share of
Common Stock subject to a Stock Appreciation Right may not be adjusted or
amended, including by means of amendment, cancellation or the replacement
of such Stock Appreciation Right with a subsequently awarded Stock
Appreciation Right. Notwithstanding the foregoing, the exercise price per
share of a Stock Appreciation Right that is a Substitute Award may be less
than the Fair Market Value per share on the date of award, provided, that
such exercise price is not less than the minimum exercise price that would
be permitted for an equivalent Stock Option as determined in accordance
with Section 8(b) above. At the sole discretion of the Committee, payments
to a Participant upon exercise of a Stock Appreciation Right may be made in
cash, in shares of Common Stock having an aggregate Fair Market Value as of
the date of exercise equal to such amount, or in a combination of cash and
shares of Common Stock having an aggregate value as of the date of exerise
equal to such amount. A Stock Appreciation Right may be granted alone or in
addition to other Awards, or in tandem with a Stock Option.
(b) Stock Appreciation Rights in Tandem with Stock Options. A Stock
Appreciation Right granted in tandem with a Stock Option may be granted
either at the same time as such Stock Option or subsequent thereto. If
granted in tandem with a Stock Option, a Stock Appreciation Right shall
cover the same number of shares of Common Stock as covered by the Stock
Option (or such lesser number of shares as the Committee may determine) and
shall be exercisable only at such time or times and to the extent the
related Stock Option shall be exercisable, and shall have the same term and
exercise price as the related Stock Option (which, in the case of a Stock
Appreciation Right granted after the grant of the related Stock Option, may
be less than the Fair Market Value per share on the date of grant of the
tandem Stock Appreciation Right). Upon exercise of a Stock Appreciation
Right granted in tandem with a Stock Option, the related Stock Option shall
be canceled automatically to the extent of the number of shares covered by
such exercise; conversely, if the related Stock Option is exercised as to
some or all of the shares covered by the tandem grant, the tandem Stock
Appreciation Right shall be canceled automatically to the extent of the
number of shares covered by the Stock Option exercise.
10. Stock Awards
(a) General. A Stock Award shall consist of one or more shares of Common
Stock granted to a Participant for no consideration other than the
provision of services (or, if required by applicable law in the reasonable
judgment of the Company, for payment of the par value of such shares).
Stock Awards shall be subject to such restrictions (if any) on transfer or
other incidents of ownership for such periods of time, and shall be subject
to such conditions of vesting, as the Committee may determine and as shall
be set forth in the applicable Award Document.
5
<PAGE>
(b) Distributions. Any shares of Common Stock or other securities of the
Company received by a Participant to whom a Stock Award has been granted as
a result of a stock distribution to holders of Common Stock or as a stock
dividend on Common Stock shall be subject to the same terms, conditions and
restrictions as such Stock Award.
11. Restricted Stock
(a) General An Award of Restricted Stock shall consist of a grant of one or more
shares of Common Stock to a Participant for no consideration other than the
provision of services or may be offered for sale to a Participant at a purchase
price determined by the Committee, subject to the terms and conditions
established by the Committee in connection with the Award and as set forth in
the applicable Award Document. Such shares of Common Stock shall be subject to
such restrictions on transfer or other incidents of ownership for such periods
of time, and shall be subject to such conditions of vesting, as the Committee
may determine and as shall be set forth in the Award Document relating to such
stock. If shares of Common Stock are offered for sale under the Plan, the
purchase price shall be payable in cash, or, in the sole discretion of the
Committee and to the extent provided in any applicable Award Document, in shares
of Common Stock already owned by the Participant, for other consideration
acceptable to the Committee or in any combination of cash, shares of Common
Stock or such other consideration. Subject to Sections 8(f) and 15(c),
Restricted Stock that is granted in respect of individual or corporate
performance shall vest no sooner than one year from the date of grant, and
Restricted Stock that is granted in connection with hiring or retention
arrangements between the Company and a Participant shall vest no sooner than
three years from the date of grant.
(b) Share Certificates; Rights and Privileges. At the time Restricted Stock
is granted or sold to a Participant, share certificates representing the
appropriate number of shares or Restricted Stock shall be registered in the
name of the Participant but shall be held by the Company in custody for the
account of such person. The certificates shall bear a legend restricting
their transferability as provided herein. Except for such restrictions on
transfer or other incidents of ownership as may be determined by the
Committee and set forth in the Award Document relating to an award or sale
of Restricted Stock, a Participant shall have the rights of a stockholder
as to such Restricted Stock, including the right to receive dividends and
the right to vote in accordance with the Company's certificate of
incorporation.
(c) Distributions. Any shares of Common Stock or other securities of the
Company received by a Participant to whom Restricted Stock has been granted
or sold as a result of a stock distribution to holders of Common Stock or
as a stock dividend on Common Stock shall be subject to the same terms,
conditions and restrictions as such Restricted Stock.
12. Performance Units
Performance Units may be granted as fixed or variable share- or
dollar-denominated units subject to such conditions of vesting and time of
payment as the Committee may determine and as shall be set forth in the
applicable Award Document relating to such Performance Units. Performance Units
may be paid in Common Stock upon the satisfaction of the applicable performance
criteria as described in the Award Document, cash or a combination of Common
Stock and cash, as the Committee may determine.
13. Other Awards
The Committee shall have the authority to specify the terms and provisions of
other forms of equity-based or equity-related Awards not described above which
the Committee determines to be consistent with the purpose of the Plan and the
interests of the Company, which Awards may provide for cash payments based in
whole or in part on the value or future value of Common Stock, for the
acquisition or future acquisition of Common Stock, or any combination thereof.
Other Awards shall also include cash payments (including the cash payment of
dividend equivalents) under the Plan which may be based on one or more criteria
determined by the Committee which are unrelated to the value of Common Stock and
which may be granted in tandem with, or independent of, other Awards under the
Plan.
14. Certain Restrictions
(a) Transfers. Unless the Committee determines otherwise, no Award shall be
transferable other than by will or by the laws of descent and distribution
or pursuant to a domestic relations order; provided, however, that the
Committee may, in its discretion and subject to such terms and conditions
as it shall specify, permit the transfer of an Award for no consideration
to a Participant's family members or to one or more trusts or partnerships
established in whole or in part for the benefit of one or more of such
family members (collectively, "Permitted Transferees"). Any Award
transferred to a Permitted Transferee shall be further transferable only by
will or the laws of descent and distribution or, for no consideration, to
another Permitted Transferee of the Participant. The Committee may in its
discretion permit transfers of Awards other than those contemplated by this
Section 14.
(b) Exercise. During the lifetime of the Participant, a Stock Option, Stock
Appreciation Right or similar-type Other Award shall be exercisable only by
the Participant or by a Permitted Transferee to whom such Stock Option,
Stock Appreciation Right or Other Award has been transferred in accordance
with Section 14(a).
15. Recapitalization or Reorganization
(a) Authority of the Company and Stockholders. The existence of the Plan,
the Award Documents and the Awards granted hereunder shall not affect or
restrict in any way the right or power of the Company or the stockholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of stock or
of options, warrants or rights to purchase stock or of bonds, debentures,
preferred or prior preference stocks whose rights are superior to or affect
the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
6
<PAGE>
(b) Change in Capitalization. Notwithstanding any provision of the Plan or any
Award Document, the number and kind of shares authorized for issuance under
Section 5(a) above, including the maximum number of shares available under the
special limits provided for in Section 5(c) above, may be equitably adjusted in
the sole discretion of the Committee in the event of a stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, extraordinary
dividend, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below Fair
Market Value or other similar corporate event affecting the Common Stock in
order to preserve, but not increase, the benefits or potential benefits intended
to be made available under the Plan. In addition, upon the occurrence of any of
the foregoing events, the number of outstanding Awards and the number and kind
of shares subject to any outstanding Award and the purchase price per share, if
any, under any outstanding Award may be equitably adjusted (including by payment
of cash to a Participant) in the sole discretion of the Committee in order to
preserve the benefits or potential benefits intended to be made available to
Participants granted Awards. Such adjustments shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final. Unless otherwise determined by the Committee, such
adjusted Awards shall be subject to the same vesting schedule and restrictions
to which the underlying Award is subject.
(c) Change in Control. In the event of the involuntary termination of a
Participant's employment with the Company not for Cause or a Participant's
termination of employment with the Company for Good Reason within
twenty-four months after a Change in Control of the Company, the following
shall occur: (i) all of such participant's outstanding stock options and
stock appreciation rights shall become vested and exercisable, (ii) all
restrictions and conditions of all Stock Awards and Restricted Stock held
by such Participant shall lapse and (iii) all Performance Units and any
Other Awards held by such Participant shall be deemed to be fully earned.
16. Amendments; Termination
The Board or Committee may at any time and from time to time alter, amend,
suspend or terminate the Plan in whole or in part; provided, however, that any
amendment which under the requirements of any applicable law or stock exchange
rule must be approved by the stockholders of the Company shall not be effective
unless and until such stockholder approval has been obtained in compliance with
such law or rule; and provided further that, except as contemplated by Section
15(b) above, the Board or Committee may not, without the approval of the
Company's stockholders, increase the maximum number of shares issuable under the
Plan or reduce the exercise price of a Stock Option or Stock Appreciation Right.
No termination or amendment of the Plan may, without the consent of the
Participant to whom an Award has been granted, adversely affect the rights of
such Participant under such Award. Notwithstanding any provision herein to the
contrary, the Board or Committee shall have broad authority to amend the Plan or
any Award under the Plan to take into account changes in applicable tax laws,
securities laws, accounting rules and other applicable state and federal laws.
17. Miscellaneous
(a) Tax Withholding. The Company may require any individual entitled to
receive a payment in respect of an Award to remit to the Company, prior to
such payment, an amount sufficient to satisfy any Federal, state or local
tax withholding requirements. The Company shall also have the right to
deduct from all cash payments made pursuant to or in connection with any
Award any Federal, state or local taxes required to be withheld with
respect to such payments. In addition, the Company may permit any
individual to whom an Award has been made to satisfy, in whole or in part,
such obligation to remit taxes, by directing the Company to withhold shares
of Common Stock that would otherwise be received by such individual upon
settlement or exercise of such Award or by delivering to the Company shares
of Common Stock owned by the individual prior to exercising the option,
subject to such rules as the Committee may establish from time to time. The
value of any share of Common Stock to be withheld by the Company pursuant
to this Section 17(a) shall be the Fair Market Value on the date to be used
to determine the amount of tax to be withheld.
(b) No Right to Grants or Employment. No Eligible Individual or Participant
shall have any claim or right to receive grants of Awards under the Plan.
Nothing in the Plan or in any Award or Award Document shall confer upon any
employee of the Company any right to continued employment with the Company
or interfere in any way with the right of the Company to terminate the
employment of any of its employees at any time, with or without cause.
(c) Other Compensation. Nothing in this Plan shall preclude or limit the
ability of the Company to pay any compensation to a Participant under the
Company's other compensation and benefit plans and programs.
(d) Other Employee Benefit Plans. Payments received by a Participant under
any Award made pursuant to the Plan shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit
plan or similar arrangement provided by the Company, unless otherwise
specifically provided for under the terms of such plan or arrangement or by
the Committee.
(e) Unfunded Plan. The Plan is intended to constitute an unfunded plan for
incentive compensation. Prior to the payment or settlement of any Award,
nothing contained herein shall give any Participant any rights that are
greater than those of a general creditor of the Company. In its sole
discretion, the Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver
Common Stock or payments in lieu thereof with respect to awards hereunder.
(f) Securities Law Restrictions. The Committee may require each Eligible
Individual purchasing or acquiring shares of Common Stock pursuant to a
Stock Option or other Award under the Plan to represent to and agree with
the Company in writing that such Eligible Individual is acquiring the
shares for investment and not with a view to the distribution thereof. All
certificates for shares of Common Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any exchange upon
which the Common Stock is then listed, and any applicable federal or state
securities law, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such
restrictions. No shares of Common Stock shall be issued hereunder unless
the Company shall have determined that such issuance is in compliance with,
or pursuant to an exemption from, all applicable federal and state
securities laws.
7
<PAGE>
(g) Compliance with Rule 16b-3. Notwithstanding anything contained in the
Plan or in any Award Document to the contrary, if the consummation of any
transaction under the Plan would result in the possible imposition of
liability on a Participant pursuant to Section 16(b) of the Exchange Act,
the Committee shall have the right, in its sole discretion, but shall not
be obligated, to defer such transaction or the effectiveness of such action
to the extent necessary to avoid such liability, but in no event for a
period longer than six months.
(h) Award Document. In the event of any conflict or inconsistency between
the Plan and any Award Document, the Plan shall govern, and the Award
Document shall be interpreted to minimize or eliminate any such conflict or
inconsistency.
(i) Expenses. The costs and expenses of administering the Plan shall be
borne by the Company.
(j) Application of Funds. The proceeds received from the Company from the
sale of Common Stock or other securities pursuant to Awards will be used
for general corporate purposes.
(k) Applicable Law. Except as to matters of federal law, the Plan and all
actions taken thereunder shall be governed by and construed in accordance
with the laws of the State of Delaware without giving effect to conflicts
of law principles.
8
<PAGE>
MIPS TECHNOLOGIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
(Effective as of June 1, 1998)
(Amended as of August 27, 1998)
The following constitutes the provisions of the MIPS Technologies, Inc. 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 payroll deductions. It is believed that employee participation
in ownership of the Company on this basis will be to the mutual benefit of the
employees and the Company. It is the intention of the Company that the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Common Stock, $0.001 par value, of the
Company.
"Company" means MIPS Technologies, Inc.
"Committee" means the committee appointed by and serving at the
pleasure of the Board to administer the Plan pursuant to Section 14.
"Compensation" means base pay, plus any amounts attributable to
overtime, shift premium, incentive compensation, bonuses and
commissions (exclusive of "spot bonuses" and any other such item
specifically directed for all Employees by the Board or a committee),
designated by the Board, but shall exclude severance pay, pay in lieu
of vacations, back pay awards, disability benefits, deferred
compensation, or any other compensation excluded in the discretion of
the Board.
Compensation shall be determined before giving effect to any salary
reduction agreement pursuant to a qualified cash or deferred
arrangement within the meaning of Section 401(k) of the Code or to any
similar reduction agreement pursuant to any cafeteria plan (within the
meaning of Section 125 of the Code).
"Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous
Status as an Employee shall not be considered interrupted in the case
of a leave of absence agreed to in writing by the Company, provided
that such leave is for a period of not more than 90 days or
re-employment upon the expiration of such leave is guaranteed by
contract or statute.
"Designated Subsidiaries" means the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
"Employee" means any person, including an officer, who is customarily
employed for at least twenty (20) hours per week and more than five (5)
months in a calendar year by the Company or one of its Designated
Subsidiaries.
"Exercise Date" means the last business day of each Exercise Period in
an Offering Period.
"Exercise Period" means a six-month period commencing on an Offering
Date or on the first business day after any Exercise Date in an Offering
Period.
"Offering Date" means the first day of each Offering Period of the Plan.
"Offering Period" means a period of twenty-four (24) months consisting
of four six-month Exercise Periods during which options granted pursuant
to the Plan may be exercised.
"Plan" means the MIPS Technologies, Inc. Employee Stock Purchase Plan.
"Subsidiary" means any corporation, domestic or foreign, in which the
Company owns, directly or indirectly, 50% or more of the voting shares.
3. ELIGIBILITY.
(a) Any person who is an Employee, as defined in paragraph 2, on the
Offering Date of a given Offering Period shall be eligible to participate
in such Offering Period under the Plan, subject to the requirements of
paragraph 5(a) and the limitations imposed by Section 423(b) of the Code.
1
<PAGE>
(b) Notwithstanding any provisions of the Plan to the contrary, no Employee
shall be granted an option under the Plan if (i) immediately after the
grant, such Employee (or any other person whose stock ownership would be
attributed to such Employee pursuant to Section 424(d) of the Code) would
own shares and/or hold outstanding options to purchase shares possessing
five percent (5%) or more of the total combined voting power or value of
all classes of shares of the Company or of any subsidiary of the Company,
or (ii) the rate of withholding under such option would permit the
employee's rights to purchase shares under all employee stock purchase
plans (described in Section 423 of the Code) of the Company and its
subsidiaries to accrue (i.e., become exercisable) at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) of fair market value of such shares
(determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
(c) Upon reemployment of a former Employee, such former Employee will again
be eligible to participate in the Plan, subject to the requirements of
Paragraph 5(a) and the limitations imposed by Section 423(b) of the Code.
4. OFFERING PERIODS.
The Plan shall be implemented by consecutive Offering Periods with a new
Offering Period commencing on or about each May 1 or November 1, provided,
however, that the Offering Date of the initial Offering Period shall be June 10,
1998. If the Company cannot make an offer under the Plan on or about any May 1
or November 1 because of restrictions imposed by law, the Company may make an
offer as soon as practical after the expiration of such restrictions. The Board
or the Committee shall have the power to change the duration of Offering Periods
with respect to future offerings without stockholder approval, if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by completing
a subscription agreement authorizing payroll deductions on the form
provided by the Company and filing it with the Company's payroll office
prior to the Offering Date of the first Offering Period with respect to
which it is to be effective, unless a later time for filing the
subscription agreement is set by the Board or Committee for all eligible
Employees with respect to such Offering Period. Once enrolled, the Employee
remains enrolled in each subsequent Offering Period of the Plan at the
designated payroll deduction unless the Employee withdraws by providing the
Company with a written Notice of Withdrawal or files a new subscription
agreement prior to the applicable Offering Date changing the Employee's
designated payroll deduction. An eligible Employee may participate in only
one Offering Period at a time.
(b) Payroll deductions for a participant shall commence with the first
payroll period following the Offering Date, or the first payroll following
the date of valid filing of the subscription agreement, whichever is later,
and shall end when terminated by the participant as provided in paragraph
10.
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 payday during
all subsequent Offering Periods at a rate not exceeding ten percent (10%),
or such other rate as may be determined from time to time by the Board, of
the Compensation which he or she would otherwise receive on such payday
without regard to deferral elections, provided that the aggregate of such
payroll deductions during any Offering Period shall not exceed ten percent
(10%), or such other percentage as may be determined from time to time by
the Board, of the aggregate Compensation which he or she would otherwise
have received during said Offering Period. Notwithstanding the foregoing,
for the initial Offering Period commencing on June 10, 1998, payroll
deductions will not commence until the first payday following the date that
the registration statement for the initial public offering of the Common
Stock becomes or is declared effective by the Securities and Exchange
Commission under the Securities Act of 1933 (the "IPO Effective Date"). The
amount of initial payroll deductions in the period from June 10, 1998 to
the IPO Effective Date will, upon authorization by the participant, be
deducted in two substantially equal payments during the first two payroll
periods immediately following the IPO Effective Date and, thereafter,
payroll deductions will be made at the rate authorized by the participant
in his or her initial subscription agreement.
(b) All payroll deductions authorized by a participant shall be credited to
his or her account under the Plan. 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 paragraph 10, or may change the rate of his or her payroll
deductions during an Offering Period by completing and filing with the
Company a new authorization for payroll deduction, provided that the Board
may, in its discretion, impose reasonable and uniform restrictions on
participants' ability to change the rate of payroll deductions. The change
in rate shall be effective no later than fifteen (15) days following the
Company's receipt of the new authorization. A participant may decrease or
increase the amount of his or her payroll deductions as of the beginning of
an Offering Period by completing and filing with the Company, prior to the
beginning of such Offering Period, a new payroll deduction authorization.
(d) Notwithstanding the foregoing, to the extent necessary, but only to
such extent, to comply with Section 423(b)(8) of the Code and paragraph
3(b) herein, a participant's payroll deductions may be automatically
decreased to 0% at such time during any Exercise Period which is scheduled
to end in the current calendar year that the aggregate of all payroll
deductions accumulated with respect to the applicable Offering Period and
any other Offering Period ending within the same calendar year equals
$25,000. Payroll deductions shall recommence at the rate provided in such
participant's subscription agreement at the beginning of the next
succeeding Exercise Period, unless terminated by the participant as
provided in paragraph 10.
7. GRANT OF OPTION.
2
<PAGE>
(a) On each Offering Date, each participant shall be granted an option to
purchase on each Exercise Date (at the per share option price) a number of
full shares of Common Stock arrived at by dividing such participant's total
payroll deductions to be accumulated prior to such Exercise Date and
retained in the participant's account as of the Exercise Date by the lower
of (i) eighty-five percent (85%) of the fair market value of a share of
Common Stock at the Offering Date, or (ii) eighty-five percent (85%) of the
fair market value of a share of Common Stock at the Exercise Date;
provided, however, that the maximum number of shares a participant may
purchase during each Offering Period shall be determined by (i) dividing
$50,000 by the fair market value of a share of Common Stock on the Offering
Date or (ii) if less, by the "Maximum Cap" set for such Offering Period;
and provided further that such purchase shall be subject to the limitations
set forth in paragraphs 3(b) and 12 hereof. The "Maximum Cap" for each
Offering Period shall be the number of shares purchasable under the Plan
during that Offering Period with the maximum payroll deductions permitted
by paragraph 6(a) hereof, based upon the fair market value of a share of
Common Stock at the beginning of the Offering Period. The fair market value
of a share of Common Stock shall be determined as provided in paragraph
7(b) herein.
(b) The option price per share of such shares shall be the lower of: (i)
eighty-five percent (85%) of the fair market value of a share of Common
Stock at the Offering Date; or (ii) eighty-five percent (85%) of the fair
market value of a share of Common Stock at the Exercise Date. The fair
market value of a share of Common Stock on said dates shall be determined
by the Board, based upon such factors as the Board determines relevant;
provided, however, that if there is a public market for the Common Stock,
the fair market value of a share of Common Stock on a given date shall be
the reported bid price for the Common Stock as of such date; or, in the
event that the Common Stock is listed on a national securities exchange,
the fair market value of a share of Common Stock shall be an amount equal
to the average of the high and low sales price of a share of Common Stock
on the exchange as of such date.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Offering Period as provided in
paragraph 10, his or her option for the purchase of shares will be
exercised automatically at each Exercise Date, and the maximum number of
full shares subject to option will be purchased at the applicable option
price with the accumulated payroll deductions in his or her account. The
shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Exercise Date.
(b) During his or her lifetime, a participant's option to purchase shares
hereunder is exercisable only by the participant.
(c) The Board may require, as a condition precedent to any purchase under
the Plan, appropriate arrangements with the participant for the withholding
of any applicable Federal, state, local or foreign withholding or other
taxes.
9. DELIVERY.
As promptly as practicable after the Exercise Date of each Offering Period,
the Company shall arrange for the shares purchased upon exercise of his or
her option to be electronically credited to the participant's designated
brokerage account at one of the securities brokerage firms participating in
the Company's direct deposit program from time to time. Any cash remaining
to the credit of a participant's account under the Plan after a purchase by
him or her of shares at the Exercise Date of each Offering Period which
merely represents a fractional share shall be credited to the participant's
account for the next subsequent Offering Period; any additional cash shall
be returned to said participant.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all, but not less than all, the payroll
deductions credited to his or her account under the Plan at any time
prior to an Exercise Date by giving written notice to the Company on a
form provided for such purpose. If the participant withdraws from the
Offering Period, all of the participant's payroll deductions credited
to his or her account will be paid to the participant as soon as
practicable after receipt of the notice of withdrawal and his or her
option for the current Offering Period will be automatically canceled,
and no further payroll deductions for the purchase of shares will be
made during such Offering Period or subsequent Offering Periods,
except pursuant to a new subscription agreement filed in accordance
with paragraph 6 hereof.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to an Exercise Date of an Offering Period for any
reason, including retirement or death, the payroll deductions
accumulated in his or her account will be returned to him or her as
soon as practicable after such termination or, in the case of death,
to the person or persons entitled thereto under paragraph 14, and his
or her option will be automatically canceled.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week
during an Offering Period in which the employee is a participant, he
or she will be deemed to have elected to withdraw from the Plan, and
the payroll deductions credited to his or her account will be returned
to the participant and the option canceled.
(d) A participant's withdrawal from an Offering Period will not have
any effect upon his or her eligibility to participate in a succeeding
Offering Period by executing and delivering to the Company a new
payroll deduction form or in any similar plan which may hereafter be
adopted by the Company.
10. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD.
In the event that the fair market value of the Common Stock is lower on the
first day of an Exercise Period (the "Subsequent Exercise Period") than it
was on the first Offering Date for that Offering Period (the "Initial
Offering Period"), all participants in the Plan on the first day of the
Subsequent Exercise Period shall be deemed to have withdrawn from the
Initial Offering Period on the first day of the Subsequent Exercise
3
<PAGE>
Period and to have enrolled as participants in a new Offering Period which
begins on or about that day. A participant may elect to remain in the
Initial Offering Period by filing a written statement declaring such
election with the Company prior to the time of the automatic change to
the new Offering Period.
11. INTEREST.
No interest shall accrue on the payroll deductions of a participant in the
Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in paragraph 19, the maximum number of shares of
Common Stock which shall be reserved for sale under the Plan shall be:
(i) 600,000 shares, plus an annual increase to be added on July 1 of
each year beginning July 1, 1999 equal to the lesser of
(A) 0.5% of the total number of shares of Common Stock outstanding on
a fully diluted basis as of the immediately preceding June 30, or
(B) 600,000 shares
provided, however, that at no time may the cumulative number of shares
of Common Stock subject to options granted pursuant to paragraph 7(a)
hereof since the inception of the Plan exceed 2% of the number of
shares of Common Stock outstanding on a fully diluted basis as of the
last day of the most recently completed calendar fiscal quarter of the
Company. If the total number of shares which would otherwise be
subject to options granted pursuant to paragraph 7(a) hereof on the
Offering Date of an Offering Period exceeds the number of shares then
available under the Plan (after deduction of all shares for which
options have been exercised or are then outstanding), the Company
shall make a pro rata allocation of the shares remaining available for
option grant in as uniform and equitable a manner as is practicable.
In such event, the Company shall give written notice of such reduction
of the number of shares subject to the option to each participant
affected thereby and shall return any excess funds accumulated in each
participant's account as soon as practicable after the affected
Exercise Date of such Offering Period. Common Stock to be sold to
participants in the Plan may be, at the election of the Company,
either treasury shares or shares authorized but unissued.
(b) A participant will have no interest or voting rights in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
credited electronically to a brokerage account in the name of the
participant at one of the brokerage firms participating from time to
time in the Company's direct deposit program.
14. ADMINISTRATION.
The Plan shall be administered by the Board or the Committee. The
Board or the Committee shall have the authority to (i) make all
factual determinations in the administration or interpretation of the
Plan, (ii) establish administrative regulations to further the purpose
of the Plan, and (iii) take any other action desirable or necessary to
interpret, construe or implement properly the provisions of the Plan.
The administration, interpretation or application of the Plan by the
Board or the Committee shall be final, conclusive and binding upon all
participants. Members of the Board or the Committee who are eligible
Employees are permitted to participate in the Plan, provided that:
(a) Members of the Board who participate in the Plan may not vote on
any matter affecting the administration of the Plan or the grant of
any option pursuant to the Plan.
(b) If a Committee is established to administer the Plan, no member of
the Board who participates in the Plan may be a member of the
Committee.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive shares and/or cash, if any, from the participant's
account under the Plan in the event of such participant's death at a
time when cash or shares are held for his or her account.
(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 in the absence of a valid designation of a beneficiary who
is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of
the estate of the participant; or if no such executor or administrator
has been appointed (to the knowledge of the Company), the Company, in
its discretion, may deliver such shares and/or cash to the spouse or
to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such
other person as the Company may reasonably designate.
16. RIGHTS NOT TRANSFERABLE.
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
4
<PAGE>
provided in paragraph 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 in
accordance with paragraph 10.
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 will be maintained for each participant in the Plan.
Statements of account will be given to participating Employees as soon as
practicable following each Exercise Date. Such statements will set forth the
amounts of payroll deductions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Subject to any required action by the stockholders of the Company, the number of
shares of Common Stock covered by each option under the Plan which has not yet
been exercised and the number of shares of Common Stock which have been
authorized for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per share 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, 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 issue 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 option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. 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 option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock, including shares as to
which the option would not otherwise be exercisable. If the Board makes an
option fully exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the participant that the option
shall be fully exercisable, and the option will terminate upon the expiration of
such period.
The Board may, if it so determines in the exercise of its sole discretion, also
make provision for adjusting the Reserves, as well as the price per share of
Common Stock covered by each outstanding option, in the event that the Company
effects one or more reorganizations, recapitalizations, rights offerings or
other increases or reductions of shares of its outstanding Common Stock, and in
the event of the Company being consolidated with or merged into any other
corporation.
20. AMENDMENT OR TERMINATION.
The Board may at any time and for any reason terminate or amend the Plan. Except
as provided in paragraph 19 and this paragraph 20, no such termination will
affect options previously granted. Except as provided in paragraph 19 and this
paragraph 20, no amendment may make any change in any option theretofore granted
which adversely affects the rights of any participant. In addition, to the
extent necessary, but only to such extent, to comply with Section 423 of the
Code (or any successor rule or provision or any other applicable law or
regulation), the Company shall obtain stockholder approval of an amendment in
such a manner and to such a degree as so required.
In the event the Board determines 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 participants.
21. NOTICES.
All notices or other communications by a participant to the Company 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. Notices given electronically
by the Company will be deemed to be written notices under the Plan.
5
<PAGE>
22. STOCKHOLDER APPROVAL.
The Plan was adopted by the Board on May 22, 1998 and approved by the
shareholders of the Company on May 22, 1998 in accordance with the requirements
of Section 423(b)(2) of the Code.
23. 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, if required by applicable
securities laws, the Company may require the participant for whose account the
option is being exercised to represent and warrant at the time of 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.
24. NO RIGHT TO EMPLOYMENT.
Nothing shall confer upon any employee of the Company any right to continued
employment with the Company any right to continued employment with the Company
or interfere in any way with the right of the Company to terminate the
employment of any of its employees at any time, with or without cause.
25. TERM OF PLAN.
The Plan shall remain in effect until May 22, 2008, unless terminated earlier in
accordance with Paragraph 20.
26. GOVERNING LAW.
All rights and obligations under the Plan shall be construed and interpreted in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws.
MIPS Technologies Inc. EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
EMPLOYEE LAST NAME FIRST NAME MI SOCIAL SECURITY # EMPLOYEE #
---------- -- ----------------- ----------
DAYTIME TELEPHONE NUMBER OFFICE LOCATION
---------------
|_| ORIGINAL APPLICATION |_| CHANGE
1. I hereby elect to participate in each Offering Period of the MIPS
Technologies Inc. Employee Stock Purchase Plan (the "Plan") beginning
subsequent to the date set forth below and subscribe to purchase shares of
Common Stock of MIPS Technologies Inc. (the "Company") in accordance with
this Agreement and the Plan.
2. I hereby authorize payroll deductions from each paycheck during each
Offering Period in the amount of (1% to 10%, whole percentages only)
____________% of my compensation (including base pay and, to the extent
applicable, any amounts attributable to overtime, shift premium, incentive
compensation, bonuses and commissions) in accordance with the Plan.
3. I understand that payroll deductions will not begin until after the
closing date of the initial public offering of the Company's Common Stock
(the "Closing Date"). The Company will notify me when payroll deductions
will begin and I will be given the opportunity to withdraw from the Plan.
If I elect to continue participation in the Plan, payroll deductions for
the period from June 10, 1998 until the Closing Date will be made up in
equal installments over the first two payroll periods.
4. I understand that said payroll deductions shall be accumulated for the
purchase of shares in accordance with the Plan, and that shares will be
purchased for me automatically at the end of each six-month Exercise Period
unless I withdraw from the Plan by giving written notice to the Company. I
authorize the Company to carry over to the next Exercise Period or Offering
Period any Cash insufficient to purchase a share of Common Stock.
5. I have received a copy of the Company's most recent prospectus which
describes the Plan and a copy of the complete "MIPS Technologies Inc.
Employee Stock Purchase Plan." I understand that my participation in the
Plan is in all respects subject to the terms of the Plan.
6. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
7. In the event of my death, I hereby designate my beneficiary to receive
all payments and shares due me under the Plan.
8. I agree that the shares I purchase through the MIPS Technologies Inc.
Employee Stock Purchase Plan (ESPP) will be electronically transferred to a
brokerage firm for credit to an account set up under my name. Broker
selection will be forthcoming and be announced in an additional
communication.
6
<PAGE>
Employee Signature Date
Human Resources Signature Date
PLEASE RETURN FORM TO Trish Leeper / HR
7
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
State or Jurisdiction Names under which
Name of Incorporation Subsidiary does Business
- ---- --------------------- ------------------------
<S> <C> <C>
MIPS Technologies Switzerland MIPS Denmark
International A.G. Development Center
</TABLE>
<PAGE>
Draft, subject to final review
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
July 20, 1998, in the Registration Statement on Form S-1 related Prospectus of
MIPS Technologies, Inc., as filed with the Securities and Exchange Commission
on February 26, 1998, for the registration of 6,900,000 shares of its common
stock.
ERNST & YOUNG LLP
San Jose, California
February 25, 1999
